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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 19, 2000
REGISTRATION NO. 333-89061
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HOLLEY PERFORMANCE PRODUCTS INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 336399 61-1291482
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
1801 RUSSELLVILLE ROAD
BOWLING GREEN, KENTUCKY 42101
(270) 782-2900
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
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ROBERT L. WINELAND
1801 RUSSELLVILLE ROAD
BOWLING GREEN, KENTUCKY 42101
(270) 782-2900
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
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FOR INFORMATION REGARDING ADDITIONAL REGISTRANTS, SEE "INFORMATION REGARDING
ADDITIONAL REGISTRANTS."
COPIES TO:
DANIEL O. KENNEDY, ESQ.
HUNTON & WILLIAMS
BANK OF AMERICA PLAZA
SUITE 4100
600 PEACHTREE ST., N.E.
ATLANTA, GA 30308-2216
(404) 888-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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 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. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNDER SECTION 8 OF THE
SECURITIES ACT OF 1933. THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR
UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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INFORMATION REGARDING ADDITIONAL REGISTRANTS
The following additional registrants are wholly owned, direct and indirect
subsidiaries of Holley Performance Products Inc. and guarantors of the notes and
exchange notes.
PRIMARY S.I.C. IRS EMPLOYER
JURISDICTION OF CODE IDENTIFICATION
NAME ORGANIZATION NUMBER NUMBER
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Holley Performance Systems, Inc....................... Delaware 336399 61-1338014
Lunati Cams, Inc...................................... Tennessee 336399 62-0869631
Weiand Automotive Industries, Inc..................... California 336399 95-2040701
LMT Motor Sports Corporation.......................... Mississippi 336399 62-1716079
Lunati & Taylor Pistons............................... Mississippi 336399 58-2047484
Hooker Industries, Inc................................ California 336399 95-2421847
Nitrous Oxide Systems, Inc............................ California 336399 95-3382481
Earl's Supply Company, Inc............................ California 336399 95-2662422
Biggs Manufacturing, Inc.............................. Arizona 336399 86-0751111
The address and telephone number of the principal executive offices and the
agent for service for each of the additional registrants are the same as for
Holley Performance Products Inc., as set forth on the facing page of this
Registration Statement.
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PROSPECTUS
$150,000,000
HOLLEY PERFORMANCE PRODUCTS INC.
Offer to Exchange all Outstanding
$150,000,000 12 1/4% Senior Notes due 2007
for $150,000,000 12 1/4% Senior Notes due 2007, Series B
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- We are offering to exchange the outstanding notes described above for an
equal amount of new notes that are registered under the Securities Act of
1933.
- The exchange offer will expire at 5:00 P.M., New York City time, on
, 2000, unless extended.
- We do not intend to list the exchange notes on any national securities
exchange or Nasdaq.
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YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 14 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER OR INVESTING IN THE
EXCHANGE NOTES ISSUED IN THE EXCHANGE OFFER.
We are not making this exchange offer in any state or jurisdiction where it
is not permitted.
Neither the U.S. Securities and Exchange Commission nor any other federal
or state securities commission has approved or disapproved the notes to be
distributed in the exchange offer, nor have any of these organizations
determined that this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
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The date of this prospectus is , 1999.
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PROSPECTUS SUMMARY
Throughout this prospectus, the words "Holley," "we" and "our" refer to
Holley Performance Products Inc. and all of its subsidiaries, unless the context
otherwise requires. The following summary contains basic information about
Holley and this offering. It likely does not contain all the information that is
important to you. For a more complete understanding of this offering, we
encourage you to read this entire document and the documents to which we have
referred you. For purposes of this prospectus, when we describe information as
being on a "pro forma" basis, unless otherwise indicated, we are assuming that
our acquisitions of Lunati, Weiand, Hooker, FlowTech, NOS and Earl's and the
original notes issuance had been completed on the first day of the period
indicated, in the case of sales or other income statement information, or as of
the day indicated, in the case of assets, liabilities or other balance sheet
information. In this prospectus, we rely on and refer to information regarding
the specialty/performance products market and its segments in the United States
provided by Specialty Equipment Market Association market research reports and
other publicly available sources. Although we believe this information is
reliable, we cannot guarantee the accuracy and completeness of the information
and have not independently verified it.
SUMMARY OF THE EXCHANGE OFFER
The Exchange Offer......... We are offering to exchange $1,000 principal amount
of our 12 1/4% Senior notes due 2007, Series B,
which have been registered under the Securities
Act, for each $1,000 principal amount of our
outstanding unregistered 12 1/4% Senior notes due
2007, which were issued by us on September 20, 1999
in a private offering. In order for your
outstanding notes to be exchanged, you must
properly tender them prior to the expiration of the
exchange offer. All outstanding notes that are
validly tendered and not validly withdrawn will be
exchanged. We will issue the exchange notes on or
promptly after the expiration of the exchange
offer. Outstanding notes may be tendered for
exchange in whole or in part in integral multiples
of $1,000 principal amount.
Registration Rights
Agreement................ We sold the outstanding notes on September 20, 1999
to the initial purchasers of the outstanding notes.
Simultaneously with that sale we signed a
registration rights agreement with the initial
purchasers which requires us to conduct this
exchange offer. You have the right pursuant to the
registration rights agreement to exchange your
outstanding notes for exchange notes with
substantially identical terms. This exchange offer
is intended to satisfy these rights. After the
exchange offer is complete, you will no longer be
entitled to any exchange or registration rights
with respect to your outstanding notes. For a
description of the procedures for tendering
outstanding notes, please refer to "The Exchange
Offer" on page 20.
Consequences of Failure to
Exchange Your Outstanding
Notes.................... 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 provided in the outstanding notes and the
indenture. In general, the outstanding notes may
not be offered or sold unless registered under the
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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 plan to register the
outstanding notes under the Securities Act. To the
extent that outstanding notes are tendered and
accepted in the exchange offer, the trading market
for untendered and tendered but unaccepted
outstanding notes will be adversely affected.
Expiration Date............ The exchange offer will expire at 5:00 p.m., New
York City time, on , 2000 unless
extended by us, in which case the term "expiration
date" shall mean the latest date and time to which
the exchange offer is extended.
Conditions to the Exchange
Offer.................... The exchange offer is subject to conditions that we
may waive at our reasonable discretion. The
exchange offer is not conditioned upon any minimum
principal amount of outstanding notes being
tendered for exchange. We reserve the right to
terminate the exchange offer if specified
conditions have not been satisfied and to waive any
condition or otherwise amend the terms of the
exchange offer in any respect.
Procedures for Tendering
Outstanding Notes........ If you wish to tender outstanding notes for
exchange, you must:
- complete and sign a letter of transmittal in
accordance with the instructions contained in the
letter of transmittal; and
- forward the letter of transmittal by mail,
facsimile transmission or hand delivery, together
with any other required documents, to the
exchange agent, either with the outstanding notes
to be tendered or in compliance with the
specified procedures for guaranteed delivery of
such outstanding notes.
Certain brokers, dealers, commercial banks, trust
companies and other nominees may also effect
tenders by book-entry transfer.
Please do not send your letter of transmittal or
certificates representing your outstanding notes to
us. Those documents should only be sent to the
exchange agent. Questions regarding how to tender
and requests for information should be directed to
the exchange agent.
Special Procedures for
Beneficial Owners........ If your outstanding notes are registered in the
name of a broker, dealer, commercial bank, trust
company or other nominee, we urge you to contact
such person promptly if you wish to tender your
outstanding notes pursuant to the exchange offer.
Withdrawal Rights.......... You may withdraw the tender of your outstanding
notes at any time prior to the expiration date by
delivering a written notice of your withdrawal to
the exchange agent in accordance with the
withdrawal procedures set forth in this prospectus.
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Consequences of Not
Complying with Exchange
Offer Procedures......... You are responsible for complying with all exchange
offer procedures. You will only receive exchange
notes in exchange for your outstanding notes if,
prior to the expiration date, you:
- deliver to the exchange agent the letter of
transmittal, properly completed and duly
executed, along with any other documents or
signature guarantees required by the letter of
transmittal, as well as certificates for the
outstanding notes or a book-entry confirmation of
a book-entry transfer of the outstanding notes
into the exchange agent's account at the
Depository Trust Company; or
- comply with the guaranteed delivery procedures
set forth in this prospectus.
Any outstanding notes you hold and do not tender,
or which you tender but which are not accepted for
exchange, will remain outstanding. You will not
have any appraisal or dissenters' rights in
connection with the exchange offer. You should
allow sufficient time to ensure that the exchange
agent receives all required documents before the
expiration of the exchange offer. Neither we nor
the exchange agent has any duty to inform you of
defects or irregularities with respect to the
tender of your outstanding notes for exchange.
Resales of Exchange Notes We believe that you will be able to resell exchange
notes issued in the exchange offer without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that:
- you are acquiring the exchange notes in the
ordinary course of your business;
- you are not participating, and have no
arrangement or understanding with any person to
participate, in the distribution of the exchange
notes; and
- you are not an insider or a related party of
Holley.
Our belief is based on interpretations by the staff
of the SEC, as set forth in no-action letters
issued to third parties unrelated to us. If our
belief is not accurate and you transfer an exchange
note without delivering a prospectus meeting the
requirements of the Securities Act or without an
exemption from such requirements, you may incur
liability under the Securities Act. We do not and
will not assume or indemnify you against such
liability.
Each broker-dealer that receives exchange notes for
its own account in the exchange offer must
acknowledge that it will deliver a prospectus in
connection with any resale of those exchange notes.
This prospectus, as it may be amended or
supplemented from time to time, may be used by a
broker-dealer in connection with those resales.
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Exchange Agent............. The exchange agent for the exchange offer is State
Street Bank and Trust Company. The address,
telephone number and facsimile number of the
exchange agent are set forth in "The Exchange
Offer -- Exchange Agent" and in the letter of
transmittal.
Use of Proceeds............ We will not receive any cash proceeds from the
issuance of the exchange notes offered hereby. We
used the net proceeds from the original notes
issuance, together with $5 million of new equity
invested in Holley and borrowings under our
revolving credit facility (a) to repay
approximately $122.0 million of borrowings under
our bank credit facility, (b) to fund approximately
$33.0 million for the acquisitions of FlowTech, NOS
and Earl's described in this prospectus and (c) for
general corporate purposes. Please refer to "Use of
Proceeds" for a description of such uses.
Federal Income Tax
Consequences............. Your acceptance of the exchange offer and the
related exchange of your outstanding notes for
exchange notes will not be a taxable exchange for
United States federal income tax purposes. You
should not recognize any taxable gain or loss or
any interest income as a result of the exchange.
Please refer to "The Exchange Offer" section of
this prospectus for more detailed information
concerning the exchange offer. However, because the
notes were issued with an original issue discount,
there will be income tax consequences associated
with the exchange notes. Please refer to the
"Federal Income Tax Consequences" section of this
prospectus for a description of the income tax
consequences associated with the exchange notes.
SUMMARY TERMS OF THE EXCHANGE NOTES
The exchange offer relates to the exchange of up to $150 million principal
amount of exchange notes for an equal principal amount of outstanding notes. The
form and terms of the exchange notes are substantially identical to the form and
terms of the outstanding notes, except the exchange notes will be registered
under the Securities Act. Therefore, the exchange notes will not bear legends
restricting their transfer and will not be entitled to registration under the
Securities Act. The exchange notes will evidence the same debt as the
outstanding notes, which they replace, and both the outstanding notes and the
exchange notes are governed by the same indenture.
Issuer..................... Holley Performance Products Inc.
Notes Offered.............. $150.0 million aggregate principal amount of
12 1/4% Senior notes due 2007, Series B.
Maturity................... September 15, 2007.
Issue Price................ 96.346%.
Interest................... Annual rate: 12 1/4%.
Payment frequency: every six months on March 15 and
September 15, commencing March 15, 2000.
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Guarantors................. All of our existing domestic restricted
subsidiaries will fully and unconditionally
guarantee the exchange notes on a joint and several
basis. Future wholly owned domestic restricted
subsidiaries will also be required to guarantee the
exchange notes. Our present and future foreign
subsidiaries and future less than wholly owned
domestic restricted subsidiaries acquired by us
will not be required to guarantee the exchange
notes. If we cannot make payments on the exchange
notes when they are due, the guarantors must make
them instead.
Ranking and Subsidiary
Guarantees............... The exchange notes will be senior unsecured
obligations of ours and will effectively rank
junior to our secured obligations to the extent of
the value of the assets securing those debts and to
all existing and future debts and other liabilities
of our foreign subsidiaries and our future less
than wholly owned domestic restricted subsidiaries
that do not guarantee the exchange notes. They will
rank equally with all of our existing and future
unsubordinated, unsecured debts that do not
expressly provide that they are subordinated to the
exchange notes, and will rank ahead of all of our
future debts that expressly provide that they are
subordinated to the exchange notes. Please refer to
"Description of the Exchange Notes" for a
description of the exchange notes' ranking status.
All of our existing domestic restricted
subsidiaries and all future wholly owned domestic
restricted subsidiaries will guarantee our
obligation to pay principal, premium, if any, and
interest on the exchange notes. The subsidiary
guarantees will be senior unsecured obligations of
the guarantors and will effectively rank junior to
all the secured obligations of the guarantors to
the extent of the value of the assets securing
those debts. Please refer to "Description of the
Exchange Notes -- Brief Description of the Notes
and the Subsidiary Guarantees" for a description of
the subsidiary guarantees.
After giving pro forma effect to this offering, $5
million of new equity invested in Holley and the
application of the net proceeds as intended, as of
October 3, 1999, we and our guarantors would have
had approximately $152.4 million of senior
indebtedness outstanding, consisting of the
exchange notes offered hereby and approximately
$7.9 million of secured indebtedness outstanding
under our revolving credit facility.
Optional Redemption........ We may redeem some or all of the exchange notes at
our option at any time on or after September 15,
2003 at the redemption prices listed in
"Description of the Exchange Notes -- Optional
Redemption."
In addition, on or before September 15, 2002, we
may, at our option, use the net cash proceeds from
one or more public equity offerings to redeem up to
35% of the aggregate principal amount of the
exchange notes originally issued at the price
listed in "Description of the Exchange
Notes -- Optional Redemption."
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Mandatory Offer to
Repurchase............... If we experience specific kinds of changes of
control or asset sales, we must offer to repurchase
the exchange notes at the prices listed in
"Description of the Exchange Notes -- Repurchase at
the Option of Holders -- Change of Control" and
"-- Asset Sales."
Basic Covenants of the
Indenture................ We will issue the exchange notes under an indenture
with State Street Bank and Trust Company. The
indenture will limit our ability and the ability of
certain of our subsidiaries to:
- incur more debt;
- pay dividends, redeem stock or make other
distributions;
- issue capital stock;
- make investments;
- use assets as security in other transactions;
- enter into transactions with affiliates; and
- merge or consolidate.
These covenants are subject to a number of
important qualifications and limitations. See
"Description of the Exchange Notes -- Covenants"
for a list of such items.
HOLLEY PERFORMANCE PRODUCTS INC.
GENERAL
Founded in 1903, Holley is a leading manufacturer and marketer of specialty
products for the performance automotive, marine and powersports aftermarkets.
Powersports vehicles include motorcycles, jet-skis, snowmobiles and go-carts.
Holley designs, manufactures and markets a diversified line of automotive
performance and racing products that include fuel, air, spark and internal
engine management systems. Our products include:
- - throttle body and multi-port fuel injection systems;
- - performance and remanufactured carburetors;
- - digital ignition systems;
- - distributors;
- - fuel pumps;
- - camshafts;
- - crankshafts;
- - intake manifolds;
- - pistons;
- - super chargers;
- - exhaust systems;
- - headers, mufflers and motorcycle exhaust pipes;
- - cylinder heads;
- - water pumps;
- - throttle bodies;
- - nitrous oxide injection systems; and
- - performance plumbing products.
For the twelve months ended October 3, 1999, Holley generated pro forma
revenue of $167.5 million, pro forma EBITDA of $25.6 million and net loss of
$4.6 million.
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BUSINESS STRATEGY
As a leading manufacturer of underhood performance products, Holley is well
positioned to take advantage of the projected growth in our marketplace. Our
growth strategy includes both internal expansion and acquisitions. The primary
components of our business strategy are as follows:
- - Leverage the Holley Brand Name Through New Product Introductions. The Holley
name is widely recognized for superior performance. We believe that we can
leverage our strong brand name recognition and our reputation for quality
through new product introductions. Additionally, we believe we can leverage the
Holley name with new products obtained through acquisitions.
- - Market Our Products As Systems. We currently offer the most comprehensive
line of fuel, air, spark and internal engine management systems and components
in the industry. To address the growing complexity of modern engines and to
simplify the selling process with the retail consumer, we have begun to market
consumer friendly, fully integrated power systems. These systems are comprised
of integrated Holley products designed to enhance performance for specific
vehicle applications. This strategy enables us to aggressively introduce
complementary products and to increase our market share in existing and new
products.
- - Continue to Diversify Product and System Offerings. We are committed to
diversifying our product offerings away from our historical focus on carburetors
and associated components. Since 1997, we have targeted our new product and
business development efforts on non-carburetor market segments through
developing comprehensive underhood power packages for late model fuel-injected
vehicles.
- - Improve Manufacturing Efficiency. We are committed to reducing operating
costs and improving manufacturing efficiency. In 1997, we implemented a program
to reduce manufacturing costs by changing our manufacturing operations from a
traditional inventory-intensive batch process to a productive and flexible "pull
through" cellular manufacturing system. Additionally, we implemented a process
to design our new products to maximize manufacturing efficiency.
- - Leverage Distribution Channels. We have a diverse and broad distribution
network that encompasses retail chains, performance wholesale distributors, mail
order retailers and original equipment manufacturers. Given our strong
relationship with our customers and the importance of our brands to our key
customers, we believe that we are well positioned to benefit from the
consolidation occurring in the distribution channels.
- - Pursue Strategic Acquisitions. The specialty/performance products market is
highly fragmented, and as a leader in our market, we are well positioned to make
strategic acquisitions. We intend to pursue acquisition opportunities that
expand our manufacturing capabilities, leverage our extensive distribution
network and enhance the Holley family of quality brand names. In pursuit of this
strategy, in 1998 and 1999, we acquired Hooker Industries, the Lunati companies,
Weiand Automotive Industries, FlowTech, Nitrous Oxide Systems and Earl's
Performance Products, each a manufacturer of performance auto parts.
HOLLEY INFORMATION
Holley was founded in 1903 and incorporated in Delaware in October 1995. In
May 1998, affiliates of Kohlberg & Co., L.L.C., together with certain members of
our management, acquired Holley for $100.0 million. In connection with the
Lunati acquisition, Kohlberg increased its equity investment to approximately
$41.0 million. Kohlberg and its management invested an additional $5.0 million
in connection with the Hooker acquisition, and $5 million in connection with the
original notes issuance, bringing their total equity investment to approximately
$51.0 million. Our principal executive offices are located at 1801 Russellville
Road, Bowling Green, Kentucky 42101, and our telephone number is 270-782-2900.
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SUMMARY PRO FORMA AND HISTORICAL FINANCIAL INFORMATION
We have derived the historical financial data included in the following
summary financial data from Holley's audited Consolidated Financial Statements
which are included elsewhere herein and unaudited Consolidated Financial
Statements of Holley and the Predecessor (as defined in the notes hereto). The
selected historical consolidated financial information for the years ended
December 31, 1996 and 1997 and the periods from January 1, 1998 to May 15, 1998
and from May 16, 1998 to December 31, 1998 are derived from the Consolidated
Financial Statements, which have been audited by Arthur Andersen LLP,
independent public accountants. The selected historical consolidated financial
information for the years ended December 31, 1994 and 1995 and the period from
May 16, 1998 to September 27, 1998 and the nine months ended October 3, 1999 are
derived from the unaudited Consolidated Financial Statements of the Predecessor
and Holley, which in the opinion of management, reflect all adjustments
necessary for a fair presentation of such data. Results for the nine months
ended October 3, 1999 are not necessarily indicative of results to be expected
for the full year.
We have derived the pro forma financial data from Holley's audited and
unaudited Consolidated Financial Statements, audited Financial Statements of
Hooker and FlowTech for the year ended June 30, 1999, audited Financial
Statements of NOS for the year ended December 31, 1998 as well as unaudited
financial statements of Lunati, Weiand, Hooker, FlowTech, NOS and Earl's for the
remaining respective periods presented.
The pro forma consolidated financial data are presented as if the original
notes issuance had been completed, our acquisitions of Weiand, Lunati, Hooker,
FlowTech, NOS, and Earl's had occurred and the additional equity contribution of
$5 million had been contributed as of the beginning of the period presented. The
pro forma balance sheet data are presented as if the acquisitions of NOS and
Earl's, the additional equity contribution of $5 million and the use of proceeds
therefrom had occurred on October 3, 1999.
The selected pro forma consolidated financial data are not necessarily
indicative of results of operations Holley would have obtained had this offering
been completed, our acquisitions of Weiand, Lunati, Hooker, FlowTech, NOS, and
Earl's occurred or the additional equity contributions been contributed as of
the beginning of the period presented. You should read the following information
in conjunction with Holley's Consolidated Financial Statements and the notes
thereto, the Consolidated Financial Statements of Hooker and the notes thereto,
the Financial Statements of FlowTech and the notes thereto, the Financial
Statements of NOS and the notes thereto, the information contained in "Unaudited
Pro Forma Consolidated Financial Information," and the information contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," all of which are included elsewhere in this prospectus.
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SUMMARY PRO FORMA FINANCIAL INFORMATION
NINE MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, OCTOBER 3, OCTOBER 3,
1998 1999 1999
------------ ------------ -------------
(DOLLARS IN THOUSANDS)
STATEMENT OF INCOME DATA:
Net sales............................................. $161,350 $131,661 $167,499
Cost of sales......................................... 107,174 84,026 107,980
-------- -------- --------
Gross profit.......................................... 54,176 47,635 59,519
Selling, general and administrative expenses(a)....... 34,944 29,360 37,681
Non-recurring charge(h)............................... 452 755 1,207
Amortization expense.................................. 4,523 3,709 4,838
-------- -------- --------
Income from operations................................ 14,257 13,811 15,793
Interest expense(b)................................... 21,445 16,084 21,445
Other income (expense), net........................... (424) 65 220
Provision (benefit) for income taxes.................. (1,795) 130 (804)
-------- -------- --------
Net income (loss)........................... $ (5,817) $ (2,338) $ (4,628)
======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(c)............................................. $ 24,114 $ 21,543 $ 25,627
EBITDA margin(d)...................................... 15.0% 16.4% 15.3%
Cash interest expense................................. $ 19,572 $ 14,679 $ 19,572
Depreciation and amortization......................... 9,857 7,732 9,834
Capital expenditures.................................. 5,121 1,464 4,695
Ratio of EBITDA to cash interest expense(b)........... 1.2x 1.5x 1.3x
Ratio of net debt to EBITDA(e)........................ 6.4x -- 6.1x
Ratio of earnings to fixed charges(f)................. 1.0x 1.0x 0.8x
AS OF OCTOBER 3, 1999
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ACTUAL PRO FORMA
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(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 14,487 $ --
Total assets................................................ 233,309 249,618
Total debt.................................................. 147,441 155,369
Stockholder's equity........................................ 46,513 51,513
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SUMMARY HISTORICAL FINANCIAL INFORMATION
THE PREDECESSOR(G) THE COMPANY(G)
-------------------------------------------------- -------------------------------------------
JANUARY 1, MAY 16, MAY 16, NINE MONTHS
YEAR ENDED DECEMBER 31, 1998 TO 1998 TO 1998 TO ENDED
------------------------------------- MAY 15, DECEMBER 31, SEPTEMBER 27, OCTOBER 3,
1994 1995 1996 1997 1998 1998 1998 1999
------- ------- ------- ------- ---------- ------------ -------------- -----------
(DOLLARS IN THOUSANDS)
Statements of Income Data:
Net sales............. $91,535 $96,322 $96,290 $98,803 $36,632 $64,731 $39,156 $94,739
Cost of sales......... 65,676 66,499 65,368 69,192 25,728 44,269 26,085 62,610
------- ------- ------- ------- ------- ------- ------- -------
Gross profit.......... 25,859 29,823 30,922 29,611 10,904 20,462 13,071 32,129
Selling, general and
administrative
expenses(a)......... 15,443 18,558 18,868 22,759 7,616 11,795 7,108 18,851
Non-recurring
charge(h)........... -- -- -- -- -- 452 -- 755
Amortization expense.. -- -- 113 113 45 1,626 846 2,936
------- ------- ------- ------- ------- ------- ------- -------
Income from
operations.......... 10,416 11,265 11,941 6,739 3,243 6,589 5,117 9,587
Interest expense(b)... -- -- -- -- -- 4,705 2,649 7,412
Other income
(expense), net(i)... 23 13 (183) 45 (1,395) (231) (81) (9)
------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes............... 10,439 11,278 11,758 6,784 1,848 1,653 2,387 2,166
Provision for income
taxes(j)............ -- -- 4,514 2,520 797 1,034 1,045 2,038
------- ------- ------- ------- ------- ------- ------- -------
Income before
extraordinary
item................ 10,439 11,278 7,244 4,264 1,051 619 1,342 128
Extraordinary Item.... -- -- -- -- -- -- -- 1,654
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)..... $10,439 $11,278 $ 7,244 $ 4,264 $ 1,051 $ 619 $ 1,342 $(1,526)
======= ======= ======= ======= ======= ======= ======= =======
Other Financial Data:
EBITDA(c)............. $11,505 $12,299 $13,091 $ 7,802 $ 3,819 $10,136 $ 6,259 $16,172
EBITDA margin(d)...... 12.6% 12.8% 13.6% 7.9% 10.4% 15.7% 16.0% 17.1%
Depreciation and
amortization........ $ 1,089 $ 1,034 $ 1,150 $ 1,063 $ 576 $ 3,547 $ 1,142 $ 6,585
Capital
expenditures........ 2,414 532 466 942 1,188 2,819 1,353 3,024
Ratio of earnings to
fixed charges(f).... 37.9x 63.4x 61.4x 34.8x 26.8x 1.3x 1.9x 1.3x
- ---------------
(a) Selling, general and administrative expenses include management fees Holley
paid to Coltec Industries Inc. ("Coltec") and KHPP Holdings, Inc. totaling
$2.1 million, $2.2 million, $2.3 million, $2.3 million, $0.8 million, $0.4
million, $0.2 million and $0.7 million for the fiscal years ended December
31, 1994, 1995, 1996 and 1997 and the periods from January 1, 1998 to May
15, 1998, from May 16, 1998 to December 31, 1998, and from May 16, 1998 to
September 27, 1998 and the nine month period ended October 3, 1999,
respectively. For the year ended December 31, 1997, selling, general and
administrative expenses also include a provision for doubtful accounts of
$1.9 million, increased marketing spending of $1.0 million, additional cash
discounts of $0.5 million and additional R&D spending of $0.5 million. The
provision for doubtful accounts resulted from the Super Shops bankruptcy and
the recognition of the uncertain collectability of certain accounts
receivable at December 31, 1997.
(b) Interest expense includes amortization of deferred financing costs. However,
deferred financing costs are excluded from interest expense in calculating
the ratio of EBITDA to cash interest expense.
(c) EBITDA represents income from operations plus depreciation and amortization
expense. EBITDA should not be considered as an alternative measure of net
income or cash provided
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by operating activities (both as determined in accordance with generally
accepted accounting principles), but is presented to provide additional
information related to Holley's debt service capability. EBITDA should not
be considered in isolation or as a substitute for other measures of
financial performance or liquidity. The primary difference between EBITDA
and cash flows provided by operating activities relates primarily to changes
in working capital requirements and payments made for interest and income
taxes. Our use of EBITDA may not be comparable to similarly titled measures
due to the use by other companies of different financial statement
components in calculating EBITDA. The definition of EBITDA under the
indenture could differ from the definition described herein.
(d) EBITDA margin is defined as EBITDA divided by net sales.
(e) Ratio of net debt to EBITDA is defined as pro forma net long-term debt as of
October 3, 1999 divided by pro forma EBITDA for the year ended December 31,
1998 and the twelve months ended October 3, 1999. Pro forma net long-term
debt equals long-term debt less cash and cash equivalents.
(f) For the purpose of determining the ratio of earnings to fixed charges,
"earnings" consist of income before provision for income taxes,
extraordinary item and fixed charges. "Fixed charges" consist of interest
expense including amortization of deferred financing costs and one-third of
rental expense, representing that portion of rental expense representative
of the interest factor.
(g) Effective May 15, 1998, all outstanding shares of Holley common stock were
purchased by KHPP Acquisition Corporation, a wholly owned subsidiary of KHPP
Holdings, Inc., for $100.0 million, in a transaction which was accounted for
as a purchase. At the time of the acquisition of Holley, KHPP Acquisition
Corporation was merged into Holley. Financial information prior to May 16,
1998, is for Holley when it was a wholly owned subsidiary of Coltec and for
periods prior to January 1, 1996 for Holley when it was a division of
Coltec. For periods in which Holley was either a wholly owned subsidiary or
division of Coltec, Holley is referred to herein as the "Predecessor". For
periods in which Holley is a wholly owned subsidiary of Holdings, Holley is
referred to as "Holley." The acquisition by KHPP Holdings, Inc. and the
related application of purchase accounting resulted in changes to the
capital structure of the Predecessor and the historical basis of various
assets and liabilities. The effect of such changes significantly impairs the
comparability of the financial position and results of operations of Holley
and the Predecessor.
(h) Non-recurring costs include (1) costs incurred in 1998 and 1999 associated
with the movement of inventory and fixed assets to Holley's facility in
Bowling Green, Kentucky from two Weiand facilities which were closed
subsequent to the acquisition and (2) costs incurred in 1999 associated with
the movement of fixed assets from a research and development facility which
was not acquired in the acquisition of Holley. EBITDA has not been adjusted
for these amounts.
(i) Other expense for the period from January 1, 1998 to May 15, 1998 includes
$1.0 million in fees paid to Coltec under a licensing agreement. The
agreement was established on December 31, 1997 and expired on May 15, 1998
in connection with the acquisition of Holley.
(j) The Predecessor did not record a tax provision in 1994 and 1995 as it was a
division of Coltec.
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RISK FACTORS
Before tendering your outstanding notes for exchange notes or investing in
the exchange notes, you should be aware that your investment involves a high
degree of risk. There are a number of factors, including those specified below,
which may adversely affect our ability to make payments on the exchange notes.
You could therefore lose a substantial portion or all of your investment in the
exchange notes. Consequently, an investment in the exchange notes should only be
considered by persons who can assume such risk. The risk factors described below
represent the most significant factors that make this investment speculative,
but are not necessarily exhaustive.
OUR SUBSTANTIAL INDEBTEDNESS AND THE RESULTING SIGNIFICANT DEMANDS ON OUR
CASH RESOURCES COULD MAKE IT DIFFICULT FOR US TO REPAY SUCH DEBT AND RESTRICT
OUR OPERATIONS
As a result of the offering, we will have incurred a substantial amount of
debt which requires significant interest payments. As of October 3, 1999, on a
pro forma basis, we would have had total consolidated debt of $155.4 million.
The demands on our cash resources related to our debt could:
- make it more difficult for us to satisfy our obligations with respect to
the exchange notes and our other indebtedness;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the amount
of our cash flow available for acquisitions, working capital, capital
expenditures and other general corporate purposes;
- limit our flexibility in planning for, or reacting to, changes in our
industry including the pursuit of our growth strategy;
- place us at a competitive disadvantage compared to our competitors that
have fewer debts and significantly greater operating and financing
flexibility than we do;
- limit, along with the financial and other restrictive covenants
applicable to our indebtedness, among other things, our ability to borrow
additional funds even when necessary to maintain adequate liquidity;
- increase our vulnerability to general adverse economic and industry
conditions because our sales revenue will likely stagnate or decrease
under such conditions, and therefore our ability to make payments on the
exchange notes will be impaired; and
- result in an event of default upon a failure to comply with these
covenants which, if not cured or waived, could have a material adverse
effect on our business, financial condition or results of operations.
Our ability to pay principal and interest on the exchange notes, to repay
our secured indebtedness and to satisfy our other debt obligations will depend
upon our future operating performance and the availability of refinancing
indebtedness, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond our control.
If we are unable to service our indebtedness and fund our business, we may
be forced to reduce or delay capital expenditures, seek additional debt
financing or equity capital, restructure or refinance our indebtedness or sell
assets. We cannot assure you that any such strategy could be effected on terms
satisfactory to us or at all.
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THE INDENTURE AND OUR BANK CREDIT FACILITY CONTAIN SEVERAL RESTRICTIVE
COVENANTS THAT RESTRICT OUR OPERATIONS AND SET FINANCIAL BENCHMARKS THAT, IF NOT
MET, CAN RESULT IN ACCELERATION OF OUR DEBT.
The indenture and our bank credit facility each contains a number of
restrictive covenants. Our ability to meet the maintenance and financial
covenants under our bank credit facility can be affected by events beyond our
control, and, in any event, there can be no assurance that we will meet such
covenants and requirements. Our failure to comply with the obligations in the
indenture or bank credit facility could result in an event of default under the
indenture or our bank credit facility that, if not cured or waived, could permit
acceleration of the exchange notes and/or bank credit facility debt and
acceleration of debt under other instruments.
THE EXCHANGE NOTES AND SUBSIDIARY GUARANTEES WILL BE EFFECTIVELY
SUBORDINATED TO THE SECURED INDEBTEDNESS OF HOLLEY AND THE GUARANTORS AND TO ALL
LIABILITIES OF NON-GUARANTOR SUBSIDIARIES
The indebtedness evidenced by the exchange notes will be a senior unsecured
obligation of Holley, and the indebtedness evidenced by each subsidiary
guarantee will be a senior unsecured obligation of the relevant guarantor. Our
bank credit facility indebtedness is also senior debt, but is secured by liens
on our inventory, accounts receivable and capital stock. The payment of
principal, premium (if any) and interest on the exchange notes and any payment
with respect to a subsidiary guarantee therefore will be effectively
subordinated in right of payment to any secured indebtedness of Holley or the
relevant guarantor, to the extent of the assets serving as collateral for the
applicable indebtedness. Accordingly, there may be insufficient assets remaining
after payment of prior secured claims to pay amounts due on the exchange notes.
As of October 3, 1999, after giving pro forma effect to the offering, $5
million of new equity and our intended use of such proceeds, Holley would have
had approximately $17.1 million of undrawn revolving loan capacity available
under the bank credit facility. Subject to restrictions under the bank credit
facility and the indenture, Holley may incur additional indebtedness, including
additional secured indebtedness, from time to time. Please refer to "Description
of Notes" for a more detailed description of our indenture restrictions.
THE SUBSIDIARY GUARANTEES COULD IN SOME CIRCUMSTANCES BE CONSIDERED FRAUDULENT
TRANSFERS UNDER BANKRUPTCY LAWS WHICH WOULD VOID THE SUBSIDIARY GUARANTEE AND IN
SUCH CASE, NOTEHOLDERS WOULD CEASE TO HAVE A CLAIM AGAINST THE GUARANTOR AND
WOULD BE SOLELY CREDITORS OF HOLLEY AND ANY OTHER GUARANTORS
Under the U.S. bankruptcy law and comparable provisions of state fraudulent
transfer laws, a court could subordinate or void any subsidiary guarantee if it
found that the subsidiary guarantee was incurred with actual intent to hinder,
delay or defraud creditors or the guarantor did not receive fair consideration
or reasonably equivalent value for the subsidiary guarantee and the guarantor
was any of the following:
- insolvent or was rendered insolvent because of the subsidiary guarantee;
- engaged in a business or transaction for which its remaining assets
constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay at maturity.
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If a court voided a subsidiary guarantee as a result of fraudulent
conveyance, or held it unenforceable for any other reason, noteholders would
cease to have a claim against the guarantor and would be solely creditors of
Holley and any other guarantors.
THE ORIGINAL ISSUE DISCOUNT MAY PRESENT UNFAVORABLE TAX AND OTHER LEGAL
CONSEQUENCES TO YOU
The exchange notes will be deemed to have been issued to you at a discount
for federal income tax purposes. Original issue discount, which is the
difference between the stated redemption price of the exchange notes at maturity
and the issue price of the exchange notes, will accrue from the issue date of
the exchange notes and be includable in a holder's gross income as it accrues.
Thus, you will be required to include the original issue discount in your income
prior to actual receipt of cash representing that income. Please refer to
"Federal Income Tax Considerations" for further details.
If a bankruptcy case under the U.S. Bankruptcy Code were commenced by or
against us after the issuance of the exchange notes, the claim of a holder of
exchange notes could be limited to exclude the amount of unamortized original
issue discount, as of the relevant date, if the bankruptcy court determined that
it was "unmatured interest."
WE ARE DEPENDENT UPON OUR SUPPLIERS AND INTERRUPTIONS IN OUR SUPPLY OF METAL
CASTINGS COULD PREVENT US FROM MAKING TIMELY PRODUCT DELIVERIES AND WE MAY BE
UNABLE TO PASS ON ANY SIGNIFICANT COST INCREASES TO OUR CUSTOMERS
Our operations are dependent on the supply of metal castings, made
typically of zinc or aluminum, from one significant and several other suppliers.
We obtain substantially all of our supply through purchase orders and do not
typically enter into long-term supply contracts relating to these castings.
Although to date our supply of metal castings has been uninterrupted and we have
been able to obtain these materials in sufficient quantities, supply
interruptions or cost increases, to the extent we are unable to pass these costs
on to our customers, could adversely affect our future results of operations.
FAILURE TO IMPLEMENT OUR ACQUISITION STRATEGY OR SUCCESSFULLY INTEGRATE ACQUIRED
COMPANIES COULD LIMIT OUR GROWTH AND MAY REQUIRE A DISPROPORTIONATE AMOUNT OF
MANAGEMENT'S ATTENTION AND OTHER RESOURCES
One of our business strategies is to pursue select strategic acquisitions
of other companies that we believe can expand our manufacturing capabilities,
leverage our extensive distribution network and enhance the Holley family of
quality brand names. Any failure by us to acquire companies or integrate
acquired companies without substantial costs, delays or other difficulties could
have a negative impact on our cash flow and may require a disproportionate
amount of our management's attention and other resources. Additionally, our
ability to grow by acquisition is dependent upon, and may be limited by, the
availability of suitable acquisition candidates and capital, and the
restrictions contained in our bank credit facility, the indenture and any future
financing arrangements.
THE "YEAR 2000" PROBLEM MAY IMPAIR OUR OPERATIONS CAUSING A REDUCTION IN SALES
REVENUE
We have conducted a review of our business systems, including our computer
systems for Year 2000 (or Y2K) compliance, and are querying our customers and
vendors about their progress in identifying and addressing problems that their
computer systems may face. However, we can give no assurance that we will
identify all such Year 2000 problems in our computer systems or those of our
customers and vendors in advance of their occurrence or that we will be able to
successfully remedy any problems that are discovered. If we do not succeed, our
computer systems could experience failure or significant problems. If this
happens, one or more
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elements of our operations could be impaired or cease temporarily, thereby
reducing our sales revenue. Similar Y2K-related failures in our significant
customer or vendor computer systems could also impair our operations and reduce
sales revenue. Our expenses in identifying and addressing such problems, or the
expenses or liabilities to which we may become subject as a result of such
problems, could have a material adverse effect on Holley's business, financial
condition and results of operations, and thus our ability to repay the exchange
notes.
WE MAY NOT HAVE SUFFICIENT FUNDS TO PURCHASE NOTES UPON A CHANGE OF CONTROL
Upon a change of control of Holley, we will be required to make an offer to
purchase all outstanding exchange notes. However, we can not assure you that we
will have or will be able to acquire sufficient funds at the time of any change
of control to make any required repurchases of exchange notes. In such case, we
will not be able to fulfill this obligation and your exchange notes will not be
repurchased by us. Such events constituting a change of control will also
constitute an event of default under the bank credit facility.
THE DEFINITION OF CHANGE OF CONTROL IN THE INDENTURE IS UNCERTAIN, AND THEREFORE
SO IS OUR REQUIREMENT TO REPURCHASE THE NOTES
The definition of "change of control" in the notes indenture includes a
phrase relating to the sale, lease, transfer, conveyance or other disposition of
"all or substantially all" of the assets of Holley and its subsidiaries taken as
a whole. Although there is 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
Holley to repurchase such notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of Holley and its
subsidiaries taken as a whole to another person or group may be uncertain.
ONE PERSON EFFECTIVELY CONTROLS HOLLEY, AND THEREFORE THIS PERSON HAS THE
ABILITY TO CONTROL OUR MANAGEMENT AND AFFAIRS AND COULD INHIBIT POTENTIAL
CHANGES OF CONTROL
All of our issued and outstanding capital stock is owned by KHPP Holdings,
Inc., and approximately 97% of its voting common stock is indirectly controlled
by James A. Kohlberg, a member of our Board of Directors. As a result, Mr.
Kohlberg will have the ability to control the outcome of all matters requiring
stockholder approval, including the election and removal of our entire Board of
Directors, any merger, consolidation or sale of all or substantially all of our
assets, and the ability to control our management and affairs. This concentrated
control could discourage others from initiating any potential merger, takeover
or other change of control transaction that may otherwise be beneficial to our
business.
THE LOSS OF TWO CUSTOMERS COULD SIGNIFICANTLY REDUCE OUR NET SALES
We utilize two principal customers, Jeg's and Summit Racing, for product
distribution through mail order. Approximately 21% of 1998 pro forma net sales
came from our mail order business, and we derive substantially all of our mail
order revenue from these two customers. The loss of these two mail order
customers could temporarily but significantly reduce our net sales. However, in
such event, we believe we could replace substantially all of such sales in the
short term. If we did not replace such net sales revenue promptly, our ability
to repay the exchange notes could be impaired.
THERE IS NO ESTABLISHED TRADING MARKET FOR THE NOTES AND THEY CONTAIN
RESTRICTIONS ON TRANSFER, AND THEREFORE YOU MAY NOT BE ABLE TO SELL YOUR NOTES
There is currently no established trading market for the exchange notes and
we do not intend to have the exchange notes listed for trading on any securities
exchange or in any
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automated dealer quotation system. The initial purchasers have advised us that
they presently intend to make a market in the exchange notes. However, the
initial purchasers are not obligated to do so and any such market making may be
discontinued at any time, without notice, at the sole discretion of the initial
purchasers. Accordingly, no assurance can be given as to whether an active
trading market will develop or be maintained for the exchange notes. The
exchange notes have not been registered under the Securities Act or any state
securities laws. Therefore, absent such registration, the exchange notes may be
offered or sold only in transactions that are not subject to or are exempt from
the registration requirements of the Securities Act or applicable state
securities laws.
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FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements that are subject to a
number of risks and uncertainties, including those described under "Risk
Factors," many of which are beyond our control. Forward-looking statements are
typically identified by words such as "believe," "expect," "anticipate,"
"intend," "estimate" and similar expressions, and include (among others)
statements concerning:
- our strategy;
- our liquidity and capital expenditures;
- our debt levels and ability to obtain financing and service debt;
- competitive pressures and trends in the performance automotive products
industry;
- cyclicality and economic condition of the industries we currently serve;
- acquisitions which have not been consummated and our ability to
successfully integrate acquired companies;
- prevailing levels of interest rates;
- legal proceedings and regulatory matters;
- general economic conditions; and
- costs associated with Year 2000 issues.
Actual results could differ materially from those contemplated by these
forward-looking statements as a result of factors ("cautionary statements") such
as those described in "Risk Factors." In light of these risks and uncertainties,
there can be no assurance that the results and events contemplated by the
forward-looking information contained in this prospectus will in fact transpire.
You are cautioned not to place undue reliance on these forward-looking
statements. We undertake no obligation to update or revise any forward-looking
statements. All subsequent written or oral forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by the cautionary statements.
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WHERE YOU CAN GET MORE INFORMATION
This prospectus is part of a registration statement on Form S-4 that we
have filed with the SEC. This prospectus does not contain all of the information
set forth in the registration statement. For further information about us and
the exchange notes, you should refer to the registration statement. This
prospectus summarizes material provisions of contracts and other documents.
Since these summaries may not contain all of the information that you may find
important, you should review the full text of these documents. We have filed
certain of these documents as exhibits to our registration statement.
You should direct any request for information to Robert L. Wineland, our
corporate Secretary, at least 10 business days before you tender your exchange
notes in the exchange offer. Our mailing address and telephone number are:
Holley Performance Products Inc.
1801 Russellville Road
Bowling Green, Kentucky 42101
(502) 782-2900
As a result of the exchange offer, we will be subject to the periodic
reporting and other informational requirements of the Securities Exchange Act of
1934. In addition, under the indenture governing the outstanding notes and the
exchange notes, we have agreed that until we are subject to the reporting and
informational requirements of the Exchange Act and during any other period in
which we are not subject to those requirements, so long as the outstanding notes
or the exchange notes remain outstanding, we will distribute to the holders of
the notes, copies of the financial information that we would have been required
to file with the SEC pursuant to the Exchange Act. This financial information
shall include annual reports containing consolidated financial statements and
notes thereto, together with an opinion thereon expressed by an independent
public accounting firm, management's discussion and analysis of financial
condition and results of operations, as well as quarterly reports containing
unaudited condensed consolidated financial statements for the first three
quarters of each fiscal year. We have also agreed to furnish to holders of
outstanding notes and prospective purchasers of the exchange notes upon their
request, the information required to be delivered pursuant to Rule 144(d)(4)
under the Securities Act during any period in which we are not subject to the
reporting and informational requirements of the Exchange Act.
The registration statement, as well as such reports, exhibits and other
information filed by us with the SEC can be inspected and copied, at prescribed
rates, at:
- the public reference facilities maintained by the Public Reference
Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549;
- the regional office of the SEC at 7 World Trade Center, 13th Floor, New
York, New York 10048; and
- the regional office of the SEC at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Please call the SEC at 1-800-SEC-0330 for additional information about its
public reference room. Our SEC filings are also available without charge on the
SEC's Internet site at http://www.sec.gov.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the outstanding notes, we agreed to register
the exchange notes and exchange them for the outstanding notes. The exchange
offer is being made to satisfy this contractual obligation.
By tendering outstanding notes in exchange for exchange notes, each holder
represents to us that:
- any exchange notes to be received by a holder are being acquired in the
ordinary course of that holder's business;
- it has no arrangement or understanding with any person to participate in
a "distribution" of exchange notes under the Securities Act;
- it is not an "affiliate" of Holley, as defined in Rule 405 under the
Securities Act, or, if it is an affiliate, that it will comply with the
registration and prospectus delivery requirements of the Securities Act
to the extent applicable;
- it has full power and authority to tender, exchange, sell, assign and
transfer the tendered outstanding notes;
- Holley will acquire good, marketable and unencumbered title to the
tendered outstanding notes, free and clear of all liens, restrictions,
charges and encumbrances; and
- the outstanding notes tendered for exchange are not subject to any
adverse claims or proxies.
Each tendering holder also will warrant and agree that it will, upon
request, execute and deliver any additional documents that Holley or the
exchange agent deems to be necessary or desirable to complete the exchange,
sale, assignment, and transfer of the outstanding notes tendered pursuant to the
exchange offer.
Each broker-dealer that receives exchange notes for its own account in
exchange for outstanding notes pursuant to the exchange offer, where the
outstanding notes were acquired by such broker-dealer as a result of
market-making or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of exchange notes received in this
exchange offer.
The exchange offer is not being made to, nor will Holley accept tenders for
exchange from, holders of outstanding notes in any jurisdiction in which the
exchange offer or the acceptance of the exchange notes would be in violation of
the securities or blue sky laws of that jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to
the exchange offer means any person in whose name the outstanding notes are
registered on the books of Holley or any other person who has obtained a
properly completed bond power from the registered holder, or any participant in
DTC whose name appears on a security position listing as a holder of outstanding
notes which, for purposes of the exchange offer, include beneficial interests in
the outstanding notes held by direct or indirect participants in DTC and
outstanding notes held in definitive form.
TERMS OF THE EXCHANGE OFFER
Holley hereby offers, upon the terms and subject to the conditions shown in
this prospectus and in the accompanying letter of transmittal, to exchange
$1,000 principal amount of 12 1/4% Senior notes due 2007, Series B, for each
$1,000 principal amount of outstanding 12 1/4% Senior notes due 2007 properly
tendered before the expiration date and not properly withdrawn
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according to the procedures described below. Holders may tender their
outstanding notes in whole or in part in integral multiples of $1,000 principal
amount.
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 have been registered under the Securities Act and
therefore are not subject to the restrictions on transfer applicable to
the outstanding notes; and
- holders of the exchange notes will not be entitled to some of the rights
of holders of the outstanding notes under the registration rights
agreement.
The exchange notes evidence the same indebtedness as the outstanding notes
and will be issued pursuant to and entitled to the benefits of the indenture
that governs the outstanding notes.
The exchange offer is not conditioned upon any minimum principal amount of
outstanding notes being tendered for exchange. Holley reserves the right in its
sole discretion to purchase or make offers for any outstanding notes that remain
outstanding after the expiration date or, as discussed under "-- Conditions to
the Exchange Offer," to terminate the exchange offer and, to the extent
permitted by applicable law, purchase outstanding notes in the open market, in
privately negotiated transactions or otherwise. The terms of any such purchases
or offers could differ from the terms of the exchange offer. As of the date of
this prospectus, $150 million principal amount of 12 1/4% Senior Notes due 2007
was outstanding.
Holders of outstanding notes do not have any appraisal or dissenters'
rights in connection with the exchange offer. Outstanding notes that are not
tendered for, or are tendered but not accepted in connection with, the exchange
offer will remain outstanding. See "Summary of the Exchange
Offer -- Consequences of Not Complying with Exchange Offer Procedures" for a
detailed description of the consequences of not exchanging your notes.
If any tendered outstanding notes are not accepted for exchange because of
an invalid tender, the occurrence of particular other events discussed herein or
otherwise, certificates for any such unaccepted outstanding notes will be
returned, without expense, to the tendering holder thereof promptly after the
expiration date.
Holders who tender outstanding notes in connection with the exchange offer
will not be required to pay brokerage commissions or fees or, subject to the
instructions in the letter of transmittal, transfer taxes with respect to the
exchange of the outstanding notes in connection with the exchange offer. Holley
will pay all charges and expenses, other than specified applicable taxes. See
"-- Fees and Expenses" for more information regarding fees and expenses.
NEITHER HOLLEY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO
HOLDERS OF THE OUTSTANDING NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING ALL OR ANY PORTION OF THEIR OUTSTANDING NOTES IN THE EXCHANGE OFFER.
IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS
OF THE OUTSTANDING NOTES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT
TO THE EXCHANGE OFFER, AND, IF SO, THE AGGREGATE AMOUNT OF OUTSTANDING NOTES TO
TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND
CONSULTING WITH THEIR ADVISERS, IF ANY, BASED ON THEIR FINANCIAL POSITION AND
REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date for the exchange offer is 5:00 p.m., New York City
time, on , 2000 unless the exchange offer is extended by Holley. If
Holley does extend the exchange offer, the expiration date will be the latest
date and time to which the exchange offer is extended.
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Holley expressly reserves the right in its sole and absolute discretion,
subject to applicable law, at any time and from time to time:
- to delay the acceptance of the outstanding notes for exchange;
- to terminate the exchange offer, whether or not any outstanding notes
have already been accepted for exchange, if Holley determines, in its
sole and absolute discretion, that any of the events or conditions
referred to under "-- Conditions to the Exchange Offer" has occurred or
exists or has not been satisfied with respect to the exchange offer;
- to extend the expiration date of the exchange offer and retain all
outstanding notes tendered pursuant to the exchange offer, subject,
however, to the right of holders of outstanding notes to withdraw their
tendered outstanding notes as described under "-- Withdrawal Rights;" and
- to waive any condition or otherwise amend the terms of the exchange offer
in any respect.
If the exchange offer is amended in a manner determined by Holley to
constitute a material change, or if Holley waives a material condition of the
exchange offer, Holley will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders of the
affected outstanding notes, and Holley will extend the exchange offer to the
extent required by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, termination, extension or amendment will be
followed promptly by oral or written notice thereof to the exchange agent for
the exchange offer (any such oral notice to be promptly confirmed in writing)
and by making a public announcement, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date. Without limiting
the manner in which Holley may choose to make any public announcement, and
subject to applicable laws, Holley shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a release to an appropriate news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the exchange offer,
promptly after the expiration date, Holley will exchange, and will issue to the
exchange agent, exchange notes for outstanding notes validly tendered and not
withdrawn pursuant to the withdrawal rights described under "-- Withdrawal
Rights."
In all cases, delivery of exchange notes in exchange for outstanding notes
tendered and accepted for exchange pursuant to the exchange offer will be made
only after timely receipt by the exchange agent of:
- outstanding notes or a book-entry confirmation of a book-entry transfer
of outstanding notes into the exchange agent's account at DTC;
- the letter of transmittal (or facsimile thereof), properly completed and
duly executed, with any required signature guarantees; and
- any other documents required by the letter of transmittal.
Accordingly, the delivery of exchange notes might not be made to all
tendering holders at the same time, and will depend upon when outstanding notes,
book-entry confirmations with respect to outstanding notes and other required
documents are received by the exchange agent.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of outstanding notes into the exchange agent's account at
DTC. Subject to the terms and conditions of the exchange offer, Holley will be
deemed to have accepted for exchange, and thereby exchanged, outstanding notes
validly tendered and not withdrawn as, if and when Holley gives
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25
oral or written notice to the exchange agent (any such oral notice to be
promptly confirmed in writing) of Holley's acceptance of such outstanding notes
for exchange pursuant to the exchange offer. Holley's acceptance for exchange of
outstanding notes tendered pursuant to any of the procedures described above
will constitute a binding agreement between the tendering holder and Holley upon
the terms and subject to the conditions of the exchange offer. The exchange
agent will act as agent for Holley for the purpose of receiving tenders of
outstanding notes, letters of transmittal and related documents, and as agent
for tendering holders for the purpose of receiving outstanding notes, letters of
transmittal and related documents and transmitting exchange notes to holders who
validly tendered outstanding notes. Such exchange will be made promptly after
the expiration date of the exchange offer. If for any reason the acceptance for
exchange or the exchange of any outstanding notes tendered pursuant to the
exchange offer is delayed (whether before or after Holley's acceptance for
exchange of outstanding notes), or Holley extends the exchange offer or is
unable to accept for exchange or exchange outstanding notes tendered pursuant to
the exchange offer, then, without prejudice to Holley's rights set forth herein,
the exchange agent may, nevertheless, on behalf of Holley and subject to Rule
14e-1(c) under the Exchange Act, retain tendered outstanding notes and such
outstanding notes may not be withdrawn except to the extent tendering holders
are entitled to withdrawal rights as described under "-- Withdrawal Rights."
PROCEDURES FOR TENDERING OUTSTANDING NOTES
Valid Tender. Except as set forth below, in order for outstanding notes to
be validly tendered pursuant to the exchange offer, either:
- a properly completed and duly executed letter of transmittal (or
facsimile thereof), with any required signature guarantees and any other
required documents, must be received by the exchange agent at the address
set forth under "-- Exchange Agent" prior to the expiration date and
tendered outstanding notes must be received by the exchange agent, or
such outstanding notes must be tendered pursuant to the procedures for
book-entry transfer set forth below and a book-entry confirmation must be
received by the exchange agent, in each case prior to the expiration
date; or
- the guaranteed delivery procedures described below must be complied with.
If less than all of the outstanding notes are tendered, a tendering Holder
should fill in the amount of outstanding notes being tendered in the appropriate
box on the letter of transmittal. The entire amount of outstanding notes
delivered to the exchange agent will be deemed to have been tendered unless
otherwise indicated.
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,
such person should so indicate when signing. Unless waived by Holley, evidence
satisfactory to Holley of such person's authority to so act must also be
submitted.
Any 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 is urged to contact such entity promptly if such beneficial Holder
wishes to participate in the exchange offer.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER. DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY AND PROPER INSURANCE SHOULD BE OBTAINED. NO
LETTER OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO HOLLEY. HOLDERS MAY
REQUEST THEIR
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RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO
EFFECT THESE TRANSACTIONS FOR THEM.
Book-Entry Transfer. The exchange agent will request the establishment of
an account with respect to the outstanding notes at DTC for purposes of the
exchange offer within two business days after the date of this prospectus. Any
financial institution that is a participant in DTC's book-entry transfer
facility system may make a book-entry delivery of the outstanding notes by
causing DTC to transfer such outstanding notes into the exchange agent's account
at DTC in accordance with DTC's procedures for transfers. However, although
delivery of outstanding notes may be effected through book-entry transfer into
the exchange agent's account at DTC, the letter of transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees and any other required documents, must in any case be delivered to
and received by the exchange agent at its address set forth under "-- Exchange
Agent" prior to the expiration date, or the guaranteed delivery procedure set
forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
Signature Guarantees. Certificates for outstanding notes need not be
endorsed and signature guarantees on a letter of transmittal or a notice of
withdrawal, as the case may be, are unnecessary unless:
- a certificate for outstanding notes is registered in a name other than
that of the person surrendering the certificate; or
- a registered holder completes the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" in the letter of
transmittal.
In the case of (a) or (b) above, such certificates for outstanding notes must be
duly endorsed or accompanied by a properly executed bond power, with the
endorsement or signature on the bond power and on the letter of transmittal or
the notice of withdrawal, as the case may be, guaranteed by a firm or other
entity identified in Rule 17Ad-15 under the Exchange Act as an "eligible
guarantor institution," including (as such terms are defined and each an
"Eligible Institution"):
- a bank;
- a broker, dealer, municipal securities broker or dealer or government
securities broker or dealer;
- a credit union;
- a national securities exchange, registered securities association or
clearing agency; or
- a savings association that is a participant in a Securities Transfer
Association,
unless surrendered on behalf of such Eligible Institution. See Instruction 1 to
the letter of transmittal.
Guaranteed Delivery. If a holder desires to tender outstanding notes
pursuant to the exchange offer and the certificates for such outstanding notes
are not immediately available or time will not permit all required documents to
reach the exchange agent before the expiration date, or the procedures for
book-entry transfer cannot be completed on a timely basis, such outstanding
notes may nevertheless be tendered, provided that all of the following
guaranteed delivery procedures are complied with:
(1) such tenders are made by or through an Eligible Institution;
(2) prior to the expiration date, the exchange agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery,
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substantially in the form accompanying the letter of transmittal, setting
forth the name and address of the holder of outstanding notes and the
amount of outstanding notes tendered, stating that the tender is being made
thereby and guaranteeing that within three New York Stock Exchange trading
days after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered outstanding notes, in proper form
for transfer, or a book-entry confirmation, as the case may be, and any
other documents required by the letter of transmittal will be deposited by
the Eligible Institution with the exchange agent. The Notice of Guaranteed
Delivery may be delivered by hand, or transmitted by facsimile or mail to
the exchange agent and must include a guarantee by an Eligible Institution
in the form set forth in the Notice of Guaranteed Delivery; and
(3) the certificates (or book-entry confirmation) representing all
tendered outstanding notes, in proper form for transfer, together with a
properly completed and duly executed letter of transmittal, with any
required signature guarantees and any other documents required by the
Letter of Transmittal, are received by the exchange agent within three New
York Stock Exchange trading days after the date of execution of the Notice
of Guaranteed Delivery.
Determination of Validity. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered outstanding notes will be determined by Holley, in its sole
discretion, which determination shall be final and binding on all parties.
Holley reserves the absolute right, in its sole and absolute discretion, to
reject any and all tenders it determines not to be in proper form or the
acceptance for exchange of which may, in the view of counsel to Holley, be
unlawful. Holley also reserves the absolute right, subject to applicable law, to
waive any of the conditions of the exchange offer as set forth under
"-- Conditions to the Exchange Offer" or any defect or irregularity in any
tender of outstanding notes of any particular holder whether or not similar
defects or irregularities are waived in the case of other holders.
Holley's interpretation of the terms and conditions of the exchange offer
(including the letter of transmittal and the instructions thereto) will be final
and binding on all parties. No tender of outstanding notes will be deemed to
have been validly made until all defects or irregularities with respect to such
tender have been cured or waived. None of Holley, any affiliates of Holley, the
exchange agent or any other person shall be under any duty to give any
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification.
RESALES OF EXCHANGE NOTES
Based on interpretations by the staff of the SEC, as set forth in no-action
letters issued to third parties unrelated to Holley, Holley believes that
holders of outstanding notes who exchange their outstanding notes for exchange
notes may offer for resale, resell and otherwise transfer such exchange notes
without compliance with the registration and prospectus delivery provisions of
the Securities Act. This would not apply, however, to any holder that is a
broker-dealer that acquired outstanding notes as a result of market-making
activities or other trading activities or directly from Holley for resale under
an available exemption under the Securities Act. Also, resale would only be
permitted for exchange notes that are acquired in the ordinary course of a
holder's business, where such holder has no arrangement or understanding with
any person to participate in the distribution of such exchange notes and such
holder is not an "affiliate" of Holley. The staff of the SEC has not considered
our exchange offer in the context of a no-action letter, and there can be no
assurance that the staff of the SEC would make a similar determination with
respect to our exchange offer. Each broker-dealer that receives exchange notes
for its own account in exchange for outstanding notes under the exchange offer,
where such outstanding notes were acquired by such broker-dealer as a result of
market-making or other trading activities, must acknowledge that it will deliver
a prospectus meeting the requirements of the Securities Act in connection with
any resale of such exchange notes. See
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"Plan of Distribution" for information regarding the initial purchasers of the
notes and their distribution.
WITHDRAWAL RIGHTS
Except as otherwise provided, tenders of outstanding notes may be withdrawn
at any time prior to the expiration date of the exchange offer. In order for a
withdrawal to be effective, such withdrawal must be in writing and timely
received by the exchange agent at its address set forth under "-- Exchange
Agent" prior to the expiration date. Any such notice of withdrawal must specify
the name of the person who tendered the outstanding notes to be withdrawn, the
principal amount of outstanding notes to be withdrawn, and (if certificates for
such outstanding notes have been tendered) the name of the registered holder of
the outstanding notes as set forth on the outstanding notes, if different from
that of the person who tendered such outstanding notes. If certificates for
outstanding notes have been delivered or otherwise identified to the exchange
agent, the notice of withdrawal must specify the serial numbers on the
particular certificates for 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 outstanding notes have been tendered pursuant to the
procedures for book-entry transfer set forth in "-- Procedures for Tendering
Outstanding Notes," 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
must otherwise comply with the procedures of DTC. Withdrawals of tenders of
outstanding notes may not be rescinded. Outstanding notes properly withdrawn
will not be deemed validly tendered for purposes of the exchange offer, but may
be retendered at any subsequent time prior to the expiration date of the
exchange offer by following any of the procedures described above under
"-- Procedures for Tendering Outstanding Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by Holley, in its sole
discretion, which determination shall be final and binding on all parties. None
of Holley, any affiliates of Holley, the exchange agent or any other person
shall be under any duty to give any notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification. Any outstanding notes which have been tendered but
which are withdrawn will be returned to the holder promptly after withdrawal.
INTEREST ON THE EXCHANGE NOTES
Interest on the exchange notes will be payable every six months on March 15
and September 15 of each year at a rate of 12 1/4% per annum, commencing March
15, 2000. The exchange notes will mature on September 15, 2007.
CONDITIONS TO THE EXCHANGE OFFER
If any of the following conditions has occurred or exists or has not been
satisfied prior to the expiration date, Holley will not be required to accept
for exchange any outstanding notes and will not be required to issue exchange
notes in exchange for any outstanding notes. In addition, Holley may, at any
time and from time to time, terminate or amend the exchange offer, whether or
not any outstanding notes have already been accepted for exchange, or may waive
any conditions to or amend the exchange offer.
- A change in the current interpretation by the staff of the SEC that
permits resales of exchange notes as described above under "-- Resales of
Exchange Notes;"
- The institution or threat of an action or proceeding in any court or by
or before any governmental agency or body with respect to the exchange
offer that, in Holley's
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judgment, would reasonably be expected to impair the ability of Holley to
proceed with the exchange offer;
- The adoption or enactment of any law, statute, rule or regulation that,
in Holley's judgment, would reasonably be expected to impair the ability
of Holley to proceed with the exchange offer;
- Any change or development involving a prospective change in the business
or financial affairs of Holley that Holley believes might materially
impair its ability to proceed with the exchange offer.
If Holley determines in its reasonable discretion that any of the foregoing
events or conditions has occurred or exists or has not been satisfied at any
time prior to the expiration date, Holley may, subject to applicable law,
terminate the exchange offer, whether or not any outstanding notes have already
been accepted for exchange, or may waive any such condition or otherwise amend
the terms of the exchange offer in any respect. If such waiver or amendment
constitutes a material change to the exchange offer, Holley will promptly
disclose such waiver or amendment by means of a prospectus supplement that will
be distributed to the registered holders of the outstanding notes. In this case,
Holley will extend the exchange offer to the extent required by Rule 14e-1 under
the Exchange Act.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as the exchange
agent for the exchange offer. Delivery of the letters of transmittal and any
other required documents, questions, requests for assistance, and requests for
additional copies of this prospectus or of the letter of transmittal should be
directed to the exchange agent as follows:
By Mail
State Street Bank and Trust Company
Corporate Trust Department
P.O. Box 778
Boston, MA 02102-0778
Attention: Ralph Jones
OR: By Overnight Delivery or By Hand (9:00 a.m. to 5:00 p.m. local time)
State Street Bank and Trust Company
Corporate Trust Department -- 5th Floor
2 Avenue de Lafayette
Boston, MA 02111-1724
Attention: Ralph Jones
By Facsimile (617) 662-1452
Attention: Ralph Jones
Confirm by telephone: (617) 662-1548
DELIVERY TO OTHER THAN THE ABOVE ADDRESSES OR FACSIMILE NUMBER WILL NOT
CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by Holley. The principal
solicitation is being made by mail. Additional solicitation may be made
personally or by telephone or other means by officers, directors or employees of
Holley.
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Holley has not retained any dealer-manager or similar agent in connection
with the exchange offer and will not make any payments to brokers, dealers or
others soliciting acceptances of the exchange offer. Holley has agreed to pay
the exchange agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
Holley will also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this prospectus and related documents to the beneficial owners of
outstanding notes, and in handling or tendering for their customers.
Holders who tender their outstanding notes for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that if
exchange notes are to be delivered to, or are to be issued in the name of, any
person other than the registered holder of the outstanding notes tendered, or if
a transfer tax is imposed for any reason other than the exchange of outstanding
notes in connection with the exchange offer, then the amount of any such
transfer tax, whether imposed on the registered holder or any other persons,
will be payable by the tendering holder. If satisfactory evidence of payment of
such transfer tax or exemption therefrom is not submitted with the letter of
transmittal, the amount of such transfer tax will be billed directly to such
tendering holder.
USE OF PROCEEDS
We are making the exchange offer to satisfy our obligation under the
registration rights agreement we entered into with the initial purchasers when
we first issued the outstanding notes. We will not receive any cash proceeds
from the issuance of the exchange notes. In consideration for issuing the
exchange notes, we will receive an equal principal amount of outstanding notes.
The outstanding notes surrendered in exchange for the exchange notes will be
retired and canceled.
We received approximately $140 million in net proceeds from our original
issuance of the notes. The proceeds from the offering of the outstanding notes,
together with $5 million of additional equity contributed by Kohlberg & Co.,
L.L.C. and borrowings under our revolving credit facility are being used (1) to
repay approximately $122.0 million of borrowings under our bank credit facility,
(2) to fund approximately $33.0 million for the acquisitions of FlowTech, NOS
and Earl's, and (3) for general corporate purposes. The borrowings under our
bank credit facility that we repaid with notes proceeds were bearing interest at
a variable rate equal to the current LIBOR rate plus a margin ranging from
approximately 2.5% to 3.5%.
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CAPITALIZATION
The following table sets forth our unaudited historical capitalization at
October 3, 1999, and our unaudited capitalization at October 3, 1999 as adjusted
to give pro forma effect to our acquisitions of NOS and Earl's, and the
contribution of $5 million of new equity. This table should be read in
conjunction with the Consolidated Financial Statements and the notes thereto and
the Unaudited Pro Forma Consolidated Financial Information and the notes thereto
included elsewhere herein.
OCTOBER 3, 1999
-----------------------
ACTUAL PRO FORMA(1)
-------- ------------
(DOLLARS IN THOUSANDS)
Cash and cash equivalents................................... $ 14,487 $ --
======== ========
Long-term debt, including current portion:
Revolving credit facility(2).............................. $ -- $ 7,928
Term loans................................................ -- --
KEDFA note................................................ 527 527
Long-term lease obligation................................ 2,395 2,395
12 1/4% Senior notes due 2007(3).......................... 144,519 144,519
-------- --------
Total long-term debt.............................. 147,441 155,369
Stockholder's equity........................................ 46,513 51,513
-------- --------
Total capitalization.............................. $193,954 $206,882
======== ========
- ---------------
(1) For an explanation of the pro forma assumptions and adjustments, see
"Unaudited Pro Forma Consolidated Financial Information."
(2) Our bank credit facility consists of a $25.0 million revolving credit
facility which bears a variable rate of interest. Aggregate borrowings under
the revolving credit facility will be limited to the lesser of $25.0 million
or 85% of the eligible accounts receivable and 55% of the eligible inventory
of Holley and its subsidiaries. Please refer to "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" for further detail about our bank credit facility.
(3) Represents the Notes issued at 96.346% of their face amount.
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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Set forth below is certain selected unaudited consolidated financial
information showing the pro forma effects of the original notes issuance,
certain acquisitions by Holley and the $5 million of additional equity
contribution. We have derived the pro forma financial data from Holley's audited
and unaudited Consolidated Financial Statements, audited Financial Statements of
Hooker and FlowTech for the year ended June 30, 1999, audited Financial
Statements of NOS for the year ended December 31, 1998 as well as unaudited
Financial Statements of Lunati, Weiand, Hooker, FlowTech, NOS and Earl's for the
remaining respective periods presented.
The pro forma consolidated financial data are presented as if the notes had
been issued, the acquisitions of Weiand, Lunati, Hooker, FlowTech, NOS, and
Earl's had occurred and the $5 million of additional equity had been contributed
as of the beginning of the period presented. The pro forma balance sheet data
are presented as if the acquisitions of NOS and Earl's, the contribution of $5
million additional equity and the use of proceeds therefrom had occurred on
October 3, 1999.
The selected pro forma consolidated financial data are not necessarily
indicative of the results of operations Holley would have obtained had the
original notes issuance been completed, acquisitions of Weiand, Lunati, Hooker,
FlowTech, NOS, and Earl's occurred or the $5 million of additional equity been
contributed as of the beginning of the period presented. Accordingly, actual
results will differ from the pro forma results, and the differences may be
material. The pro forma consolidated financial data should be read in
conjunction with the consolidated financial statements included elsewhere
herein.
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UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS
OF INCOME AND RELATED DATA
FOR THE YEAR ENDED DECEMBER 31, 1998
HISTORICAL
PERIOD FROM PERIOD FROM
MAY 16, 1998 TO JANUARY 1, 1998
DECEMBER 31, TO MAY 15, PRO FORMA
1998 1998(A) ACQUISITIONS(B) ADJUSTMENTS PRO FORMA
--------------- --------------- --------------- ----------- ---------
(DOLLARS IN THOUSANDS)
Statements of Income Data:
Net sales.................. $64,731 $36,632 $59,987 $ -- $161,350
Cost of sales.............. 44,269 25,728 35,450 2,102 (c)
(375)(d) 107,174
------- ------- ------- --------
Gross profit............... 20,462 10,904 24,537 54,176
Selling, general and
administrative
expenses................. 11,795 7,616 20,060 (447)(e) 34,944
(4,080)(f)
Non-recurring charge....... 452 -- -- 452
Amortization expense....... 1,626 45 -- 2,852 (g) 4,523
------- ------- ------- --------
Income from operations..... 6,589 3,243 4,477 14,257
Interest and amortization
of debt expense.......... 4,705 -- 515 16,225 (h) 21,445
Other income (expense), net
(includes interest
income).................. (231) (1,395) 148 (1,054)(i) (424)
------- ------- ------- --------
Income (loss) before income
taxes.................... 1,653 1,848 4,110 (7,612)
Provision (benefit) for
income taxes............. 1,034 797 617 (4,243)(j) (1,795)
------- ------- ------- --------
Net income (loss).......... $ 619 $ 1,051 $ 3,493 $ (5,817)
======= ======= ======= ========
See accompanying Notes to Unaudited Pro Forma Consolidated Financial
Information.
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UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS
OF INCOME AND RELATED DATA
FOR THE NINE MONTHS ENDED OCTOBER 3, 1999
HISTORICAL
PERIOD FROM
JANUARY 1, 1999
TO OCTOBER 3, PRO FORMA
1999 ACQUISITIONS(B) ADJUSTMENTS PRO FORMA
--------------- --------------- ----------- ---------
(DOLLARS IN THOUSANDS)
Statements of Income Data:
Net sales............................ $94,739 $36,922 $ -- $131,661
Cost of sales........................ 62,610 21,699 (283) (d) 84,026
------- ------- --------
Gross profit........................... 32,129 15,223 47,635
Selling, general and
administrative
expenses............................. 18,851 16,363 (5,854) (f) 29,360
Non-recurring charge................... 755 -- -- 755
Amortization expense................... 2,936 -- 773(g) 3,709
------- ------- --------
Income from operations................. 9,587 (1,140) 13,811
Interest and amortization
of debt expense...................... 7,412 366 8,306(h) 16,084
Other income (expense), net (includes
interest income)..................... (9) 74 -- 65
------- ------- --------
Income (loss) before income taxes and
extraordinary item................... 2,166 (1,432) (2,208)
Provision for income taxes............. 2,038 295 (2,203) (j) 130
------- ------- --------
Income (loss) before extraordinary
item................................. 128 (1,727) (2,338)
Extraordinary item..................... 1,654 -- (1,654) (h) --
------- ------- --------
Net income (loss)............ $(1,526) $(1,727) $ (2,338)
======= ======= ========
See accompanying Notes to Unaudited Pro Forma Consolidated Financial
Information.
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UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS
OF INCOME AND RELATED DATA
FOR THE TWELVE MONTHS ENDED OCTOBER 3, 1999
HISTORICAL
PERIOD FROM
JULY 1, 1998
TO OCTOBER 3, PRO FORMA
1999 ACQUISITIONS(B) ADJUSTMENTS PRO FORMA
------------- --------------- ----------- ---------
(DOLLARS IN THOUSANDS)
Statements of Income Data:
Net sales............................. $120,314 $47,185 $ -- $167,499
Cost of sales.........................
80,794 27,537 (351)(d) 107,980
-------- ------- --------
Gross profit............................ 39,520 19,648 59,519
Selling, general and administrative
expenses.............................. 23,538 20,749 (6,606)(f) 37,681
Non-recurring charge.................... 1,207 -- 1,207
Amortization expense.................... 3,716 -- 1,122(g) 4,838
-------- ------- --------
Income from operations.................. 11,059 (1,011) 15,793
Interest and amortization of debt
expense............................... 9,468 456 11,521(h) 21,445
Other income (expense), net (includes
interest income)...................... (159) 379 220
-------- ------- --------
Income (loss) before income taxes and
extraordinary item.................... 1,432 (1,178) (5,432)
Provision (benefit) for income taxes.... 2,027 358 (3,189)(j) (804)
-------- ------- --------
Income (loss) before extraordinary
item.................................. (595) (1,536) (4,628)
Extraordinary item...................... 1,654 -- (1,654)(h) --
-------- ------- --------
Net income (loss)............. $ (2,249) $(1,536) $ (4,628)
======== ======= ========
See accompanying Notes to Unaudited Pro Forma Consolidated Financial
Information.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
AS OF OCTOBER 3, 1999
HISTORICAL
AS OF
OCTOBER 3, PRO FORMA
1999 ACQUISITIONS(K) ADJUSTMENTS PRO FORMA
---------- --------------- ----------- ---------
(DOLLARS IN THOUSANDS)
Balance Sheet Data:
Cash..................................... $ 14,487 $ -- $(14,487)(l) $ --
-- --
Receivables.............................. 21,899 3,212 -- 25,111
Inventory................................ 25,460 6,142 -- 31,602
Deferred income taxes.................... 3,049 -- -- 3,049
Other current assets..................... 4,951 495 -- 5,446
-------- ------- --------
Total current assets................ 69,846 9,849 65,208
Property, plant and equipment, net....... 31,995 1,052 -- 33,047
Intangible assets, net................... 131,468 294 19,552(l) 151,314
Other assets............................. -- 49 -- 49
-------- ------- --------
Total assets........................ $233,309 $11,244 $249,618
======== ======= ========
Accounts payable......................... $ 7,432 $ 2,578 -- $ 10,010
Accrued expenses......................... 13,009 803 -- 13,812
Current portion of long-term debt........ -- -- -- --
-------- ------- --------
Total current liabilities........... 20,441 3,381 23,822
Long-term debt........................... 147,441 115 7,813(l) 155,369
Deferred income taxes.................... 18,173 -- -- 18,173
Other noncurrent liabilities............. 741 -- -- 741
Stockholder's equity..................... 46,513 7,748 (2,748)(l) 51,513
-------- ------- --------
Total liabilities and stockholder's
equity............................ $233,309 $11,244 $249,618
======== ======= ========
See accompanying Notes to Unaudited Pro Forma Consolidated Financial
Information.
33
37
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(a) Adjustment to include the Predecessor historical operating activity for the
period from January 1, 1998 to May 15, 1998.
(b) Adjustment to include the historical operating results for the periods prior
to acquisition of Weiand in August 1998, Lunati in October 1998, Hooker in
July 1999, FlowTech in October 1999, NOS in October 1999 and Earl's in
October 1999.
(c) Adjustment to reflect a full year of depreciation expense for the
adjustments of property, plant and equipment to fair value in the
acquisitions Holley, Weiand and Lunati as if the acquisitions had occurred
on January 1, 1998.
(d) Adjustment to eliminate rent associated with equipment purchased in the
acquisition of Earl's. This equipment was formerly leased by Earl's from a
related party.
(e) Adjustment to management fee to reflect the management fee charged by KHPP
Holdings, Inc. to Holley
(f) Adjustment to reduce/eliminate salaries and benefits of former shareholders
net of the salaries of the incremental personnel that will be required to
perform their responsibilities subsequent to the acquisitions.
(g) Adjustment to reflect a full year of amortization expense on goodwill and
other identifiable intangibles resulting from the acquisitions as if the
acquisitions had occurred at the beginning of the period presented.
(h) Adjustment to reflect a full year of interest and finance cost amortization
expense resulting from the original notes and additional debt incurred for
the acquisitions of NOS and Earl's as if the acquisitions had occurred at
the beginning of the period presented and to eliminate the extraordinary
charge incurred in 1999 to writeoff finance costs associated with term notes
repaid with proceeds from the original notes.
(i) Adjustment to eliminate royalty fees paid to Coltec Industries Inc. under a
licensing agreement which expired on May 15, 1998.
(j) Adjustment to reflect income tax provision (benefit) using a tax rate of
38.0%.
(k) Adjustment to include the historical financial position of NOS and Earl's as
if their acquisitions had occurred on October 3, 1999.
(l) Adjustment to record goodwill and purchase accounting adjustments resulting
from the acquisitions of NOS and Earl's as if they occurred on October 3,
1999 as well as the contribution of $5.0 million of additional equity. The
estimated purchase price allocations are as follows:
NOS EARL'S
------- --------
Purchase price.............................................. $12,500 $ 14,300
Transaction costs........................................... 250 250
------- --------
Total purchase price.............................. 12,750 14,550
------- --------
Current assets.............................................. 2,379 7,470
Property, plant and equipment............................... 106 946
Other assets................................................ 26 317
Long-term debt.............................................. (11) (104)
Current liabilities......................................... (486) (2,895)
------- --------
2,014 5,734
------- --------
Goodwill.......................................... 10,736 8,816
======= ========
34
38
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
The acquisitions of Weiand in August 1998, Lunati in October 1998, Hooker
in July 1999 and FlowTech in October 1999 each occurred prior to October 3,
1999 and as a result are reflected in Holley's historical balance sheet as
of that date. The purchase price allocations for Lunati and Weiand are
presented in footnote 3 of Holley's financial statements for the year ended
December 31, 1998. The preliminary purchase price allocations for Hooker
and FlowTech are presented in footnote 7 of Holley's financial statements
for the nine months ended October 3, 1999.
(m) In addition to the cost savings included in pro forma adjustments (d), (e),
(f) and (i) above, management's plans for the integration of the acquired
companies include additional discretionary actions which they believe will
further reduce operating costs. These actions and their estimated operating
cost reductions in each period presented are as follows:
NINE TWELVE
MONTHS MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, OCTOBER 3, OCTOBER 3,
1998 1999 1999
------------ ---------- ----------
1. One of the acquired companies sold its product
to a related party distributor who then sold
the products to outside customers. By selling
direct to customers, Holley will gain
additional sales price that was previously
realized by the related party distributor.... $ 140 $ 105 $ 140
2. Management plans to close several manufacturing
facilities purchased in the acquisitions. Closure
of these facilities will result in the
elimination of rent and other facility costs..... 1,041 629 784
3. In connection with the closure of the facilities
discussed above, management plans to eliminate or
consolidate administrative positions which will
result in estimated net payroll reductions....... 2,544 1,927 2,588
4. Several of the acquired companies paid
commissions to their sales personnel in excess of
the commission rates paid by Holley.............. 449 201 236
5. Some advertising costs incurred by Weiand and
Lunati duplicate marketing programs already in
place at Holley. Management plans to eliminate
these duplicate programs......................... 250 -- 15
------ ------ ------
$4,424 $2,862 $3,763
====== ====== ======
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39
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected historical consolidated financial information for the years
ended December 31, 1996 and 1997 and the periods from January 1, 1998 to May 15,
1998 and from May 16, 1998 to December 31, 1998 are derived from the
Consolidated Financial Statements, which have been audited by Arthur Andersen
LLP, independent public accountants. The selected historical consolidated
financial information for the years ended December 31, 1994 and 1995 and the
period from May 16, 1998 to September 27, 1998 and the nine months ended October
3, 1999 are derived from unaudited consolidated financial statements of the
Predecessor and Holley, which in the opinion of management, reflect all
adjustments necessary for a fair presentation of such data. The results for the
nine months ended October 3, 1999 are not necessarily indicative of the results
to be expected for the full year. The selected historical consolidated financial
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto included elsewhere in this prospectus.
THE PREDECESSOR(A) THE COMPANY(A)
-------------------------------------------------- ------------------------------------------
JANUARY 1, MAY 16, MAY 16, NINE MONTHS
YEAR ENDED DECEMBER 31, 1998 TO 1998 TO 1998 TO ENDED
------------------------------------- MAY 15, DECEMBER 31, SEPTEMBER 27, OCTOBER 3,
1994 1995 1996 1997 1998 1998 1998 1999
------- ------- ------- ------- ---------- ------------ ------------- -----------
Statements of Income Data:
Net sales...................... $91,535 $96,322 $96,290 $98,803 $36,632 $64,731 $39,156 $94,739
Cost of sales.................. 65,676 66,499 65,368 69,192 25,728 44,269 26,085 62,610
------- ------- ------- ------- ------- ------- ------- -------
Gross profit................... 25,859 29,823 30,922 29,611 10,904 20,462 13,071 32,129
Selling, general and
administrative expenses(b)... 15,443 18,558 18,868 22,759 7,616 11,795 7,108 18,851
Non-recurring charge(c)........ -- -- -- -- -- 452 -- 755
Amortization expense........... -- -- 113 113 45 1,626 846 2,936
------- ------- ------- ------- ------- ------- ------- -------
Income from operations......... 10,416 11,265 11,941 6,739 3,243 6,589 5,117 9,587
Interest and amortization of
deferred financing costs..... -- -- -- -- -- 4,705 2,649 7,412
Other income (expense),
net(d)....................... 23 13 (183) 45 (1,395) (231) (81) (9)
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes and
extraordinary item........... 10,439 11,278 11,758 6,784 1,848 1,653 2,387 2,166
Provision for income
taxes(e)..................... -- -- 4,514 2,520 797 1,034 1,045 2,038
------- ------- ------- ------- ------- ------- ------- -------
Income before extraordinary
item......................... 10,439 11,278 7,244 4,264 1,051 619 1,342 128
Extraordinary item............. -- -- -- -- -- -- -- 1,654
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)........ $10,439 $11,278 $ 7,244 $ 4,264 $ 1,051 $ 619 $ 1,342 $(1,526)
======= ======= ======= ======= ======= ======= ======= =======
Other Financial Data:
EBITDA(f)...................... $11,505 $12,299 $13,091 $ 7,802 $ 3,819 $10,136 $ 6,259 $16,172
EBITDA margin(g)............... 12.6% 12.8% 13.6% 7.9% 10.4% 15.7% 16.0% 17.1%
Depreciation and
amortization................. $ 1,089 $ 1,034 $ 1,150 $ 1,063 $ 576 $ 3,547 $ 1,142 $ 6,585
Capital expenditures........... 2,414 532 466 942 1,188 2,819 1,353 3,024
Ratio of earnings to fixed
charges(h)................... 37.9x 63.4x 61.4x 34.8x 26.8x 1.3x 1.9x 1.3x
AS OF
-----------------------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, MAY 15, DECEMBER 31, OCTOBER 3,
1994 1995 1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ ------- ------------ ----------
(DOLLARS IN THOUSANDS)
Balance Sheet Data:
Cash and cash
equivalents............ $ -- $ -- $ -- $ -- $ -- $ 2,013 $ 14,487
Working capital(i)....... 13,387 13,657 15,166 14,637 12,855 19,562 49,405
Total assets............. 32,407 31,675 36,718 33,884 35,813 178,072 233,309
Total debt(j)............ -- -- 13,428 9,081 5,707 93,088 147,441
Stockholder's
equity(j).............. 19,820 20,179 7,244 11,509 12,559 43,039 46,513
36
40
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(a) Effective May 15, 1998, all outstanding shares of Holley common stock were
purchased by KHPP Acquisition Corp., a wholly owned subsidiary of KHPP
Holdings, Inc., for $100.0 million, in a transaction which was accounted for
as a purchase. At the time of the acquisition of Holley, KHPP Acquisition
Corp. was merged into Holley. Financial information prior to May 16, 1998,
is for Holley when it was a wholly owned subsidiary of Coltec and for
periods prior to January 1, 1996 for Holley when it was a division of
Coltec. For periods in which Holley was either a wholly owned subsidiary or
division of Coltec, Holley is referred to herein as the "Predecessor". For
periods in which Holley is a wholly owned subsidiary of KHPP Holdings, Inc.,
Holley is referred to as "Holley". This acquisition and the related
application of purchase accounting resulted in changes to the capital
structure of the Predecessor and the historical basis of various assets and
liabilities. The effect of such changes significantly impairs the
comparability of the financial position and results of operations of Holley
and the Predecessor.
(b) Selling, general and administrative expenses include management fees Holley
paid to Coltec (as the Predecessor) and KHPP Holdings, Inc. (as Holley)
totaling $2.1 million, $2.2 million, $2.3 million, $2.3 million, $0.8
million, $0.4 million, $0.2 million and $0.7 million for the fiscal years
ended December 31, 1994, 1995, 1996 and 1997 and the periods from January 1,
1998 to May 15, 1998 and from May 16, 1998 to December 31, 1998, and the
period from May 16, 1998 to September 27, 1998 and the nine month period
ended October 3, 1999, respectively. For the year ended December 31, 1997,
selling, general and administrative expenses also include a provision for
doubtful accounts of $1.9 million, increased marketing spending of $1.0
million, additional cash discounts of $0.5 million and additional R&D
spending of $0.5 million. The provision for doubtful accounts resulted from
the Super Shops bankruptcy and the recognition of the uncertain
collectability of certain accounts receivable at December 31, 1997.
(c) Non-recurring costs include (1) costs incurred in 1998 and 1999 associated
with the movement of inventory and fixed assets to Holley's facility in
Bowling Green, Kentucky from two Weiand facilities which were closed
subsequent to the acquisition and (2) costs incurred in 1999 associated with
the movement of fixed assets from a research and development facility which
was not acquired in the acquisition of Holley. EBITDA has not been adjusted
for these amounts.
(d) Other expense for the period from January 1, 1998 to May 15, 1998 includes
$1.0 million in fees paid to Coltec under a licensing agreement. The
agreement was established on December 31, 1997 and expired on May 15, 1998
in connection with the acquisition of Holley.
(e) The Predecessor did not record a tax provision in 1994 and 1995 as it was a
division of Coltec.
(f) EBITDA represents income from operations plus depreciation and amortization
expense. EBITDA should not be considered as an alternative measure of net
income or cash provided by operating activities (both as determined in
accordance with generally accepted accounting principles), but is presented
to provide additional information related to Holley's debt service
capability. EBITDA should not be considered in isolation or as a substitute
for other measures of financial performance or liquidity. The primary
difference between EBITDA and cash flows provided by operating activities
relates primarily to changes in working capital requirements, and payments
made for interest and income taxes. Our use of EBITDA may not be comparable
to similarly titled measures due to the use by other companies of different
financial statement components in calculating EBITDA. The definition of
EBITDA under the indenture could differ from the definition described
herein.
37
41
NOTES TO SELECTED HISTORICAL CONSOLIDATED
FINANCIAL INFORMATION -- (CONTINUED)
(g) EBITDA margin is defined as EBITDA divided by net sales.
(h) For the purpose of determining the ratio of earnings to fixed charges,
"earnings" consist of income before provision for income taxes,
extraordinary item and fixed charges. "Fixed charges" consist of interest
expense including amortization of deferred financing costs and one-third of
rental expense, representing that portion of rental expense representative
of the interest factor.
(i) Working capital is defined as current assets minus current liabilities.
(j) Stockholder's equity includes advances from Coltec at December 31, 1994 and
1995, as Holley operated as a division of Coltec during each of the years
then ended. On January 1, 1996, Holley became a wholly-owned subsidiary of
Coltec, therefore, advances from Coltec are included in long-term debt at
December 31, 1996 and 1997, May 15, 1998.
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42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
our Consolidated Financial Statements and the notes thereto and our Unaudited
Pro Forma Consolidated Financial Information and the notes thereto attached to
this prospectus.
GENERAL
In early 1997, a new management team was recruited by our former parent
Coltec to formulate a new growth strategy and to rationalize the operational
structure of Holley. Since that time, we have significantly reduced our cost
structure, focused on the performance market and introduced many new products.
Historically, Holley focused on the remanufacturing business. In connection with
the management change, the new management team shifted Holley's focus to the
higher margin, faster growing performance market. Some of the steps taken in
1997 included: (a) consolidation of our warehouse operation into our production
facilities (saving $800,000 annually); (b) a headcount reduction of 48
administrative personnel (saving approximately $2.3 million annually); (c) an
approximate 57% reduction in performance product part numbers, thereby
streamlining production, eliminating excess inventory and reducing working
capital needs relating thereto; and (d) the refurbishment of the factory
infrastructure and the establishment of a cellular manufacturing process, which
improved productivity and work flow. Externally, we revamped our entire
marketing strategy and introduced the concept of "pull" marketing emphasizing
the end consumer and targeting most promotional and advertising programs toward
that end consumer. In the past, Holley had relied on "push" marketing wherein
distributors were enticed to make large purchases through various pricing and
promotional programs. In connection with this change, we eliminated all rebate
and co-op advertising programs that were ineffective, off-market or not
necessary. Our new philosophy stresses premium product quality, name brand
recognition and service and as a result, expects to achieve premium pricing for
our products.
In May 1998, Holley was acquired from Coltec by KHPP Holdings, Inc.,
Holley's parent company, which is owned by senior management and an affiliate of
Kohlberg & Co., L.L.C., a merchant banking firm located in Mt. Kisco, New York.
In August 1998, we acquired Weiand. In October 1998, we acquired Lunati. The
Lunati companies we acquired include Lunati Cams, Inc., Lunati & Taylor Pistons,
Inc. and LMT Motorsports Corporation. In July 1999, we acquired Hooker and in
October 1999, we acquired FlowTech, NOS and Earl's.
Holley's results of operations for fiscal 1998 (as defined below) and the
nine months ended September 27, 1998 have been affected by the acquisition of
Holley and the acquisitions of Weiand and Lunati. In addition, fiscal 1998
results include the results of operations from the Weiand and Lunati
acquisitions subsequent to their acquisition dates. Consequentially, comparisons
of 1998 results with earlier years will not be meaningful without a
comprehensive understanding of the information provided under "Results of
Operations." For the purposes hereof, "fiscal 1998" refers to the twelve-month
period ended December 31, 1998 and reflects the sum of Holley's results of
operations for the five months ended May 15, 1998 (before the allocation of
purchase price relating to the acquisition by Holdings) and the results of
operations for the seven months ended December 31, 1998 (after the allocation of
the purchase price). Similarly, results of operations for the nine months ended
September 27, 1998 reflect the sum of Holley's results of operations for the
five months ended May 15, 1998 (before the allocation of the purchase price
relating to the acquisition by Holdings) and the results of operations for the
period including May 16, 1998 to September 27, 1998 (after the allocation of the
purchase price). See also "Selected Historical Consolidated Financial
Information" included in this prospectus.
39
43
When Coltec owned Holley, Coltec funded all the company's working capital
requirements and corporate expenses. Also, Coltec withdrew all of the excess
cash from Holley. Thus, Holley did not utilize debt to fund such needs, and
therefore, Holley's financial statements do not reflect any interest expense
during such period.
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTHS ENDED OCTOBER 3, 1999 AND SEPTEMBER 27, 1998
Net Sales. Net sales equals gross revenues less provisions for volume
rebates, co-op advertising allowances and freight-out expenses. Net sales for
the nine months ended October 3, 1999 totaled $94.7 million compared to $75.8
million for the same period in 1998, an increase of $18.9 million or 25.0%.
Sales in the performance segment were $75.4 million compared to $55.3 million in
the same period in 1998, an increase of $20.1 million or 36.2%. Sales in the
remanufacturing segment were $19.3 million compared to $20.5 million in the same
period in 1998, a decrease of $1.2 million or 5.9%. The increase in the
performance segment was largely attributable to additional sales from the
Weiand, Lunati and Hooker acquisitions of $17.8 million. In addition, sales of
performance products in the base business (the business owned in both periods)
increased by $6.7 million or 16.7% over the same period in 1998. This was
partially offset by reduced original equipment manufacturer and bulk sales of
$3.0 million or 23.2%, and reduced sales from a product line that was sold of
$1.4 million or 64.3%. The reduced sales from a product line that was sold
reflects the sale of part of our industrial ignition business in May 1998. The
reduced original equipment and bulk sales primarily resulted from the final
phasing out of component supply to the former automotive operations of Coltec
Industries that were acquired by Borg Warner in 1996 and substantial price
increases on components that were sold in bulk to assemblers who would then
compete with our products. Remanufacturing sales were down due to general market
declines.
Gross Profits. Gross profits for the nine months ended October 3, 1999
totaled $32.1 million or 33.9% of net sales compared to $24.0 million or 31.6%
of sales for the same period in 1998. This is an increase of $8.1 million or
33.8%. In the performance segment, gross profits were $27.3 million or 36.3% of
net sales compared to $18.6 million or 33.6% of net sales in the same period in
1998, an increase of $8.7 million or 46.8%. In the remanufacturing segment,
gross profits were $4.8 million or 24.9% of net sales compared to $5.4 million
or 26.3% of net sales in the same period in 1998, a decrease of 11.1%. The
increase in the performance segment is attributable to gross profits contributed
by our acquired companies of $5.1 million and additional gross profit in the
base business of $3.0 million. Of the base business increase, $0.4 million is
attributable to increased volume and the remaining $2.6 million reflects
productivity gains and the changing product sales mix as more profitable
performance sales increase while less profitable segments decline. In the
remanufacturing segment, the decrease was attributable to reduced sales volume.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended October 3, 1999 totaled $18.9
million or 20.0% of sales compared to $14.7 million or 19.4% for the same period
in 1998. The increase is primarily attributable to increased marketing spending
of $2.7 million, increased payroll costs of $0.7 million, increased depreciation
of $0.7 million associated with a new computer system, and increased management
fees of $0.1 million.
Non-recurring charges. Non-recurring charges for the nine months ended
October 3, 1999 totaled $0.8 million resulting from one-time expenses incurred
in the integration of the Weiand and Lunati acquisitions and the initial setup
of employee benefits plans.
Amortization expense. Amortization expense for the nine months ended
October 3, 1999 totaled $2.9 million compared to $0.9 million for the same
period in 1998. These expenses reflect the amortization of goodwill, transaction
fees, and other intangible assets associated with the
40
44
purchase of Holley by Holdings, the subsequent acquisitions of Weiand, Lunati,
and Hooker, and the valuation of intellectual property.
Income from Operations. Income from operations for the nine months ended
October 3, 1999 totaled $9.6 million compared to $8.4 million for the same
period in 1998, an increase of $1.2 million or 14.7%. The increase is primarily
due to the increased sales and increased gross margins.
Interest Expense. Interest expense was $7.4 million for the nine months
ended October 3, 1999 compared to $2.6 million for the same period in 1998. The
expenses resulted from interest on our Company's term loans, revolving credit
facility, and the initial accrual of interest associated with our 12 1/4% senior
notes due 2007 issued in September 1999. The term loans were incurred in May
1998, October 1998, and July 1999 in connection with the purchase of Holley from
Coltec and the subsequent acquisitions of Weiand, Lunati and Hooker. The
revolving letter of credit is used to finance general business and working
capital needs. The proceeds from the sale of our senior notes were used to pay
back the existing term loans and to finance upcoming acquisitions.
Other Income/(Expense). Other income/(expense) was -0- for the nine months
ended October 3, 1999 compared to $1.5 million in expense for the same period in
1998. The 1998 expense includes $1.0 million in fees paid to Coltec under a
licensing agreement.
Provision for Income Taxes. Provision for income taxes for the nine months
ended October 3, 1999 was $2.0 million compared to $1.8 million for the same
period in 1998. The effective tax rate was 94.1% for the period. The effective
tax rate is unfavorably impacted by the relatively high amount of amortization
expense which represents a reduction of accounting net income as presented
herein, but is not deductible for tax purposes.
Extraordinary Item. An extraordinary item was booked to reflect the write
off of $1.7 million (net of tax) of unamortized financing and transaction fees
associated with our bank term debt. This bank debt was paid off in full in
September 1999 with the proceeds of our senior notes offering.
Net Income/(Loss). Net loss for the nine months ended October 3, 1999 was
$(1.5) million compared with $2.4 million for the same period last year, a
decrease of $3.9 million. The decrease reflects increased interest expense of
$4.8 million and increased amortization expense of $2.0 million, expense items
associated with the acquisitions that were not incurred prior to the
acquisitions. In addition, net income was reduced by the extraordinary item of
$1.7 million reflecting the write-off of financing fees.
SEVEN MONTHS ENDED DECEMBER 31, 1998
Net Sales. Net sales for the seven months ended December 31, 1998 totaled
$64.7 million. Sales in the performance segment were $47.0 million and sales in
the remanufacturing segment were $17.7 million.
Gross Profits. Gross profits for the seven months ended December 31, 1998
totaled $20.5 million or 31.7% of net sales. Gross profits in the performance
and remanufacturing segments were $15.4 million and $5.1 million respectively.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the seven months ended December 31, 1998 totaled
$11.8 million.
Income from Operations. Income from operations for the seven months ended
December 31, 1998 totaled $6.6 million.
Interest Expense. Interest expense was $4.7 million for the seven months
resulting from interest on our term loans and revolving credit facility. This
debt was incurred in 1998 in
41
45
connection with the purchase of Holley from Coltec, the subsequent acquisitions
of Weiand and Lunati, and general business and working capital needs.
Provision for Income Taxes. Provision for income taxes for the seven
months ended December 31, 1998 was $1.0 million. The effective tax rate was
62.6% for the period. The effective tax rate is unfavorably impacted by the
relatively high amount of amortization expense which represents a reduction of
accounting net income as presented herein, but is not deductible for tax
purposes.
Net Income. Net income for the seven months ended December 31, 1998 was
$0.6 million.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
Net Sales. Net sales for fiscal 1998 increased to $101.4 million from
$98.8 million in fiscal 1997, an increase of $2.6 million or 2.6%. Sales in the
performance segment were $73.7 million compared to $69.3 million in the same
period in 1997, an increase of $4.4 million or 6.3%. Sales in the
remanufacturing segment were $27.7 million compared to $29.5 million in the same
period in 1997, a decrease of 6.1%. The increase in performance sales was
attributable to increased base business sales of $4.8 million, post-acquisition
sales from Weiand and Lunati of $2.9 million, offset by reduced sales from
product lines that were sold of $2.0 million, and reduced original equipment
manufacturer and bulk sales of $0.5 million. The increased performance products
sales reflected the successful introduction of our new line of polished
carburetors, increased sales of fuel pumps, and a fivefold increase in the sales
of SysteMax power systems and components. The reduced sales due to product lines
that were sold reflect the sale of part of our industrial ignition business
which is being de-emphasized as it does not fit with our core competencies or
business plans. We are actively engaged in trying to sell the remainder of this
product line. Original equipment manufacturer and bulk business includes our
sales to automotive, marine and industrial original equipment manufacturers as
well as engine builders and modifiers who are active in the racing markets. The
reduced sales in this segment reflected the final phasing out of component
supply to the former Coltec automotive operations that were acquired by Borg
Warner in 1996. Remanufacturing sales were down due to general market declines.
Gross Profits. Gross profits for fiscal 1998 increased to $31.4 million or
31.0% of net sales from $29.6 million or 30.0% of net sales in fiscal 1997, an
increase of $1.8 million. In the performance segment, gross profits were $24.3
million or 33.0% of sales compared to $24.0 million or 34.6% of sales in the
same period in 1997. In the remanufacturing segment, gross profits were $7.1
million or 25.6% of sales compared to $5.7 million or 19.2% of sales in the same
period of 1997. In the performance segment, the increase due to increased sales
volume and productivity improvements of $1.3 million was offset by increased
depreciation expenses of $1.3 million resulting from the write-up in value of
fixed assets associated with the purchase of Holley. In the remanufacturing
segment, the improved gross margins were attributable to reduced warranty
expense of $0.7 million, reduced overhead spending of $0.6 million, and
productivity improvements of $0.5 million.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 1998 decreased $3.4 million to $19.4 million
from $22.8 million for fiscal 1997. For fiscal 1998 and 1997, as a percentage of
net sales, these expenses were 19.1% and 23.0%, respectively. The decrease was
primarily attributable to reduced provision for doubtful accounts of $1.5
million, savings arising from our restructuring initiatives of $1.0 million,
reduced corporate office costs of $1.0 million, reduced customer acquisition
costs of $0.5 million, reduced R&D costs of $0.4 million and other general
expense reductions of $0.2 million, offset by increased marketing expenses of
$1.2 million. The reduced corporate office costs reflected the elimination of
the allocation of corporate office costs charged by Coltec equal to 2.3% of net
sales.
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Non-recurring Charge. Non-recurring charges totaling $0.5 million were
booked in fiscal 1998 reflecting relocation costs associated with our internal
restructuring initiatives and the acquisitions of Weiand and Lunati. No such
corresponding expense was incurred in fiscal 1997.
Amortization Expense. Amortization expense increased by $1.6 million to
$1.7 million in fiscal 1998. The increase reflected the amortization of goodwill
and transaction costs associated with the purchase of Holley by Holdings and the
subsequent acquisitions of Weiand and Lunati.
Income from Operations. Income from operations for fiscal 1998 increased
to $9.8 million from $6.7 million in fiscal 1997, an increase of $3.1 million or
46.3%. The increase was due primarily to an increase in sales volume and
manufacturing productivity improvements and administrative cost savings
resulting from our restructuring initiatives.
Interest Expense. Interest expense for fiscal 1998 increased to $4.7
million. We had no interest expense in 1997 because Coltec funded all our
working capital needs. These expenses reflected the interest on our term loans
and revolving credit facility. This debt was incurred in 1998 in connection with
the purchase of Holley from Coltec, the subsequent acquisitions of Weiand and
Lunati and general business and working capital needs.
Provision For Income Taxes. Provision for income taxes for fiscal 1998
decreased to $1.8 million from $2.5 million for fiscal 1997, a decrease of $0.7
million or 28.0%. The effective tax rates were 52.3% and 37.1% for fiscal 1998
and 1997, respectively. The effective tax rate is unfavorably impacted by the
relatively high amount of amortization expense which represents a reduction of
accounting net income as presented herein, but is not deductible for tax
purposes.
Net Income. As a result of the factors described above, net income for
fiscal 1998 was $1.7 million, a decrease of $2.6 million from fiscal 1997. The
decrease reflected increased interest expense of $4.7 million and increased
amortization expense of $1.6 million, expense items associated with the
acquisitions of Weiand and Lunati.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
Net Sales. Net sales increased $2.5 million or 2.6% from $96.3 million to
$98.8 million. Sales in the performance segment were $69.3 million compared to
$68.3 million in the same period in 1996, an increase of $1.0 million or 1.5%.
Sales in the remanufacturing segment were $29.5 million compared to $27.9
million, an increase of $1.6 million or 5.7%. In the performance segment, the
primary cause of the increase was the transfer to Holley of the industrial
ignition business from another Coltec operating unit. This business contributed
$4.8 million in sales in fiscal 1997. The move of the business was part of an
initiative by Coltec to reduce the number of business units and associated
administrative costs by combining smaller business units with large ones. Prior
management believed there existed some synergy between this business and
Holley's other product lines. However, we are now exiting this business and sold
a portion of the business in 1998. We are now focused on selling the remaining
assets related to this business. In addition, there were increased sales of
performance products of $1.5 million including $0.7 million of sales of our
Annihilator(TM) ignition system which was introduced in early 1997. These
additional sales obscured certain negative factors affecting Holley's core
business. Approximately $3.2 million in sales were lost as Super Shops, a large
retailer specializing in performance and racing products, declared bankruptcy in
September 1997. In addition, sales were impacted by $2.1 million of increased
rebate and co-op advertising costs resulting from programs instituted by prior
management in 1996. These programs were significantly more generous than those
of competitors as they did not require increased sales levels by the retailers
in order to achieve higher discounts and co-op and were therefore ineffective.
As stated above, we discontinued all promotional programs that were ineffective
and changed our marketing mix. Rebates and co-op advertising allowances are
netted against sales on our income statement. Finally, sales were reduced by
$0.5 million due to the cessation of our automotive air conditioner
remanufacturing business. Partially offsetting these losses were increased sales
of remanufactured products of
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$1.8 million resulting from the addition of CSK as a customer and $0.7 million
of sales of our Annihilator(TM) ignition system which was introduced in early
1997. In the remanufacturing segment, the increased sales were mostly
attributable to the addition of CSK as a customer.
Gross Profits. Our gross profit decreased $1.3 million from $30.9 million
or 32.1% of net sales to $29.6 million or 30.0% of net sales. In the performance
segment, gross profits were $24.0 million compared to $26.3 million in the same
period in 1996. In the remanufacturing segment, gross profits were $5.7 million
compared to $4.6 million in the same period in 1996, an increase of $1.1 million
or 26.2%. Increased rebate and co-op expenses discussed above and the lost sales
to Super Shops hurt gross profit in the performance segment. When we took a
charge for the former rebate programs, the result was a decline in sales with no
offset to cost of goods sold, further reducing margins (we account for rebates
as a contra-revenue adjustment). Accordingly, for this reduction in sales, we
experienced a dollar for dollar reduction in gross profit. Additionally, the
Annihilator(TM) product line broke even given the start-up costs with respect to
the product launch. In the remanufacturing segment, gross profits increased due
to sales volume and reduced overhead spending.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 1997 increased $3.9 million to $22.8 million
from $18.9 million for fiscal 1996. For fiscal years 1997 and 1996, as a
percentage of net sales, these expenses were 23.0% and 19.6%, respectively. The
increase was due primarily to provision for doubtful accounts of $1.9 million,
increased marketing spending of $1.1 million, additional cash discounts of $0.5
million and additional R&D spending of $0.5 million. The provision for doubtful
accounts was related to the Super Shops bankruptcy and the recognition of the
uncertain collectability of certain accounts receivable at December 31, 1997.
Income from Operations. Income from operations for fiscal 1997 decreased
to $6.7 million from $11.9 million in fiscal 1996, a decrease of $5.2 million or
43.6%. The decrease was due primarily to a decrease in gross profits of $1.3
million and the increase in selling, general and administrative expenses of $3.9
million.
Provision For Income Taxes. Provision for income taxes for fiscal 1997
decreased to $2.5 million from $4.5 million for fiscal 1996, a decrease of $2.0
million or 44.4%. The effective tax rates were 37.1% and 38.4% for fiscal 1997
and 1996, respectively. The effective tax rate is unfavorably impacted by the
relatively high amount of amortization expense which represents a reduction of
accounting net income as presented herein, but is not deductible for tax
purposes.
Net Income. Net income for fiscal 1997 was $4.3 million, a decrease of
$3.0 million from fiscal 1996. The decrease in gross profit of $1.3 million and
the increase in selling, general and administrative expenses of $3.9 million
were partially offset by the reduced provision for income taxes of $2.0 million.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities. Net cash provided by operating activities for fiscal
1998, 1997 and 1996 was $4.6 million, $5.7 million and $7.2 million,
respectively. The increase in net income and changes in working capital
requirements contributed primarily to the increase in net cash provided by
operating activities in fiscal 1998. Net cash used by operating activities for
the nine months ended October 3, 1999 equaled $(3.8) million. Inflows from net
income, deferred taxes, and depreciation & amortization of $8.0 million were
offset by increased working capital of $11.8 million. The increase in working
capital was primarily attributable to higher accounts receivable of $2.2 million
due to higher sales volume; increased inventories of $1.0 million; increased
prepaid assets of $3.0 million due to tax refunds receivable, the timing of
insurance premium billings, customer acquisition costs, and advertising;
decreased accounts payable of $1.6 million; and decreased accrued liabilities of
$4.0 million composed of declines in accrued income taxes of
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$0.9 million, accrued payroll-related costs of $1.0 million, accrued marketing
costs of $1.1 million, and accrued legal and professional fees of $0.7 million.
Investing Activities. Net cash used in investing activities for fiscal
1998, 1997 and 1996 were $133.3 million, $0.6 million and $0.5 million,
respectively. The primary use of cash during fiscal 1998 was to fund the
acquisitions of Holley, Weiand and Lunati. In addition, we spent $4.0 million in
capital in 1998. The largest capital projects were $2.5 million for a new
software system, $0.6 million for a new R&D facility, and $0.5 million for
marketing displays. Net cash used in investing activities for the nine months
ended October 3, 1999 totaled $32.6 million. The increase in 1999 is primarily
attributable to cash paid for acquisitions of $29.5 million and capital
expenditures of $3.1 million.
We anticipate expenditures of $4.6 million for capital improvement projects
in fiscal 1999.
Management anticipates building a new distribution center near Bowling
Green during 1999 under a capital lease arrangement. The new facility will be
leased through the local Economic Development Authority, allowing us to take
advantage of certain state and local tax incentives given for generating new
employment. The new facility, which was financed by the Economic Development
Authority, was completed in the third quarter of fiscal 1999 at a cost of
approximately $3 million.
Financing Activities. Net cash provided by/(used in) financing activities
for fiscal 1998, 1997 and 1996 was $130.8 million, $(5.1) million and $(6.8)
million, respectively. Cash provided in 1998 was primarily due to the proceeds
from the issuance of equity of $42.4 million and borrowings under our bank
credit facility of $94.4 million. Such amounts were primarily used to pay for
acquisitions and to fund working capital requirements, as discussed above. Net
cash provided by financing activities for the nine months ended October 3, 1999
totaled $48.9 million. Cash inflows consisted of the net proceeds from our
senior notes offering of $144.5 million, additional bank debt incurred for
acquisitions and working capital needs of $30.3 million, additional equity
contribution of $5.0 million, and the debt associated with our new distribution
center of $0.5 million. Cash outflows included retirement of bank debt equal to
$125.9 million and fees associated with debt issuance, stock issuance, and
acquisitions of $5.5 million.
The primary sources of liquidity for Holley are funds generated by
operations and borrowings under our bank credit facility.
We historically have expanded our business through the acquisition of other
related and complementary businesses, and we continue to seek and evaluate
acquisition opportunities. We anticipate that our existing capital resources and
cash flow generated from future operations, proceeds from the offering, and
drawings under our bank credit facility will enable us to maintain our planned
operations, capital expenditures and debt service for the foreseeable future. We
also anticipate that implementing our acquisition strategy will require us to
incur additional indebtedness. However, our current indenture and bank credit
facility terms, as well as our current level of indebtedness, would
significantly limit or prevent incurrence of any substantial additional
indebtedness.
Bank Credit Facility. In May 1998, we established a senior secured credit
facility with a group of banks led by Credit Agricole Indosuez, which after
certain amendments consists of a $25.0 million revolving credit facility and
term loans totaling $115.0 million which were utilized in part to acquire
Weiand, Lunati and Hooker.
Concurrent with the closing of the original notes issuance, we applied a
portion of the proceeds to permanently repay all of our indebtedness under the
term loans and temporarily repay all amounts outstanding under the revolving
credit facility. Therefore, our bank credit facility consists of only the
revolving credit facility thereunder.
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We may borrow from time to time under the revolving credit facility for
working capital purposes, and all outstanding borrowings thereunder must be
repaid in full by June 2003. Loans under our bank credit facility bear interest,
at our option, at one of two floating rates which can be changed at our option
from time to time: either a base rate, based on Credit Agricole Indosuez'
announced "prime rate," or 1/2% per annum in excess of the Federal Funds Rate,
plus an additional 1.0% per annum, or the reserve adjusted London Interbank
Offered Rate plus an additional 2.5%. The bank credit facility contains various
covenants made by Holley, including covenants prohibiting or limiting our
ability to:
- incur additional debt;
- grant liens; or
- sell our assets, together with financial covenants and information
reporting requirements we must meet.
During the term of the bank credit facility, Holley, on a consolidated
basis, will be required to maintain a minimum EBITDA level as well as certain
financial ratios, including: (1) a ratio of debt to EBITDA, whereby EBITDA is
defined as net income before provision for interest, tax, depreciation or
amortization expense and (2) a ratio of EBITDA to interest expense, in each
case, on a trailing four-quarter basis. Any borrowings under the revolving
credit facility will be limited to the lesser of $25.0 million or 85% of the
eligible accounts receivable and 55% of the eligible inventory of Holley and its
subsidiaries.
Our bank credit facility is guaranteed by all of Holley's subsidiaries, and
is secured by a first priority security interest in favor of the bank lenders in
the capital stock of Holley and its subsidiaries and in each of their accounts
receivable and inventory.
ENVIRONMENTAL AND LEGAL MATTERS
In May 1999, Union Pacific Railroad Company initiated litigation against
Weiand and others in federal district court for the Central District of
California alleging that certain soil and groundwater contamination discovered
on the Union Pacific property in Los Angeles migrated from the adjacent Weiand
facility and, therefore, Weiand is responsible for costs related to
investigation and remediation. The complaint seeks costs in the amount of $4.5
million already incurred and at least an additional $800,000 in future response
costs, as well as an injunction directing Weiand to abate the alleged
contamination. At this time, we are unable to assess the likelihood of an
unfavorable outcome or, in the event of such an outcome, the amount of any
resulting liability. We are investigating the claims of Union Pacific and the
property owner and intend to defend them vigorously. Recently, we discovered
possible significant soil contamination on the Weiand property, which has not
yet been confirmed or assessed. The property owner may assert claims for damage
to the property. Holley intends to defend any such claims vigorously.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of our computer
programs or hardware that have data-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
This is known generally as the "Y2K problem," and we refer to computers and
computer systems that do not experience these problems generally as "Y2K
compliant" or "Y2K capable."
We have taken several steps to upgrade our computer systems to be Y2K
compliant, including converting our main computer system to a new computer
software package(BPCS) in May 1998, which was represented by its maker as being
Y2K compliant. This new software has
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been tested for Y2K problems and has not encountered any failures. In July 1999,
we finished upgrading our PC network LAN to be Y2K compliant. Our manufacturing
processes have been thoroughly tested, and we believe that they should have no
significant Y2K problems. We have also thoroughly tested our products for Y2K
compliance, none of which should be affected by Y2K problems.
Holley's operating subsidiaries are either Y2K compliant or are in the
process of implementing changes to become Y2K compliant. Regarding our
recently-acquired subsidiaries, Hooker, FlowTech and Earl's each are not
currently utilizing our Y2K compliant BPCS software, but their respective
computer systems are Y2K compliant. NOS's computer system is not currently Y2K
compliant; however, we are in the process of converting its computer systems to
our main BPCS system, which we expect to complete by December 31, 1999. We will
convert Hooker, FlowTech and Earl's to our BPCS system in the first quarter of
2000.
We have contacted our major customers, suppliers and utility providers
regarding their Y2K compliance. Based on the written responses we have received
to date from our major customers and suppliers, we believe that most will be Y2K
compliant on or before December 31, 1999. We are currently working with our EDI
customers that link directly to our computer systems to ensure that such
computer links are Y2K capable. Our portion of the computer link is Y2K capable,
but a small portion of such customers do not have a Y2K capable link to our
system. Although we believe these links will be fully Y2K capable by December
31, 1999, it is likely that such links will not be fully Y2K capable until at or
near the end of the year and that a small portion will not be Y2K capable by
such time. Our utility suppliers have assured us that they are fully Y2K
compliant.
In 1998, we spent approximately $2.5 million on our new BPCS computer
systems project and approximately $0.1 million on our LAN and PC upgrades. In
1999, we have budgeted $0.1 million to complete our LAN and PC upgrades and $0.1
million to integrate the Lunati operations into our BPCS system and improve our
EDI systems. These computer system upgrades and enhancements provide both Y2K
compliance as well as other non-Y2K related benefits for our company.
Holley has not formally determined a most reasonably likely worst case
scenario regarding the impact of Y2K problems in our business. However, we
believe the most likely Y2K-related risks faced by Holley are business
interruptions by our suppliers and significant customers. Such interruptions
could include manufacturing or assembly plant shutdowns and the related
reduction in our supply of raw materials and/or demand for our products by such
entities until their Y2K problems are remedied. As a result, our revenues could
temporarily decrease. In our survey process, we have attempted to identify and
assess any such risks and to follow up with any significant suppliers and
customers that have indicated less than full Y2K compliance.
Holley has not developed a formal contingency plan for any such
interruptions nor have we identified any specific secondary suppliers or vendors
in the event any of our current group experience Y2K-related business
interruptions.
As a result of our computer system upgrades and enhancements, we believe
that our computer systems and those of our significant suppliers and customers
will be Y2K compliant on or before December 31, 1999. However, we cannot control
the actions or representations of our suppliers and customers, nor can we
anticipate and test every aspect of Y2K compliance throughout all our systems.
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INDUSTRY OVERVIEW
OVERVIEW
The automotive aftermarket is comprised of three segments: traditional
repair parts (original equipment replacement), service and maintenance, and
specialty/performance products. We compete primarily in the
specialty/performance products segment. The specialty/performance products
segment has enjoyed one of the highest growth rates in the automotive industry,
growing from approximately $3.5 billion in 1988 to approximately $6.9 billion in
1997, a compound annual growth rate of 7.8%. During this same timeframe, the
overall automotive aftermarket grew by an average of 3.4% and U.S. gross
domestic product grew by a compound annual growth rate of 2.4%. This rapid
growth is being driven by many positive structural characteristics, including
the growing enthusiasm for auto racing, particularly NASCAR style racing, the
popularity of light trucks and sports utility vehicles, which are often
accessorized by their owners, and a resurgence in the popularity of hotrodding
and building or restoring street rods and muscle cars.
The specialty/performance segment of the automotive aftermarket has been
considerably less sensitive to fluctuations in GDP than the total aftermarket or
the original equipment manufacturer vehicle market. This reflects the passion
that enthusiasts have for racing and for their vehicles. The following chart
illustrates how the specialty/performance products segment consistently
outperformed the total aftermarket industry and GDP.
SPECIALTY AUTOMOTIVE PRODUCTS GROWTH COMPARISON
(annual percentage change)
SPECIALITY
AUTOMOTIVE TOTAL
YEAR PRODUCTS AFTERMARKET GDP
- ---- ---------- ----------- ----
1997........................................................ 8.4% 5.5% 3.7%
1996........................................................ 6.0 4.3 2.8
1995........................................................ 9.0 3.7 2.0
1994........................................................ 6.4 10.2 3.5
1993........................................................ 12.2 6.8 2.2
1992........................................................ 9.3 7.6 2.7
1991........................................................ (3.9) (8.1) (1.0)
1990........................................................ 9.6 5.5 1.3
- ---------------
Source: Specialty Equipment Market Association -- 1998 Market Study
The specialty/performance automotive market segment is unique in that our
consumers readily identify with and derive significant satisfaction from support
of our industry. These consumers are long time customers, averaging 20 years of
involvement in the industry. The tie to this industry is strong as many
enthusiasts were introduced to the industry by their fathers, and in some cases,
by their grandfathers. The customer base for specialty/performance products can
be divided into three categories: street, circle track and drag racers. The
street category includes of street rods, muscle cars and sport utility vehicles.
The average customer is between 30 and 50 years old with annual income in excess
of $57,000 and purchases approximately $1,200 of performance automotive parts
annually. These customers are passionate about their vehicles and view enhancing
the performance and appearance of their vehicles as more than a hobby. We
believe that many of these customers derive their primary source of income from
building, refurbishing, both for personal use and for resale, and racing their
vehicles.
The rapid increase in the popularity of car racing, particularly NASCAR,
and the recent addition of NASCAR truck racing have been large factors in the
growth of the specialty/performance products market. Over the past ten years,
the growth rate of motorsports
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attendance has substantially outpaced that of other professional sports.
Attendance at NASCAR's major events has grown for 17 consecutive years. NASCAR's
attendance growth from 1990 to 1996 of approximately 66% equals the attendance
growth of the NBA, NHL, NFL and MLB combined. Raceways are experiencing record
attendance with over 15.4 million fans visiting a track in 1996. Motorsports
attendance is expected to increase 5.1% annually from 15.4 million in 1996 to
18.8 million in 2000. Motorsports television ratings and advertising revenues
are at record levels. Motorsports companies such as Speedway Motorsports,
International Speedway and Penske Motorsports have also built several
state-of-the-art superspeedways over the past 10 years, which have greatly
increased the visibility of sponsors and suppliers to the racing market.
Accordingly, this growth in motorsports interest is a significant driver of
the "do-it-yourself" performance aftermarket and a key part of our marketing
strategy.
PERFORMANCE AUTOMOTIVE PRODUCTS
The performance segment of the specialty/performance products market
consists of products and equipment that are designed to enhance street,
off-road, recreational and competitive vehicle performance through increased
horsepower, torque and acceleration. The performance automotive market (also
known as the "underhood" performance market) is a subsection of the
approximately $6.9 billion specialty/performance products market. The
performance automotive market has grown from approximately $565 million in 1992
to approximately $750 million in 1997, a compound annual growth rate of
approximately 5.9%, and it is expected to grow at a compound annual growth rate
of approximately 9.5% from 1997 through 2002. The performance automotive market
is typically grouped into the following six categories:
Induction Components. Induction components are products that transfer
gasoline, mix gasoline and air, and route or force the fuel/air mixture gases to
the cylinders. They include carburetors, fuel injection systems, intake
manifolds, forced induction products (super chargers, turbochargers and nitrous
oxide kits) as well as fuel pumps and regulators. Importantly, the induction
segment has grown from approximately $187 million in sales in 1992 to
approximately $247 million in 1997, and is expected to be the fastest growing
segment of the performance automotive market, growing from approximately $247
million in 1997 to an expected $410 million in 2002 (a compound annual growth
rate of 10.7%).
Ignition Components. Ignition components are designed to ignite the
fuel/air mixture at the optimal moment. They include distributors, ignition
coils, spark plugs and wires, performance computer chips as well as power
modules and ignition control boxes. The ignition component segment has grown
from approximately $101 million in sales in 1990 to approximately $136 million
in 1997.
Internal Engine Components. Internal engine components are hard parts that
make up the engine. They include cylinder heads, camshafts and valvetrain
components, timing sets, pistons, piston rings, engine bearings, oil pumps and
gaskets. The internal engine component segment has grown from approximately $452
million in sales in 1990 to approximately $526 million in 1997.
Performance Chemicals. Performance chemicals are proprietary formulations
of fuel system cleaning and octane boosting chemicals, packaged and distributed.
Performance chemicals are designed to boost performance by cleaning carbon and
varnish deposits and improving fuel economy and acceleration. The performance
chemicals segment has grown from approximately $45 million in sales in 1990 to
approximately $69 million in 1997.
Cooling Systems Products. Cooling system products are designed to cool the
engine block through the circulation of fluid through the block and the transfer
of heat through the radiator. Due to the high rpm and continuous use nature of
racing engines, performance cooling systems
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are designed to circulate more water at faster speeds than standard systems. The
cooling systems products segment has grown from approximately $11 million in
sales in 1990 to approximately $13 million in 1997.
Exhaust Products. Performance exhaust products are designed to reduce or
eliminate exhaust gas back pressure to improve engine efficiency and power.
Performance muffler systems are designed for reduced back pressure and for
specific sound tuning. The exhaust products segment has grown from approximately
$81 million in sales in 1990 to approximately $108 million in 1997.
CARBURETOR/FUEL INJECTION MARKET
Carburetors and fuel injection systems are the principal forms of fuel
management systems in the induction segment. A carburetor is a mechanical
apparatus used to supply internal combustion engines with a precise vaporized
fuel mixture. Fuel injection systems, which electronically monitor and deliver
the fuel-air mixture to engines in the correct ratios, have essentially replaced
carburetors (which are mechanical devices) in the original equipment market. For
the past eight years, all new vehicles have been manufactured with fuel
injection systems. As a result, carburetors are used primarily in the
aftermarket segment of the automotive parts industry, principally in the
performance market and in the original equipment replacement market where
remanufactured products are used for older vehicles.
The performance carburetor market is driven by automotive enthusiasts who
want to enhance the speed and performance of their vehicles. Through proper
mechanical adjustment and matching air and fuel delivery ratios, maximum
horsepower can be achieved. As a result, the racing market and the classic
hot-rod and muscle car market prefer carburetors to fuel injection systems for
speed, tunability and cost reasons. At the highest level of competition, NASCAR
and NHRA Pro Stock drag racing, every vehicle uses a carburetor.
The performance carburetor market grew in terms of both units and revenue
from 1992 through 1997. Units increased from approximately 462,000 to
approximately 524,000 -- a compound annual growth rate of approximately 2.6%.
Revenues increased from approximately $61 million to approximately $83
million -- a CAGR of approximately 6.4%, and these revenues are expected to
increase from approximately $83 million in 1997 to approximately $94 million in
2002. We believe the potential exists that over the long term the performance
carburetor market will decline given the move from carbureted vehicles to fuel
injected vehicles in certain niche markets. However, we are well positioned to
benefit from the forecasted short term growth of the carburetor market, given
our leading brand name and market share as well as the fact that our carburetors
are the only carburetion systems allowed in NASCAR racing.
An additional factor that may have a positive impact upon growth trends in
the performance carburetor market is new legislation in California, which may or
may not be implemented in other states which exempts vehicles manufactured
before 1974 from emissions testing. Recently, California amended its emission
laws to exempt owners of vehicles manufactured before 1974 from periodic
emission testing and certification requirements. The laws previously had
exempted only vehicles made before 1968. While this legislation did not change
requirements for approval of aftermarket parts associated with anti-tampering
laws, it is likely to make use of approved after-market parts more attractive by
allowing owners to avoid the inconvenience of emission testing and
certification, a process that can be especially burdensome for users of
aftermarket parts. Since the years 1968 through 1972 were the peak of Detroit
muscle car production, this legislative change is likely to have a positive
impact on our industry by removing a significant disincentive to use aftermarket
parts for those vehicles.
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REMANUFACTURED CARBURETOR MARKET
Remanufactured carburetors are repaired and reconditioned
previously-manufactured carburetors that are sold typically at lower prices than
new carburetors. Remanufactured carburetors are not part of the performance
market. Primary purchasers of remanufactured carburetors are consumers driving
older cars. The market for remanufactured carburetors is in decline as older
vehicles are replaced by newer, fuel injected vehicles; however, in 1997, there
were still approximately 51 million carbureted vehicles in operation on the
road. We have also recently introduced a line of remanufactured fuel injectors
that we believe will gain in popularity as the fleet of fuel injected vehicles
begins to reach maturity.
DISTRIBUTION
In recent years, the automotive aftermarket has undergone a significant
consolidation as distribution of aftermarket parts has shifted from traditional
"mom and pop" and three-step distributors to high-growth, large retailers and
mass merchandisers. This distribution evolution has been brought about primarily
by a substantial increase in consumers installing their own accessories and the
rise of large, efficient "category killer" retailers. Traditional distributors
relied primarily on dealer installers to reach the primary customer base for its
high-turn products. These repair outlets utilized local "jobber" stores to order
parts which were in turn supplied by regional warehouse distributors that
carried large supplies of parts, generally over 100,000 part numbers. The
decline of service stations as primary repair outlets combined with the rise of
"do-it-yourselfers" have left the traditional multi-tiered distribution network
vulnerable to more efficient, lower-cost distributors and retailers who purchase
directly from manufacturers and sell directly to professional installers or
consumers. As a result, jobber stores have experienced a significant
consolidation and have had to make a transition from being
wholesale/mini-warehouse outlets to full-service auto parts stores. This has
forced the traditional market into direct competition with highly sophisticated
retailers, some of whom also offer installation such as Pep Boys. We are well
positioned to capitalize on this consolidation as we believe we offer the
broadest product coverage and the ability to customize marketing and
distribution programs for our large retail customers.
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BUSINESS
GENERAL
Founded in 1903, Holley is a leading manufacturer and marketer of specialty
products for the performance automotive, marine and powersports aftermarkets.
Powersports vehicles include motorcycles, jet-skis, snowmobiles and go-carts.
Holley designs, manufactures and markets a diversified line of automotive
performance and racing products that include fuel, air, spark and internal
engine management systems. We design our products to enhance vehicle performance
through generating increased horsepower, torque and acceleration. Our products
include:
- - throttle body and multi-port fuel injection systems;
- - performance and remanufactured carburetors;
- - digital ignition systems;
- - distributors;
- - fuel pumps;
- - camshafts
- - crankshafts;
- - intake manifolds;
- - pistons;
- - super chargers;
- - exhaust systems;
- - headers, mufflers and motorcycle exhaust pipes;
- - cylinder heads;
- - water pumps;
- - throttle bodies;
- - nitrous oxide injection systems; and
- - performance plumbing products
In the performance automotive aftermarket, we have the most widely
recognized brand name and believe we have the broadest distribution network,
which includes:
- - specialized retailers;
- - performance wholesale distributors;
- - mail order retailers; and
- - original equipment manufacturers.
We have developed strong relationships with our customers in each
distribution channel, including leading companies such as:
- - Advance Auto Parts;
- - AutoZone;
- - CSK Auto;
- - Keystone;
- - O'Reilly;
- - Summit Racing;
- - Jeg's mail order;
- - GM Service Parts;
- - Volvo-Penta; and
- - Mercury Marine
For the twelve months ended October 3, 1999, we generated pro forma revenue
of $167.5 million, EBITDA of $25.6 million and net loss of $4.6 million.
We believe that our focus on the performance sector of the automotive
aftermarket, our dedication to quality and our commitment to the Holley brand
name have positioned Holley as a market leader. We believe we have the leading
market share of at least 60% in performance carburetors and an approximate 41%
market share in performance fuel injection systems. Additionally, we are a
market leader in remanufactured carburetors. The Holley name is one of the best
known automotive brands in the United States. According to a recent independent
marketing survey, the Holley name has 99% brand name recognition with
performance automotive consumers. This very high level of name recognition has
created significant brand equity and has established a strong platform from
which we can leverage our brand and expand our product offerings. For example,
as fuel injection is becoming an increasingly important part of the performance
market, we have used our strong brand name to enter this new and growing market
segment. In November 1988, Holley introduced its first performance throttle body
fuel injection system. Since that time, we have expanded our fuel injection
business to include broad
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coverage for both throttle body and multi-port systems for four, six and eight
cylinder applications, and today we are the market leader in performance fuel
injection systems.
We are committed to providing superior products and services to our
customers and believe that our comprehensive quality control and consumer
support programs position Holley as the industry leader in quality and service.
We are vertically integrated and endeavor to manufacture all critical components
and systems. We perform computer controlled tests on all our products prior to
shipment to ensure maximum reliability and "out of the box race
readiness" -- meaning each product is 100% tested and tuned for maximum
performance and is ready for installation. Additionally, we have a significant
focus on R&D to continually advance our technology and introduce new products.
Our R&D resources include a 14,000 square foot laboratory staffed by 24 degreed
engineers who are supported by highly trained technicians. In 1998, we
introduced 475 new products, leveraging the Holley name and capitalizing on our
superior R&D capability. Our commitment to quality and reputation for superior
performance is widely recognized by performance enthusiasts and racers at all
levels. For example, since 1969, every race-car on the NASCAR circuit has been
and continues to be equipped with a Holley carburetor. Another testament to our
quality is the many awards that we have won over the years, including NHRA 30
year achievement award, five-time IHRA Sportsman Sponsor of the Year award, Ford
Q1 award and numerous other industry and racing association awards.
BUSINESS STRATEGY
In 1997, Holley recruited a new management team that has successfully
embarked on a strategy to expand our product line and reposition Holley as a
diversified manufacturer and marketer of underhood performance systems, while
continuing to leverage Holley's historical strength in performance and
remanufactured carburetors. As a leading manufacturer of underhood performance
products, Holley is now well positioned to take advantage of the projected
growth in our marketplace. Our growth strategy includes both internal expansion
and acquisitions. The primary components of our business strategy are as
follows:
- Leverage the Holley Brand Name Through New Product Introductions. The
Holley name is widely recognized for superior performance. We believe that we
can leverage our strong brand name recognition and our reputation for quality
through new product introductions. In 1998, we introduced 475 new part numbers
and we have introduced over 1,100 new part numbers in 1999. Our new product
introductions will focus on the growing late model fuel injected domestic and
import performance markets. We will also continue to introduce new and
innovative products for the growing motorsports marketplace. For example, at the
SEMA trade show in November 1998 we introduced 353 new parts including a high
volume racing fuel pump that was selected the Best New Racing Product for 1999.
At the PRI (Racing) trade show the following month, we introduced an additional
122 new parts. Additionally, we believe we can leverage the Holley name with new
products we obtained through acquisitions.
- Market Our Products As Systems. We currently offer the most
comprehensive line of fuel, air, spark and internal engine management systems
and components in the industry. To address the growing complexity of modern
engines and to simplify the selling process with the retail consumer, we have
begun to market consumer friendly, fully integrated power systems. These systems
are comprised of integrated Holley products designed to enhance performance for
specific vehicle applications. This systems approach positions Holley to be a
category manager of the performance market at retail and simplifies the
consumer's buying decision process. We currently offer fully integrated power
systems and also sell separately the individual components that make up these
systems. This provides the consumer with maximum financial flexibility to either
buy the system incrementally or to acquire the system all at one time. This
strategy enables us to aggressively introduce complementary products and to
increase our market share in existing and new products.
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- Continue to Diversify Product and System Offerings. We are committed to
diversifying our product offerings away from our historical focus on carburetors
and associated components. Since 1997, we have targeted our new product and
business development efforts on non-carburetor market segments through
developing comprehensive underhood power packages for late model fuel-injected
vehicles. Overall, this strategy has been successful as our mix of performance
carburetor sales to total net sales has declined from 37.2% in 1997 to a pro
forma 25.6% in 1998, while our total dollar sales of performance carburetors
have increased by $5.0 million during this same time period.
- Improve Manufacturing Efficiency. We are committed to reducing operating
costs and improving manufacturing efficiency. In 1997, we implemented a program
to reduce manufacturing costs by changing our manufacturing operations from a
traditional inventory-intensive batch process to a productive and flexible "pull
through" cellular manufacturing system. In connection with this effort, we
introduced initiatives to consolidate manufacturing and warehousing operations
and reduce inventory levels. Additionally, we implemented a process to design
our new products to maximize manufacturing efficiency. These initiatives,
together with our acquisitions of Lunati and Weiand, have contributed to
increasing EBITDA margins to 13.8% in 1998 and 13.5% in the third quarter of
1999. We are currently a low cost producer in the industry. We believe that
there are still opportunities to reduce costs, particularly in our recently
acquired businesses, and we will continually evaluate our operations to improve
manufacturing efficiency.
- Leverage Distribution Channels. We have a diverse and broad distribution
network that encompasses retail chains, performance wholesale distributors, mail
order retailers and original equipment manufacturers. Given our strong
relationship with our customers and the importance of our brands to our key
customers, we believe that we are well positioned to benefit from the
consolidation occurring in the distribution channels. As our customers pursue
vendor consolidation and expanded services, Holley is well positioned to address
these needs. While we are a major supplier of performance products to most major
automotive parts distributors in all four distribution channels, we continually
seek to expand our customer base. We have recently been selected to be the
performance induction system category manager for Advance Auto Parts and have
recently started selling our performance products to CSK Auto and PACCAR. We are
also working to expand our distribution base both internationally and into new
markets such as marine and powersports aftermarkets.
- Pursue Strategic Acquisitions. The specialty/performance products market
is highly fragmented, and as a leader in our market, we are well positioned to
make strategic acquisitions. We intend to pursue acquisition opportunities that
expand our manufacturing capabilities, leverage our extensive distribution
network and enhance the Holley family of quality brand names. As part of this
strategy, we have completed three important acquisitions and have three
acquisitions pending. In July 1999, we acquired Hooker, a leading manufacturer
of performance exhaust systems, headers, mufflers and Harley-Davidson(R) exhaust
pipes. This acquisition complements Holley's existing product lines and enhances
our position as a leader in the underhood performance market. In October 1998,
we acquired Lunati, which manufactures and distributes internal engine systems
including performance camshafts, crankshafts, pistons, rods, and other
automotive products to the racing and street performance market under the well
known Lunati brand name. In August 1998, we acquired Weiand, a leading
manufacturer of induction systems components including intake manifolds, super
chargers and water pumps. In October 1999, we acquired FlowTech, NOS and Earl's,
as described below.
ACQUISITIONS
Hooker Industries, Inc. In July 1999, we acquired Hooker, a leading
manufacturer of performance exhaust systems, headers, mufflers and
Harley-Davidson(R) exhaust pipes under the well known brand "Hooker Headers."
The Hooker brand is the leading brand in racing exhaust headers and is the most
widely recognized brand in street performance headers. The addition of
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the Hooker business to our other air management products establishes Holley as
the only company to offer a comprehensive and integrated air intake and exhaust
management system. The newly introduced Hooker Header systems for the
Harley-Davidson(R) motorcycle market represents a significant growth
opportunity.
Lunati Companies. In October 1998, we acquired Lunati, which manufactures
and distributes internal engine systems including performance camshafts, crank
shafts, pistons, rods and other automotive products to the racing market under
the Lunati brand name. The Lunati acquisition added a well known name in the
performance aftermarket to the Holley family of brand names while broadening our
internal engine management product lines. The Lunati acquisition also enabled us
to enter the growing performance go-cart market and significantly increases our
exposure to the junior dragster market.
Weiand Automotive Industries. In August 1998, we acquired Weiand, a
leading manufacturer of induction systems components including intake manifolds,
super chargers and water pumps. Historically, Holley purchased and then resold
intake manifolds. The Weiand acquisition expanded our manufacturing capabilities
to include intake manifolds. Weiand is vertically integrated, manufacturing its
own castings at its aluminum foundry, which significantly increases our margins
on this product. Additionally, we consolidated all of Weiand's manufacturing
operations (other than the foundry) into our Bowling Green, Kentucky operation,
which has reduced costs and increased efficiency.
FlowTech. In October 1999, we acquired Biggs Manufacturing, Inc. (also
known as FlowTech), a leading manufacturer of performance exhaust systems,
headers, mufflers and exhaust accessories. The addition of the FlowTech business
to our Hooker exhaust and other air management products further complements and
completes our comprehensive air intake and exhaust management system offerings.
Also, this acquisition also provides us with immediate entry into the
performance muffler segment of the underhood performance market. FlowTech has
recently introduced its AIRMASS(TM) exhaust header for the growing import
performance market.
Nitrous Oxide Systems, Inc. In October 1999, we acquired NOS, the leading
manufacturer of nitrous oxide injection systems to the performance aftermarket.
Nitrous oxide injection systems significantly increase engine horsepower by
increasing the amount of air/fuel mixture delivered to the cylinders. NOS has a
strong position in the import performance market as well as in the drag racing
market. NOS complements our ability to offer a range of systems under the hood
which substantially increase horsepower and engine performance.
Earl's Performance Products. In October 1999, we acquired Earl's, a
provider of underhood performance fittings, brake lines and hoses. The Earl's
business completes our fuel management systems product offerings and expand our
cooling system business.
PRODUCTS
Our product line is broadly divided into two segments: (a) a full line of
performance products including induction components, internal engine components
and ignition components; and (b) remanufactured products.
Performance Products
We are a leading manufacturer of a diversified line of performance
automotive products that are designed to enhance street, off-road, recreational
and competitive vehicle performance through increased horsepower, torque and
acceleration. We hold a strong position in the performance segment due to our
brand preferences among car enthusiasts and racers. Our performance product
line, accounting for 83.4% of net sales for the twelve months ended October 3,
1999, is made up predominately of induction, internal engine and ignition
components.
Induction Components. Induction components are products that transfer
gasoline, mix gasoline and oxygen and route or force the mixed gases to the
cylinders. Induction components
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represent 61.3% of net sales for the twelve months ended October 3, 1999. The
induction components that we manufacture are as follows:
PRODUCT DESCRIPTION
- ------- -----------
Carburetors............................ Mechanical apparatus used to supply internal
combustion engines with a precise vaporized fuel
mixture and currently our largest single product
offering. We manufacture a broad range of
performance, remanufactured and specialty
carburetors.
Fuel Injection Systems................. Electronic apparatus which provides the engine
with a precise vaporized fuel mixture. We
manufacture a line of throttle body and multi-port
fuel injection systems for popular automotive and
marine applications.
Fuel Pumps............................. Transfer fuel from the fuel tank to the engine. We
manufacture, market and distribute a full line of
in-tank, external, mechanical and electronic fuel
pumps.
Intake Manifolds....................... Collect and direct air to the engine and are
designed to provide greater engine performance
through increasing torque and horsepower by better
directing the fuel-air mixture to the cylinders.
We manufacture a full line of aluminum performance
intake manifolds for both the automotive and
marine markets.
Cylinder Heads......................... Mounted on top of the engine, they house the
valves that control the fuel/air mixture flowing
in and the exhaust flowing out of the engine.
Performance cylinder heads can increase engine
performance through increased throttle response,
torque and acceleration.
Exhaust Systems. Exhaust systems convey exhaust gases from the engine and
reduce the level of environmental pollutants. Hooker and FlowTech are leading
manufacturers of exhaust systems components, which represent 14.4% of net sales
for the twelve months ended October 3, 1999. The exhaust system components that
we manufacture as a result of acquiring Hooker and FlowTech are as follows:
PRODUCT DESCRIPTION
- ------- -----------
Headers................................ Highly tuned exhaust manifolds which collect
exhaust gases from each cylinder and route the gas
to a central collection point. Headers are
designed to decrease back pressure and thus
enhance engine performance.
Mufflers............................... Sound deadening devices that use mechanical
dampers to suppress engine exhaust sound.
Performance mufflers are designed to either
enhance performance by reducing exhaust gas back
pressure or to produce particular sound patterns.
Exhaust Fittings....................... Cosmetic and performance tips that are either
welded or mechanically attached to the muffler or
exhaust pipe to improve vehicle cosmetics.
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Internal Engine Components. Internal engine components are the mechanical
parts within an engine that transfer power generated from internal combustion to
the vehicle's transmission. With the acquisition of Lunati, we successfully
entered the internal engine components segment of the market with a line of
performance camshafts, crankshafts, pistons and rods that are sold under the
well known "Lunati" brand name. Internal engine components represented 7.7% of
net sales for the twelve months ended October 3, 1999.
PRODUCT DESCRIPTION
- ------- -----------
Camshafts.............................. Operate the engine valves and can improve vehicle
performance by optimizing vehicle torque for both
street and competition use.
Crankshafts............................ Connected to the piston rods, they transmit power
to the vehicle's transmission.
Pistons................................ Moving in the cylinders, they capture the energy
of the internal combustion and transmit it to the
piston rods and crankshaft.
Rods................................... Transmit power from the pistons to the crankshaft.
Ignition Components. Ignition components ignite and cause combustion of
the fuel/air mixture in the cylinders at the optimal moment. In 1997, we
successfully entered the ignition components segment of the market with our
Annihilator(TM) ignition system, a complete digital ignition system. Even though
ignition systems accounted for less than 0.3% of 1998 pro forma net sales, we
believe that this segment provides an attractive growth opportunity and should
increase as a percentage of our net sales in the future.
PRODUCT DESCRIPTION
- ------- -----------
Digital Control Module................. Microprocessor controlled, fully programmable
(engine rpm based) ignition control system that
enables the user to specify engine timing
parameters. These parameters can include spark
timing, spark retard, establishing engine rpm
maximum ("rev limits") and other signals.
Coils.................................. Electrical charge collection and relay device
designed to amplify the electrical impulse being
sent to each spark plug to deliver a higher
current signal/spark.
Wire Sets.............................. Engine specific and universal fit wire bundles
designed to relay the spark signal from the
distributor to the spark plug with a minimum loss
in energy.
Billet Distributors.................... Precision machined electromechanical device that
controls the distribution of ignition spark signal
to each of the engines spark plugs.
Performance Chemicals and Cooling Systems. We recently introduced a line
of specialty chemicals which are effective in the internal cleansing of an
engine's fuel system. This line is being manufactured and distributed by a
private label chemical manufacturer but sold under the Holley brand name. As a
result of the Weiand acquisition, we entered the cooling systems segment of the
performance market with Weiand's performance water pumps. We view performance
chemicals and cooling systems as areas of growth and we have seen demand for
Weiand water pumps increase fivefold since acquiring Weiand.
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Remanufactured Carburetors/Fuel Injectors
We manufacture and market a line of remanufactured carburetors and fuel
injection components. Remanufacturing is the process of repairing,
reconditioning, recalibrating and cleaning used products. Our remanufactured
product line accounted for 15.8% of net sales for the twelve months ended
October 3, 1999. We are a leader in the remanufactured carburetors segment of
the automotive aftermarket, and we believe there is opportunity for growth from
the outsourcing of corporate fleet maintenance by companies with large fleets of
carbureted trucks. We recently introduced a line of remanufactured fuel
injectors for this marketplace and believe that this line will offset, over
time, the decline in remanufactured carburetor sales.
RESEARCH AND DEVELOPMENT
We constantly develop new products to respond to consumer demand, to
increase the performance characteristics of existing product lines and to expand
into new product lines. Over the course of our history, we have expanded our
business operations by developing and adapting product lines in response to
changing engine technology, such as our development of the Annihilator(TM)
ignition system and our performance throttle body and multi-port fuel injection
systems. The success of our R&D effort is evident from our introduction of over
475 new part numbers in 1998, including 353 new part numbers at the SEMA trade
show in November 1998, and our winning the 1999 SEMA Best New Racing Product
Award for our 500 gallon per hour electric fuel pump. Focusing primarily on fuel
injected vehicles, we have introduced over 1,100 new part numbers in 1999.
We recently completed the construction and installation of a 14,000 square
foot R&D laboratory at our Bowling Green facility. Operated by 24 degreed
engineers who are supported by highly trained technicians, this R&D facility has
a full complement of engineering and testing equipment including five state of
the art dynamometers used for full scale engine analysis, 12 computer modeling
stations and a full range of environmental testing capabilities. We believe that
this facility is unmatched in the performance automotive market. In 1997, we
spent approximately $2.7 million on R&D, in 1998 we spent approximately $2.3
million, and we anticipate total expenditures of approximately $2.5 million on
R&D in 1999.
DISTRIBUTION
We believe we have the broadest distribution network in the industry and
sell through retail, wholesale, mail order and original equipment manufacturer
segments. Our products are sold in all 50 states and Canada and to a lesser
degree to other export markets. Although we believe we have the broadest
distribution in the industry, we are continually trying to expand our customer
base. Our largest and fastest growing distribution channel is mail order which
includes our two largest customers, Summit Racing and Jeg's. On a pro forma
basis for 1998, Summit Racing, our single largest customer, accounted for 13.8%
of net sales, and our second largest customer, Jeg's, accounted for
approximately 7%. The retail channel includes mass merchandisers and auto parts
retailers with the majority of our retail sales through auto parts retailers
which include Advance Auto Parts, AutoZone, CSK Auto and Pep Boys. We have
recently been selected to be the performance induction system category manager
for Advance Auto Parts and have recently started selling our performance
products to CSK Auto and PACCAR. Wholesale distribution is the industry's
traditional channel and a major outlet for our performance products. Significant
customers include Keystone, O'Reilly and The 3-Star, AAM and USP buying groups.
We manufacture performance products for and sell directly to original
equipment manufacturers including the "Big Three" automakers as well as
manufacturers of marine applications, material handling and stationary power
equipment. Approximately 9.2% of our 1998 pro forma net sales came from direct
performance product sales to original equipment manufacturers, and our largest
original equipment manufacturer accounts are with the marine inboard engine
manufactur-
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ers -- Volvo/Penta, Mercury Marine and others. We see an opportunity to expand
our high margin original equipment manufacturer business through applications
such as personal watercraft, go-carts, snowmobiles and motorcycles.
While not a specific distribution channel, we export products to several
U.S.-based suppliers that have worldwide distribution capabilities. Export
products are used for American-made automobiles throughout Europe, Australia,
Asia, South America and Central America and represented approximately 4.5% of
our 1998 pro forma net sales. We believe that the export market represents a
significant growth opportunity for us to leverage Holley's racing brand
awareness and capitalize on the current trend of increasing interest in the
performance market overseas.
MARKETING
We have an experienced sales force of 18 outside and 15 in-house
salespersons, and we support our sales efforts with extensive advertising and
promotional programs. We focus our advertising and promotional efforts on NASCAR
because of its importance in the motorsports industry and influence on the
performance aftermarket. In addition, we sponsor many of the nation's other
leading racing sanctioning bodies, including the IHRA and the NHRA, as well as
key motor sports associations including the National Street Rod Association, the
World Karting Association and the National Muscle Car Association. We also
sponsor different national events including the Holley Spring Nationals drag
racing event, Hot Rod Magazine East and West Coast Power Tours, the Rod and
Custom Americruise and the Hot Rod Magazines' Power Club.
To ensure that we understand and appreciate the needs of our customers, we
operate three touring display trailers carrying our products and catalogs and
personnel. These trailers, one of which is a 64 foot -- 18 wheel trailer and two
of which are 35 foot -- 5th wheel trailers, travel to approximately 125 events
nationally including automotive racing events, specialty automotive shows,
retail store openings and distributor open houses. This visible presence at
these events enables us to elicit customer comments regarding their preferences
and suggestions for new or modified products. We also maintain a technical
hotline, e-mail address and web page to assist consumers with installation and
application questions. A total of 22 qualified technicians handle approximately
53,000 inquiries per year.
RAW MATERIALS
We purchase raw materials typically in the form of components for our
various products from many different suppliers. These materials include items
such as various castings and forgings of metal components, gaskets, plastic
components and other similar components of our products. Holley has one
significant supplier of raw materials, which is Gerrity-Schultz, a zinc foundry
operator that supplies us with zinc castings for our performance carburetors. We
buy the zinc castings, which are essentially blocks of zinc-based metal roughly
in the dimensions of our carburetors, which we further machine and customize
into our finished carburetors. We buy the castings in bulk on prices that are
negotiated to be firm for six months, regardless of change in the price of the
zinc and other base materials during that period. The materials we buy from this
supplier account for approximately 12% of our total raw material purchases.
Other than Gerrity-Schultz, there are few other zinc foundries in the country,
and the tooling we own for the zinc castings are specifically designed for the
Gerrity-Schultz equipment. In 1999, our top seven suppliers, including
Gerrity-Schultz, accounted for approximately 32.7% of our total raw material
purchases; our top six suppliers, other than Gerrity-Schultz, accounted for
16.1% of our raw material purchases. However, no one supplier other than
Gerrity-Schultz accounted for more than 3.7% of our total raw material purchases
in 1999, with an average of approximately 1.7% for each of our top twenty
suppliers. We have two or more sources of supply for all of our significant raw
materials supplied to us, other than the materials supplied by Gerrity-Schultz.
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TRADEMARKS AND PATENTS
Holley and its subsidiaries have registered or are in the process of
registering approximately 90 trademarks on the names and logos of the various
companies and their products in the U.S. and other countries. We utilize our
trademarks to establish our brand position, to distinguish the Holley products
from others in the marketplace and to establish brand loyalty to the Holley
family of products. We actively seek to register and protect our trademark and
related rights. None of our important trademarks are scheduled to expire in the
near term, and can be renewed at Holley's discretion.
Holley and its subsidiaries have approximately 43 patents on various
products registered in the U.S. and other countries. We utilize our patents to
protect our proprietary designs in the marketplace, to distinguish Holley
products from others in the marketplace and to establish brand loyalty to the
Holley family of products. We expect to register additional patents for future
products and to actively protect our patent and related rights. None of Holley's
important patents are scheduled to expire in the near term.
FACILITIES
We have eight manufacturing facilities located in Bowling Green, Kentucky,
Springfield, Tennessee, Los Angeles and Ontario, California, Memphis, Tennessee,
Phoenix, Arizona and Ciudad Industrial and Sonoita, Sonora, Mexico and we
believe that each is well maintained and suitable for its purpose. As part of
our business strategy, we endeavor to manufacture in our facilities all critical
components and systems. However, to complete certain products, we outsource
certain processes to third parties. Our approximately 220,000 square foot
manufacturing and distribution facility in Bowling Green, Kentucky sits on 15.4
acres and also is our headquarters. At this location, we manufacture, package
and distribute carburetors, intake manifolds, electric fuel pumps and fuel
injection systems. In connection with the management change in 1997, we focused
on reducing costs and increasing our manufacturing efficiency. As part of this
program, we transformed the manufacturing process at our Bowling Green facility
from an inventory intensive batch process to a pull-through cellular
manufacturing operation with 45 manufacturing cells managed by employee
self-directed teams. The implementation of the cellularized operation resulted
in a productivity increase of 17.3%, as measured by net sales per employee, and
our management believes that there are still opportunities for productivity
improvements within the system. In the third quarter of 1999, we completed
construction of a new approximately 110,000 square foot distribution facility in
Bowling Green, Kentucky. We will move all of our performance products
distribution functions to this facility, allowing us to expand our manufacturing
operations at our current facilities.
Our remanufactured carburetor operation is located in Springfield,
Tennessee. This approximately 95,000 square foot facility is also completely
cellularized with seven manufacturing cells that are managed by employee
self-directed teams. We lease the Springfield facility on a year to year basis
from the local industrial authority at a rate of one hundred dollars ($100) per
year. The Springfield local industrial authority financed the building's
construction with an industrial revenue bond, and in turn leases the building to
Holley at sub-market rates in order to attract Holley to Springfield. We can
purchase the building at any time for $100, but would then become subject to
property taxes on the building. The lease expires in November 2001, and we
currently intend to continue leasing this property through such term.
In connection with the Weiand acquisition, we acquired a leasehold interest
in an approximately 30,000 square foot aluminum foundry located in Los Angeles,
California. The other manufacturing operations of Weiand were moved to our
Bowling Green facility. The foundry ensures a reliable supply of quality
castings on a cost-effective basis. We employ over forty employees at the
foundry which operates four pouring stations and four mold machines to produce
components used in the manufacture of manifolds and other performance parts. In
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connection with the Lunati acquisition, we acquired a leasehold interest in an
approximately 30,000 square foot manufacturing facility located in Memphis,
Tennessee. This location manufactures, packages and distributes camshafts,
crankshafts, pistons and rods. During the third quarter of 1999, the Memphis
facility completed a transition of its manufacturing operations from a
traditional batch and queue manufacturing operation to a cellularized system.
Hooker has a manufacturing facility in Ciudad Industrial, Mexico and an
administrative office in Ontario, California. Hooker leases the land and
buildings in Ontario, California from H & S Properties, Inc. pursuant to various
lease agreements, which expire August 31, 2003. The lease agreements do not
provide for any renewal options upon completion of the current lease term. The
monthly rent payments are subject to adjustment based upon the consumer price
index. Hooker leases the land and buildings in Ciudad Industrial, Mexico from a
third-party. The lease was recently renewed for a term ending July 31, 2004. The
lease does not provide for rent escalations during this period.
SEASONALITY
Our operations experience slight seasonal trends which generally affect the
overall automotive aftermarket industry. Historically, our revenues are highest
in the spring, during our second fiscal quarter, which marks the beginning of
the racing season and when the weather is better suited for outdoor automotive
repair activity. Seasonality has a more prevalent effect on our remanufacturing
facility in Springfield, and accordingly, we occasionally hire temporary
employees to respond to peak demand.
COMPETITION
There is significant competition in the performance automotive products
segment, and we compete with many other companies and individuals in the
manufacture and sale of performance automotive parts. We compete primarily on
the basis of product performance, brand name, quality, service and price. Some
of our competitors are substantially larger and have greater financial resources
than we do. Within our performance products line, we primarily compete with
Edelbrock Corporation, a public company, though we also compete against smaller,
specialized producers of performance automotive products. Holley and Edelbrock
are the only two companies that currently provide products for nearly all
product segments of the performance market. We view this situation as a
significant opportunity for Holley, and accordingly, we seek to capitalize on
this opportunity by making strategic acquisitions in this fragmented industry.
COMPLIANCE WITH ENVIRONMENTAL LAWS
Holley is subject to environmental laws affecting several aspects of our
operations, including principally automobile emissions and soil and water
protective laws. State and federal laws govern automobile exhaust emissions,
which directly affect the design of and our ability to sell many of our
products, including our carburetors and exhaust products. For example,
increasingly restrictive automotive emission laws are continually reducing the
use of carburetors in vehicles, and thus are reducing the market for carburetors
that we sell. Thus, because some of our products are affected by various
emissions laws, our product sales are partially dependent upon such laws. Also,
our real estate properties are subject to all applicable federal, state and
local environmental laws protecting the air, soil and groundwater. Our
manufacturing plants and other locations must remain in compliance with such
environmental laws, which requires us to maintain, monitor and upgrade our
physical properties and equipment, and take remedial cleanup actions in the
event of any discharges in violation of applicable laws.
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EMPLOYEES
As of September 30, 1999, we had approximately 938 employees, approximately
44 of whom are part-time, 704 are hourly and 198 are full-time/salaried. None of
our employees are represented by labor unions, and we provide a comprehensive
benefits program to all full-time employees. Our commitment to our employees has
led to high levels of employee loyalty, low turnover and a positive working
relationship between management and the employees. In Bowling Green our
employees average 57 years of age and 32 years of service with Holley, while our
employees in Springfield average 38 years of age and seven years of service.
Hooker has approximately 362 employees, including approximately 315 in Mexico
and 47 in California.
LEGAL PROCEEDINGS
In May 1999, Union Pacific Railroad Company initiated litigation against
Weiand and others in federal district court for the Central District of
California alleging that certain soil and groundwater contamination discovered
on the Union Pacific property in Los Angeles migrated from the adjacent Weiand
facility and, therefore, Weiand is responsible for costs related to
investigation and remediation. The complaint seeks costs in the amount of $4.5
million already incurred and at least an additional $800,000 in future response
costs, as well as an injunction directing Weiand to abate the alleged
contamination. At this time, we are unable to assess the likelihood of an
unfavorable outcome or, in the event of such an outcome, the amount of any
resulting liability. We are investigating the claims of Union Pacific and the
property owner and intend to defend them vigorously. Recently, we discovered
possible significant soil contamination on the Weiand property, which has not
yet been confirmed or assessed. The property owner may assert claims for damage
to the property. Holley intends to defend any such claims vigorously.
We have been named as defendants in a number of legal actions arising from
normal business activities. Although the amount of any ultimate liability with
respect to such matters cannot be precisely determined, we do not expect any
such liability to have a material adverse effect on our overall operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each person
who is an executive officer or a member of the Board of Directors (a "Director")
of Holley.
NAME AGE POSITION
- ---- --- ------------------------------------------
Jeffrey G. King........................... 37 Chief Executive Officer, President and
Director
James R. Vance............................ 39 Executive Vice President and Chief
Operating Officer
Robert L. Wineland........................ 44 Vice President, Chief Financial Officer
and Secretary
John H. Nickoloff......................... 47 Vice President and General Manager --
Remanufacturing Business
William H. Bass........................... 50 Vice President -- Marketing and Sales
Christopher Lacovara...................... 34 Vice President, Treasurer, Assistant
Secretary and Director
Evan D. Wildstein......................... 28 Assistant Secretary and Director
James A. Kohlberg......................... 41 Director
Marion H. Antonini........................ 68 Director
William F. Andrews........................ 67 Director
James D. Wiggins.......................... 51 Director
Samuel P. Frieder......................... 34 Director
Jeffrey G. King. Chief Executive Officer, President and Director. Mr. King
joined Holley as Chief Executive Officer in 1997. Prior to joining Holley, Mr.
King was Executive Vice President and Chief Operating Officer of Lincoln Brass
Works, where he began in 1994 as Vice President of Sales and Marketing. From
1984 to 1994, he held positions with increasing responsibility at Arvin
Industries, an automotive systems and components company, ultimately becoming
the manager of new business development for its electronics unit, director of
sales and marketing and business unit manager for Arvin's Gabriel Ride Control
Products.
James R. Vance. Executive Vice President and Chief Operating Officer. Mr.
Vance joined Holley as Chief Operating Officer in 1997. Prior to joining Holley,
Mr. Vance served as Vice President of Operations at U.S. Industries, Inc., a
lighting manufacturer, from 1994 to 1997, where he had total operational
responsibility for four manufacturing facilities with total annual revenues
exceeding $70 million. Prior to 1994, Mr. Vance worked at Cooper Industries,
Inc. from 1989 to 1994, where he served as a plant manager in a 350 person
florescent lighting products facility.
Robert L. Wineland. Vice President, Chief Financial Officer and Secretary.
Mr. Wineland joined Holley as Chief Financial Officer in 1997. From 1993 to
1997, Mr. Wineland served as Vice President of Finance at the France Compressor
Products division of Coltec, a multiplant, international manufacturer of sealing
components and valves for industrial compressors.
John H. Nickoloff. Vice President and General Manager -- Remanufacturing
Business. Mr. Nickoloff joined Holley as Vice President in 1994. Prior to
joining Holley, Mr. Nickoloff served as a Plant Manager for Frigidaire (White
Consolidated Industries) from 1975 to 1994, and was a manager of JIT
manufacturing systems in other Frigidaire plants.
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William H. Bass. Vice President Marketing and Sales. Mr. Bass joined
Holley in February 1999. From 1988 to January 1999, Mr. Bass was employed with
Petersen Publishing Company, the publisher of Hot Rod, Motor Trend and Car Craft
and 50 other magazines and publications, in various positions, including
Southern Regional Advertising Sales Manager. Mr. Bass has been involved in
advertising and marketing in the specialty automotive aftermarket industry for
over 30 years.
Christopher Lacovara. Vice President, Treasurer, Assistant Secretary and
Director. Since 1995, Mr. Lacovara has been a Principal of Kohlberg & Company.
Prior to that, he was an associate at Kohlberg & Company, which he joined in
1988. Mr. Lacovara is also a director of Northwestern Steel and Wire Company.
Evan D. Wildstein. Assistant Secretary and Director. Since December 1999,
Mr. Wildstein has been a Principal of Kohlberg & Company. Prior to that, he was
an associate with Kohlberg & Company, which he joined in 1994. Mr. Wildstein is
also a director of Magnavision Corp.
James A. Kohlberg. Director. Mr. Kohlberg is the Managing Principal of
Kohlberg & Company, which he co-founded in 1987. Mr. Kohlberg is also a director
of Northwestern Steel and Wire Company.
Marion H. Antonini. Director. Mr. Antonini joined Kohlberg & Company as a
Principal in 1998. Prior to joining the firm, since 1990 Mr. Antonini was
Chairman, President and Chief Executive Officer of Welbilt Corporation, a
diversified manufacturer and distributor of commercial foodservice equipment and
kitchen appliances. Mr. Antonini is also a director of Vulcan Materials Company,
Engelhard Corporation and Scientific-Atlanta.
William F. Andrews. Director. Mr. Andrews has been Chairman of Scovill
Fasteners, Inc. since 1995. From 1993 to 1995, Mr. Andrews was Chairman and
Chief Executive Officer of Amdura Corporation, a manufacturer of hardware and
industrial equipment. Mr. Andrews is also a director of Black Box Corporation,
Corrections Corporation of America, Johnson Controls, Inc., Katy Industries,
Navistar International Corp., Northwestern Steel and Wire Co., Dayton Superior
Corp. and Southern New England Telephone Company.
James D. Wiggins. Director. Since 1996, Mr. Wiggins has been the Group
President of the Stant/Schrader Group of The Gates Rubber Co., a manufacturer of
automobile tire valves and accessories. Prior to that time, Mr. Wiggins was
President and Chief Executive Officer of Bridge Products, Inc. from 1987 through
its acquisition by Schrader, Inc. in 1996.
Samuel P. Frieder. Director. Mr. Frieder has been a Principal of Kohlberg
& Company since 1995. Prior to that, he was an associate at Kohlberg & Company,
which he joined in 1989.
EXECUTIVE COMPENSATION
Compensation of Directors. Directors who are officers or employees of
Holley receive no additional compensation for serving on the Board of Directors.
Our non-employee members of the Board of Directors receive reimbursement for
expenses incurred in attending meetings.
Compensation of Executive Officers. The following table shows, for the
fiscal year ended on December 31, 1998, the compensation paid to or earned by
our Chief Executive Officer and four other most highly compensated executive
officers who were serving at the end of fiscal 1998.
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SUMMARY COMPENSATION TABLE
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(2)
- --------------------------- ---- -------- -------- ----------
Jeffrey G. King(1)................................... 1998 $112,241 $250,000 1,467,304
Chief Executive Officer
James R. Vance(1).................................... 1998 68,571 103,500 1,024,216
Chief Operating Officer
Robert L. Wineland(1)................................ 1998 59,249 75,000 733,725
Chief Financial Officer
John H. Nickoloff(1)................................. 1998 64,316 74,025 440,235
Vice President -- Remanufacturing
- ---------------
(1) Each of the executives participates in Holley's 401(k) plan. Under the plan,
Holley matches contributions 100% up to a maximum of 6% of the participant's
total salary and bonus for that year. In 1998, Holley paid the following
amounts in 401(k) matches: James R. Vance -- $4,025; Robert L.
Wineland -- $3,500; John H. Nickoloff -- $3,603. Each of the executives also
participates in Holley's group health and dental insurance plan.
(2) Options to buy stock of Holdings, the direct parent of Holley, granted in
1998.
POTENTIAL
OPTION GRANTS IN LAST FISCAL YEAR REALIZABLE VALUE AT
----------------------------------------- ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE OF FOR OPTION TERM
OPTIONS EMPLOYEES BASE PRICE EXPIRATION -----------------------
NAME GRANTED IN FISCAL YEAR ($/SH) DATE 5% 10%
- ---- ---------- -------------- ----------- ---------- ---------- ----------
Jeffrey G. King -- C.E.O.............. 1,467,304 40.03% $1.50 05/15/2008 $1,384,169 $3,507,757
James R. Vance -- C.O.O............... 1,024,216 27.94 1.50 05/15/2008 966,186 2,448,505
Robert L. Wineland -- C.F.O........... 733,725 20.02 1.50 05/15/2008 692,154 1,754,053
John H. Nickoloff -- V.P. (Reman)..... 440,235 12.01 1.50 05/15/2008 415,292 1,052,432
--------- ------ ---------- ----------
Total......................... 3,665,480 100.00% $3,457,801 $8,762,747
========= ====== ========== ==========
RETIREMENT AND SEVERANCE PLANS
401(k) Plans. Holley maintains two 401(k) savings plans, one of which is
for salaried employees and one of which is for hourly employees. Under the
401(k) plans, participating employees can make pre-tax deferrals. The 401(k)
plans have a matching feature pursuant to which Holley may make a discretionary
contribution from its own funds to match some or all of a participating
employee's pre-tax contributions. The 401(k) plans do not permit participating
employees to make after-tax contributions. Both of the 401(k) plans are designed
to be qualified under Section 401(a) of the Internal Revenue Code of 1986 and
exempt from tax under Section 501(a).
Pension Plans. Holley also maintains a qualified defined benefit pension
plan. Holley provides benefits to participating employees based on the
employment status of each participant as an hourly or salaried employee. Holley
makes all contributions to fund the benefits that the pension plan provides. The
pension plan is designed to be qualified under tax code Section 401(a) and
exempt from tax under code section 501(a). Under the pension plan, normal
retirement age is 65, though participants may retire as early as age 55 with ten
years of credited service and receive a reduced benefit. The estimated annual
benefits payable upon retirement at normal retirement age for each of the Named
Executive Officers is as follows: Mr. King $65,000; Mr. Vance $61,000; Mr.
Nickoloff $51,000; and Mr. Wineland $76,000.
Severance Plan. Mr. King, Mr. Vance, Mr. Wineland and Mr. Nickoloff each
are covered by the Company's 1998 Severance Policy. The policy provides for a
severance payment equal to the greater of six months of such persons' annual
salary or one month's salary for every year of employment in the event his
employment is involuntarily terminated.
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CERTAIN TRANSACTIONS
RELATIONSHIP WITH KOHLBERG
Pursuant to a fee arrangement, Holley pays Kohlberg & Co., L.L.C. an annual
management fee (plus expenses) of $850,000 for certain management and advisory
services, which is subject to increase if Kohlberg invests additional capital in
Holley. The management fee agreement terminates on the earlier of Kohlberg &
Co., L.L.C. terminating the agreement by written notice to Holley, April 1, 2009
or the end of the fiscal year in which Kohlberg & Co., L.L.C. beneficially owns
less than 25% of Holley's outstanding common stock. In 1998, we paid Kohlberg &
Co., L.L.C. an aggregate of $405,000 under this management fee agreement. We
believe these terms are as favorable to Holley as those that could have been
obtained from independent third parties and arms-length negotiations.
SECURITY OWNERSHIP
The following table sets forth the ownership of Holley's common stock as of
December 31, 1998 by our directors, executive officers, persons known by us to
own more than 5.0% of our common stock and all our directors and executive
officers as a group.
AGGREGATE
NUMBERS OF SHARES PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OWNED
- ------------------------------------ ------------------ ----------
KHPP Holdings, Inc.(1)...................................... 1,000 100%
Directors and executive officers as a group (12
persons)(2)............................................... -- --
- ---------------
(1) KHPP Holdings, Inc.'s business address is: c/o Kohlberg & Co., LLC, 111
Radio Circle, Mt. Kisco, New York, 10549. The voting common stock of KHPP
Holdings, Inc. is owned beneficially and of record as follows: KHPP
Acquisition Co., L.P. -- 97.1%; Jeffrey G. King -- 0.4%; Robert L.
Wineland -- 0.2%; James R. Vance -- 0.3%; John Nickoloff -- 0.1%; and other
unaffiliated investors -- 1.9%. James A. Kohlberg indirectly owns 100% of
KHPP Acquisition Co., L.P. Mr. King, Mr. Wineland, Mr. Vance and Mr.
Nickoloff also hold the same officer positions with KHPP Holdings, Inc. as
they hold with Holley. The business address of each such persons is: c/o
Holley Performance Products Inc., 1801 Russellville Rd., Bowling Green,
Kentucky 42101.
(2) The directors and officers of Holley do not own (beneficially or of record)
common stock of Holley, but own common stock of KHPP Holdings, Inc., which
owns all of the common stock of Holley. See footnote (1) above.
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DESCRIPTION OF THE EXCHANGE NOTES
You can find the definitions of various terms used in this description
under the subheading "-- Definitions." In this description, the word "Holley"
refers only to Holley Performance Products Inc. and not to any of its
subsidiaries. When we refer to notes in this section, we mean the exchange notes
and also the outstanding notes.
The Company issued the notes and will issue the exchange notes under an
indenture among itself, the Guarantors and State Street Bank and Trust Company,
as trustee. The terms of the exchange notes include those stated in the
indenture and those made part of the indenture by reference to the Trust
Indenture Act of 1939.
The following description is a summary of the material provisions of the
indenture. It does not restate that agreement in its entirety. We urge you to
read the indenture because it, and not this description, defines your rights as
holders of these notes. You can obtain a copy of the indenture from the trustee.
BRIEF DESCRIPTION OF THE NOTES AND THE SUBSIDIARY GUARANTEES
The Notes
These notes:
- are general unsecured obligations of Holley;
- are equal in right of payment to all existing and future senior
Indebtedness of Holley;
- are senior in right of payment to all future subordinated Indebtedness of
Holley; and
- are unconditionally guaranteed by the Guarantors.
The Subsidiary Guarantees
These notes are guaranteed by all of Holley's existing Domestic Restricted
Subsidiaries.
The subsidiary guarantees:
- are general unsecured obligations of each Guarantor;
- are equal in right of payment to all existing and future senior
Indebtedness of each Guarantor; and
- are senior in right of payment to all future subordinated Indebtedness of
each Guarantor.
The exchange notes will be issued solely in exchange for an equal principal
amount of outstanding notes pursuant to the exchange offer. The form and terms
of the exchange notes will be identical in all material respects to the form and
terms of the outstanding notes except that (a) the exchange notes will have been
registered under the Securities Act and (b) the registration rights and
contingent liquidated damages provisions applicable to the outstanding notes are
not applicable to the exchange notes.
The notes and each Subsidiary Guarantee will be effectively subordinated in
right of payment to all existing and future secured Indebtedness of Holley and
the applicable Guarantor, respectively, with respect to the assets securing such
Indebtedness. Assuming completion of the offering of these notes and application
of the net proceeds as intended and that $5 million of new equity was invested
by Kohlberg & Co., L.L.C., as of October 3, 1999, Holley and the Guarantors
would have had total senior Indebtedness of approximately $152.4 million,
consisting of the notes offered hereby and approximately $7.9 million of secured
Indebtedness outstanding under our revolving credit facility. The indenture will
permit us and the Guarantors to incur additional secured Indebtedness.
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As of the date of the indenture, all of our subsidiaries will be
"Restricted Subsidiaries." However, under the circumstances described below
under the subheading "Covenants -- Designation of Restricted and Unrestricted
Subsidiaries," we will be permitted to designate some of our subsidiaries as
"Unrestricted Subsidiaries." Unrestricted Subsidiaries will not be subject to
many of the restrictive covenants in the Indenture. Unrestricted Subsidiaries
will not guarantee these notes.
Our Foreign Restricted Subsidiaries and our future Domestic Restricted
Subsidiaries that are not Wholly Owned Restricted Subsidiaries will not be
required to guarantee these notes. In the event of a bankruptcy, liquidation or
reorganization of a non-guarantor subsidiary, the non-guarantor subsidiary will
pay the holders of its debt and its trade creditors before it will be able to
distribute any of its assets to us.
PRINCIPAL, MATURITY AND INTEREST
The indenture will permit Holley to issue notes with a maximum aggregate
principal amount of $250.0 million, of which $150.0 million will be issued in
this exchange offer. The Company will issue notes in denominations of $1,000 and
integral multiples of $1,000. The notes will mature on September 15, 2007.
Interest on these notes will accrue at the rate of 12 1/4% per annum and
will be payable semi-annually in arrears on March 15 and September 15,
commencing on March 15, 2000. Holley will make each interest payment to the
holders of record of these notes on the immediately preceding March 1 and
September 1.
Interest on these 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 has given wire transfer instructions to Holley, Holley will
make all principal, premium and interest payments on those notes in accordance
with those instructions. All other payments on these notes will be made at the
office or agency of the Paying Agent and Registrar within the City and State of
New York unless Holley elects to make interest payments by check mailed to the
holders at their address 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 Company
may change the Paying Agent or Registrar without prior notice to the holders of
the notes, and Holley or any of its Subsidiaries may act as Paying Agent or
Registrar.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the Indenture.
The Registrar and the trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and Holley may require a
holder to pay any taxes and fees required by law or permitted by the indenture.
Holley is not required to transfer or exchange any note selected for redemption.
Also, the Company 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.
BOOK-ENTRY; DELIVERY AND FORM
The exchange notes will be issued in the form of a global note. The global
note will be deposited with, or on behalf of, DTC and registered in the name of
DTC or its nominee. Except
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as set forth below, the global note may be transferred in whole or in part, only
to DTC or another nominee of DTC. Investors may hold their beneficial interests
in the global note directly through DTC if they have an account with DTC or
indirectly through organizations which have accounts with DTC.
Exchange notes that are issued as described below under "-- Certificated
Exchange Notes" will be issued in definitive form. Upon the transfer of an
exchange note in definitive form, such exchange note will, unless the global
note has previously been exchanged for exchange notes in definitive form, be
exchanged for an interest in the global note representing the principal amount
of exchange notes being transferred.
Certain Book-Entry Procedures for the Global Note
The descriptions of the operations and procedures of DTC, Euroclear and
Cedel Bank set forth below are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to change by them from time to time. We take
no responsibility for these operations or procedures, and investors are urged to
contact the relevant system or its participants directly to discuss these
matters.
DTC has advised us that it is:
- a limited purpose trust company organized under the laws of the State of
New York;
- a "banking organization" within the meaning of the New York Banking Law;
- a member of the Federal Reserve System;
- a "clearing corporation" within the meaning of the Uniform Commercial
Code, as amended; and
- a "clearing agency" registered pursuant to Section 17A of the Exchange
Act.
DTC was created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to the
accounts of its Participants, thereby eliminating the need for physical transfer
and delivery of certificates. DTC's Participants include securities brokers and
dealers (including the initial purchasers of the outstanding notes), banks and
trust companies, clearing corporations and other organizations. Indirect access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, the "Indirect Participants"), that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly. Investors who are not Participants may beneficially own
securities held by or on behalf of DTC only through Participants or Indirect
Participants.
We expect that pursuant to procedures established by DTC:
- upon deposit of the global note, DTC will credit the accounts of
Participants with an interest in the global note; and
- ownership of the exchange notes will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by
DTC, with respect to the interests of Participants, and the records of
Participants and the Indirect Participants, with respect to the interests
of persons other than Participants.
The laws of some jurisdictions may require that purchasers of securities
take physical delivery of such securities in definitive form. Accordingly, the
ability to transfer interests in the notes represented by a global note to such
persons may be limited. In addition, because DTC can act only on behalf of its
Participants, who in turn act on behalf of persons who hold interests through
Participants, the ability of a person having an interest in exchange notes
represented by
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a global note to pledge or transfer such interest to persons or entities that do
not participate in DTC's system, or to otherwise take actions in respect of such
interest, may be affected by the lack of a physical definitive security in
respect of such interest.
So long as DTC or its nominee is the registered owner of the global note,
DTC or such nominee, as the case may be, will be considered the sole owner or
holder of the exchange notes represented by the global note for all purposes
under the indenture. Except as provided below, owners of beneficial interests in
the global note will not be entitled to have exchange notes represented by such
global note registered in their names, will not receive or be entitled to
receive physical delivery of certificated notes, and will not be considered the
owners or holders thereof under the indenture for any purpose, including with
respect to the giving of any direction, instruction or approval to the trustee
thereunder. Accordingly, each holder owning a beneficial interest in the global
note must rely on the procedures of DTC and, if such holder is not a Participant
or an Indirect Participant, on the procedures of the Participant through which
such holder owns its interest, to exercise any rights of a holder of exchange
notes under the Indenture or such global note. We understand that under existing
industry practice, in the event that we request any action of holders of
exchange notes, or a holder that is an owner of a beneficial interest in the
global note desires to take any action that DTC, as the holder of such global
note, is entitled to take, DTC would authorize the Participants to take such
action and the Participants would authorize holders owning through such
Participants to take such action or would otherwise act upon the instruction of
such holders. Neither we nor the trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of exchange notes by DTC, or for maintaining, supervising or reviewing any
records of DTC relating to such exchange notes.
We expect that DTC or its nominee, upon receipt of any payment of principal
of or interest on the global note, will credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of the global note as shown on the records of DTC or its
nominee. We also expect that payments by participants to owners of beneficial
interests in the global note held through such participants will be governed by
standing instructions and customary practices and will be the responsibility of
such participants. We will not have any responsibility or liability for any
aspect of the records relating to, or payments made on account of, beneficial
ownership interests in the global note for any note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests or for any other aspect of the relationship between such participants
and the owners of beneficial interests in the global note owning through such
participants.
Transfers between the Participants in DTC will be effected in accordance
with DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel Bank will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Cross-market transfers between the Participants in DTC, on the one hand,
and Euroclear or Cedel Bank participants, on the hand, will be effected through
DTC in accordance with DTC's rules on behalf of Euroclear or Cedel Bank, as the
case may be, by its respective depositary; however, such cross-market
transactions will require delivery of instructions to Euroclear or Cedel Bank,
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 Bank, 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 notes in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Euroclear participants and Cedel Bank
participants may not deliver instructions directly to the depositaries for
Euroclear or Cedel Bank.
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Because of time zone differences, the securities account of a Euroclear or
Cedel Bank 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 Bank participant, during the securities
settlement processing day, which must be a business day for Euroclear and Cedel
Bank, immediately following the settlement date of DTC. Cash received in
Euroclear or Cedel Bank as a result of sales of interest in a Global Security by
or through a Euroclear or Cedel Bank 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 Bank cash account only as of the business day for
Euroclear or Cedel Bank following DTC's settlement date.
DTC, Euroclear and Cedel Bank are under no obligation to perform or to
continue to perform the foregoing procedures to facilitate transfers of
interests in the global note among participants in DTC, Euroclear and Cedel, and
such procedures may be discontinued at any time. Neither we nor the trustee will
have any responsibility for the performance by DTC, Euroclear or Cedel Bank or
their respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
The information in this prospectus concerning DTC, Euroclear and Cedel and
their book-entry systems has been obtained from sources that we believe to be
reliable, but we have not independently verified this information.
Certified Exchange Notes
If
- we notify the Trustee in writing that DTC is no longer willing or able to
act as a depositary or DTC ceases to be registered as a clearing agency
under the Exchange Act and a successor depositary is not appointed within
90 days of such notice or cessation;
- we, at our option, notify the trustee in writing that we elect to cause
the issuance of exchange notes in definitive form under the Indenture; or
- upon the occurrence of certain other events as provided in the indenture,
then, upon surrender by DTC of the global note, certificated exchange notes in
definitive form in denominations of U.S. $1,000 and integral multiples thereof
will be issued to each person that DTC identifies as the beneficial owner of the
notes represented by the global note. Upon any such issuance, the trustee is
required to register such certificated exchange notes in the name of such person
or persons, or the nominee of any thereof, and cause the same to be delivered
thereto.
Subject to the foregoing, the global note is not exchangeable, except for a
global note of the same aggregate denomination to be registered in the name of
DTC or its nominee.
Neither we nor the trustee shall be liable for any delay by DTC or any
Participant or Indirect Participant in identifying the beneficial owners of the
related exchange notes and we and the trustee may conclusively rely on, and
shall be protected in relying on, instructions from DTC for all purposes,
including with respect to the registration and delivery, and the respective
principal amounts, of the exchange notes to be issued.
DTC management is aware that some computer applications, systems and
similar functions for processing data that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its participants and other members of the financial
community that it has developed and is implementing a program so that its
systems, as the same relate to the timely payment of distributions, including
principal and income payments, to securityholders, book-entry deliveries and
settlement of trades within DTC, continue to function appropriately. This
program includes a technical assessment and
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a remediation plan, each of which is complete. Additionally, DTC's plan includes
a testing phase, which is expected to be completed within appropriate time
frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third-party vendors from whom DTC licenses software and hardware, and
third-party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the financial industry that it is contacting, and
will continue to contact, third-party vendors from whom DTC acquires services
to: (a) impress upon them the importance of such services being Year 2000
compliant and (b) determine the extent of their efforts for Year 2000
remediation, and, as appropriate, testing, of their services. In addition, DTC
is in the process of developing such contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty, or contract modification of any kind.
SUBSIDIARY GUARANTEES
The Guarantors will jointly and severally guarantee Holley's obligations
under these exchange notes. 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 -- The Subsidiary Guarantees Could in Some Circumstances be
Considered Fraudulent Transfers Under Bankruptcy Law, Which Would Void the
Subsidiary Guarantee".
A Guarantor may not sell or otherwise dispose of all or substantially all
of its assets, or consolidate with or merge with or into, whether or not such
Guarantor is the surviving Person, another Person unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists;
(2) either:
(a) the Person acquiring the property in any such sale or
disposition or the Person formed by or surviving any such consolidation
or merger assumes all the obligations of that Guarantor 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 applicable provisions of the indenture; and
(3) If the Guarantor is merging or consolidating with or transferring
its assets to a Person other than Holley and/or other Guarantors, Holley
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 four-quarter 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 below under the caption "Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock".
The Subsidiary Guarantee of a Guarantor will be released:
(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, if Holley applies the Net Proceeds of that sale or
other disposition in accordance with the applicable provisions of the
indenture;
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(2) in connection with any sale of all of the Capital Stock of a
Guarantor, if Holley applies the Net Proceeds of that sale in accordance
with the applicable provisions of the indenture; or
(3) if Holley designates any Restricted Subsidiary that is a Guarantor
as an Unrestricted Subsidiary in accordance with the indenture.
OPTIONAL REDEMPTION
During the first 36 months after the Issue Date, Holley may on any one or
more occasions redeem up to 35% of the aggregate principal amount of notes
issued under the indenture at a redemption price of 112.25% of the principal
amount thereof, plus accrued and unpaid interest to the redemption date, with
the net cash proceeds of one or more Public Equity Offerings; provided that:
(1) at least 65% of the principal amount of notes issued remains
outstanding immediately after the occurrence of such redemption, excluding
notes held by Holley and its Subsidiaries; and
(2) the redemption occurs within 180 days of the date of the closing
of such Public Equity Offering.
Except pursuant to the preceding paragraph, the notes will not be
redeemable at Holley's option prior to September 15, 2003.
After September 15, 2003, Holley may redeem all or a part of these 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 thereon, if any, to, but not including the applicable redemption
date, if redeemed during the twelve-month period beginning on September 15 of
the years indicated below:
YEAR PERCENTAGE
- ---- ----------
2003........................................................ 106.125%
2004........................................................ 104.083%
2005........................................................ 102.042%
2006 and thereafter......................................... 100.000%
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 Holley to repurchase all or any part, which part must be equal to $1,000
or an integral multiple thereof, of that Holder's notes pursuant to the Change
of Control Offer. In the Change of Control Offer, Holley 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 thereon, if any, to the date of
purchase. Within thirty days following any Change of Control, Holley 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, pursuant to the procedures required by
the indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the notes as a result of a
Change of Control.
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On the Change of Control Payment Date, Holley 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 Holley.
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.
The provisions described above that require Holley to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether or not any other provisions of the indenture are applicable. Except as
described above with respect to a Change of Control, the indenture does not
contain provisions that permit the Holders of the notes to require that Holley
repurchase or redeem the notes in the event of a takeover, recapitalization or
similar transaction.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the indenture applicable to a Change of Control Offer made by Holley and
purchases all notes validly tendered and not withdrawn under such Change of
Control Offer.
Notwithstanding the foregoing, Holley shall not be required to make a
Change of Control Offer, as provided above, if, in connection with or in
contemplation of any Change of Control, it has made an offer to purchase (an
"Alternate Offer") any and all notes validly tendered at a cash price equal to
or higher than the Change of Control Payment and has purchased all notes
properly tendered in accordance with the terms of such Alternate Offer.
Asset Sales
The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) Holley, 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) such fair market value is determined by Holley'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 75% of the consideration therefor received by Holley or
such Restricted Subsidiary is in the form of cash or Cash Equivalents. For
purposes of this provision, each of the following shall be deemed to be
cash:
(a) any liabilities, as shown on Holley's or such Restricted
Subsidiary's most recent balance sheet, of Holley or any Restricted
Subsidiary, other than contingent liabilities 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
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customary novation agreement that releases Holley or such Restricted
Subsidiary from further liability; and
(b) any securities, notes or other obligations received by Holley
or any such Restricted Subsidiary from such transferee that are
contemporaneously, subject to ordinary settlement periods, converted by
Holley or such Restricted Subsidiary into cash to the extent of the cash
received in that conversion.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
Holley or the applicable Restricted Subsidiary may apply such Net Proceeds at
its option:
(1) to permanently repay Indebtedness secured by assets or Equity
Interests owned by Holley or any Restricted Subsidiary;
(2) to acquire Replacement Assets; or
(3) to the extent the Net Proceeds are derived from assets or Equity
Interests sold by a Foreign Restricted Subsidiary, to repay Indebtedness of
such Foreign Restricted Subsidiary.
Pending the final application of any such Net Proceeds, Holley or the applicable
Restricted Subsidiary may temporarily reduce revolving credit borrowings or
otherwise invest such Net Proceeds in any manner that is not prohibited by the
indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $5.0 million, Holley will make an
Asset Sale Offer to all Holders of notes to purchase the maximum principal
amount of notes 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, 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, Holley may use such Excess Proceeds for any purpose not otherwise
prohibited by the indenture. If the aggregate principal amount of notes tendered
into such Asset Sale Offer exceeds the amount of Excess Proceeds, the trustee
shall select the notes to be purchased on a pro rata basis to the extent
practicable. Upon completion of each Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
SELECTION AND NOTICE
If less than all of the notes 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.
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COVENANTS
Restricted Payments
The Company 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 Holley's or any of its Restricted Subsidiaries'
Equity Interests (including, without limitation, any payment in connection
with any merger or consolidation involving Holley or any of its Restricted
Subsidiaries) or to the direct or indirect holders of Holley's or any of
its Restricted Subsidiaries' Equity Interests in their capacity as such
(other than dividends or distributions payable solely in Equity Interests
(other than Disqualified Stock) of Holley or dividends or distributions
payable to Holley or a Restricted Subsidiary of Holley);
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving Holley) any Equity Interests of Holley or any
direct or indirect parent of Holley or any Restricted Subsidiary of Holley
(other than any such Equity Interests owned by Holley or any Restricted
Subsidiary of Holley);
(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; and
(2) Holley 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 four-quarter 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 Holley and its Restricted Subsidiaries
after the date of the indenture (excluding Restricted Payments permitted by
clauses (2) and (3) of the succeeding paragraph), is less than the sum,
without duplication, of
(a) 50% of the Consolidated Net Income of Holley for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the date of the indenture to the end of
Holley'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
(b) 100% of the aggregate net cash proceeds received by Holley
since the date of the indenture as a contribution to its common equity
capital or from the issue or sale of Equity Interests of Holley (other
than Disqualified Stock) or from the issue or sale of convertible or
exchangeable Disqualified Stock or convertible or exchangeable debt
securities of Holley that have been converted into or exchanged for such
Equity Interests (other than Equity Interests (or Disqualified Stock or
debt securities) sold to a
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Subsidiary of Holley), excluding, in each case, net cash proceeds from a
Public Equity Offering to the extent used to redeem notes, plus
(c) an amount equal to the lesser of (A) the sum of the fair market
value of the Equity Interests of an Unrestricted Subsidiary owned by
Holley and/or the Restricted Subsidiaries and aggregate amount of all
Indebtedness of such Unrestricted Subsidiary owed to Holley and each
Restricted Subsidiary on the date of redesignation of such Unrestricted
Subsidiary as a Restricted Subsidiary in accordance with the covenant
described under "-- Designation of Restricted and Unrestricted
Subsidiaries" or (B) the Designation Amount with respect to such
Unrestricted Subsidiary on the date of the designation of such
Subsidiary as an Unrestricted Subsidiary in accordance with the covenant
described under "-- Designation of Restricted and Unrestricted
Subsidiaries"; plus
(d) to the extent that any Restricted Investment that was made
after the date of the indenture 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, in each
case, to the extent Consolidated Net Income is not already increased
thereby.
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 indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of Holley or any Guarantor or
of any Equity Interests of Holley or any Restricted Subsidiary in exchange
for, or out of the net cash proceeds of the substantially concurrent sale
(other than to a Subsidiary of Holley) of, Equity Interests of Holley
(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) (b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of Holley or any Guarantor with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend by a Restricted Subsidiary of Holley
to the holders of its common Equity Interests on a pro rata basis;
(5) repurchases of Equity Interests of Holley or Holdings from
officers, directors, employees or consultants of Holley or any of its
Restricted Subsidiaries or of Holdings pursuant to equity ownership or
compensation plans or stockholders agreements not to exceed $1.0 million in
the aggregate;
(6) the payment of management fees to Kohlberg in aggregate amount not
to exceed for any calendar year the sum of (a) $850,000 plus (b) 2.0% of
the aggregate net cash proceeds in excess of $5.0 million received by
Holley from Kohlberg and/or its controlled Affiliates from (I) the issuance
to Kohlberg and/or such controlled Affiliates of Equity Interests of the
Company (other than Disqualified Stock) after the Issue Date and (II)
without duplication of any amounts included in the immediately preceding
clause (I), any contribution to the common equity capital of Holley; or
(7) the payment of dividends and distributions to Holdings to (a) fund
payments for taxes attributable to the business and operations of Holley
and its Subsidiaries and (b) other expenses of Holdings not to exceed
$250,000 in any calendar year.
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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 by Holley 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 Board of Directors whose resolution with respect thereto
shall be delivered to the trustee.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Company 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 Holley will not issue any Disqualified Stock and will not permit any
of its Restricted Subsidiaries to issue any shares of preferred stock; provided
that Holley and any Guarantor may incur Indebtedness (including Acquired Debt),
and Holley may issue Disqualified Stock, if the Fixed Charge Coverage Ratio for
Holley's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified 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 Disqualified Stock had been issued, as
the case may be, at the beginning of such four-quarter period.
So long as no Default shall have occurred and be continuing or would be
caused thereby, 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 Holley and the Guarantors of Indebtedness
represented by the notes, and the Subsidiary Guarantees thereof, not to
exceed $150.0 million at any one time outstanding;
(2) the incurrence by Holley or any of its Restricted Subsidiaries of
Indebtedness incurred pursuant to a revolving credit facility under the
Credit Facility in an aggregate principal amount at any time outstanding
not to exceed the greater of:
(a) $25.0 million (reduced by any required permanent repayments or
prepayments with the proceeds of Asset Sales actually made (which are
accompanied by a corresponding permanent commitment reduction)
thereunder); or
(b) the sum of (I) 85% of the net book value of the accounts
receivable of Holley and the Restricted Subsidiaries and (II) 55% of the
net book value of the inventory of Holley and the Restricted
Subsidiaries, less the amount of Indebtedness outstanding pursuant to
clause (14) below;
(3) the incurrence by Holley or any of its Restricted Subsidiaries of
Indebtedness incurred pursuant to an Acquisition Facility under the Credit
Facility in an aggregate principal amount not to exceed $30.0 million
(reduced by any permanent repayments or prepayments with the proceeds of
Asset Sales actually made thereunder);
(4) other Indebtedness of Holley and the Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereon;
(5) the incurrence by Holley or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations 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
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or Purchase Money Indebtedness, in an aggregate principal amount not to
exceed $5.0 million at any time outstanding;
(6) the incurrence by Holley 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 indenture to be
incurred under the first paragraph of this covenant or clauses (1) (without
limitation as to principal amount outstanding), (4) or (5) of this
paragraph;
(7) the incurrence by Holley or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among Holley and any of its Wholly
Owned Restricted Subsidiaries; provided that:
(a) if Holley or any Guarantor is the obligor on such Indebtedness,
such Indebtedness must be unsecured and expressly subordinated to the
prior payment in full in cash of all Obligations with respect to the
notes, in the case of Holley, or the Subsidiary Guarantee of such
Guarantor, in the case of a Guarantor; and
(b)(i) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than
Holley or a Wholly Owned Restricted Subsidiary thereof and (ii) any sale
or other transfer of any such Indebtedness to a Person that is not
either Holley or a Wholly Owned Restricted Subsidiary thereof; shall be
deemed, in each case, to constitute an incurrence of such Indebtedness
by Holley or such Restricted Subsidiary, as the case may be, that was
not permitted by this clause (7);
(8) the incurrence by Holley or any of its Restricted Subsidiaries of
Hedging Obligations;
(9) the guarantee by Holley or any of the Guarantors of Indebtedness
of Holley or a Restricted Subsidiary of Holley that was permitted to be
incurred by another provision of this covenant;
(10) the incurrence by Holley 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 (10), not to exceed $10.0 million at any
one time outstanding;
(11) the accrual of interest, accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends
on Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock; provided, in each such case, that the amount thereof is
included in Fixed Charges of Holley as accrued;
(12) the incurrence by Holley of Indebtedness arising from the
honoring by a bank or other financial institution of a check, draft or
similar instrument inadvertently (except in the case of daylight
overdrafts) drawn against insufficient funds in the ordinary course of
business; provided that such Indebtedness is extinguished within five
business days of incurrence;
(13) the incurrence by Holley or any of its Restricted Subsidiaries of
Indebtedness represented by letters of credit for the account of Holley or
such Restricted Subsidiary, as the case may be, in order to provide
security for workers' compensation claims, payment obligations in
connection with self-insurance or similar requirements in the ordinary
course of business; and
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(14) the incurrence by Foreign Restricted Subsidiaries of Indebtedness
in an aggregate principal amount at any one time outstanding not to exceed
the greater of $5.0 million or the sum of (a) 85% of the net book value of
accounts receivable of the Foreign Restricted Subsidiaries and (b) 55% of
the net book value of the inventory of the Foreign Restricted Subsidiaries.
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 (14) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant, Holley
will be permitted to classify such item of Indebtedness on the date of its
incurrence in any manner that complies with this covenant.
The Company 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 other Indebtedness of Holley unless such Indebtedness is equally
subordinate or junior in right of payment to the notes. 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 other Indebtedness of
such Guarantor unless such Indebtedness is equally subordinate or junior in
right of payment to such Guarantor's Subsidiary Guarantee.
Limitation on Liens
The Company will not, and will not permit any Guarantor to, incur or suffer
to exist any Lien on or with respect to any property or assets now owned or
hereafter acquired by Holley or any Guarantor to secure any Indebtedness without
making, or causing such Guarantor to make, effective provision for securing the
notes or such Guarantor's Subsidiary Guarantee, as the case may be, (x) equally
and ratably with (or prior to) such Indebtedness as to such property for so long
as such Indebtedness will be so secured or (y) in the event such Indebtedness is
subordinate in right of payment to the notes or such Guarantor's Subsidiary
Guarantee, as the case may be, prior to such Indebtedness as to such property
for so long as such Indebtedness will be so secured.
The foregoing restrictions on Holley and the Guarantors shall not apply to:
(1) Liens existing on the Issue Date and securing Indebtedness
outstanding on the Issue Date or Liens securing the notes or the Subsidiary
Guarantees;
(2) Liens securing Indebtedness incurred pursuant to the Credit
Facility in an aggregate principal amount not to exceed amounts permitted
to be incurred pursuant to clauses (2) and (3) under the second paragraph
of the covenant described under "-- Incurrence of Indebtedness and Issuance
of Preferred Stock" above;
(3) Liens in favor of Holley or any Guarantor that is a Wholly Owned
Restricted Subsidiary of Holley;
(4) Liens on real or personal property of Holley or a Restricted
Subsidiary of Holley acquired, constructed or constituting improvements
made after the Issue Date to secure Capital Lease Obligations or Purchase
Money Indebtedness, provided, however, that: (a) the Incurrence of such
Indebtedness was permitted under the covenant described under
"-- Incurrence of Indebtedness and Issuance of Preferred Stock" above; (b)
the principal amount of any Indebtedness secured by such a Lien does not
exceed 100% of such purchase price or cost of construction or improvement
of the property subject to such Lien; (c) such Lien attaches to such
property prior to, at the time of or within 180 days after the acquisition,
completion of construction or commencement of operation of such property;
and (d) such Lien does not extend to or cover any property other than the
property (or
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identifiable portions thereof) acquired, constructed or constituting
improvements made with the proceeds of such Purchase Money Indebtedness;
(5) Liens to secure Acquired Debt; provided, however, that (a) such
Lien attaches to the acquired asset prior to the time of the acquisition of
such asset and (b) such Lien does not extend to or cover any other asset;
(6) Liens to secure Indebtedness incurred to extend, renew, refinance
or refund (or successive extensions, renewals, refinancings or refundings),
in whole or in part, Indebtedness secured by any Lien referred to in the
foregoing clauses (1), (2), (4) and (5) so long as such Lien does not
extend to any other property and the principal amount of Indebtedness so
secured is not increased except as otherwise permitted under clause (6) of
the second paragraph of the covenant described under "-- Incurrence of
Indebtedness and Issuance of Preferred Stock";
(7) Liens on Equity Interests issued by a Restricted Subsidiary that
is not a Guarantor securing Indebtedness of such Restricted Subsidiary;
provided however, that the Liens may not extend to any other property owned
by Holley or any Guarantor;
(8) Lien securing Hedging Obligations; and
(9) Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
to Holley or any of Holley's Restricted Subsidiaries, or with respect to
any other interest or participation in, or measured by, its profits, or pay
any Indebtedness owed to Holley or any of Holley's Restricted Subsidiaries;
(2) make loans or advances to Holley or any of Holley's Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to Holley or any of
Holley's Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) the Credit Facility and Existing Indebtedness, in each case, as in
effect on the date of the indenture and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement or
refinancings are no more restrictive, taken as a whole, with respect to
such dividend and other payment restrictions than those contained in the
Credit Facility or such Existing Indebtedness, as the case may be, as in
effect on the date of the indenture, provided, further, however that
restrictions under the Credit Facility may provide for more restrictive
limitations on the ability of Holley to make Investments in Restricted
Subsidiaries or on the ability of Guarantors to make Investments in
non-Guarantor Restricted Subsidiaries;
(2) the indenture and the notes;
(3) applicable law;
(4) any instrument governing Indebtedness of a Person acquired by
Holley 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
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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 such Indebtedness was
permitted by the terms of the indenture to be incurred;
(5) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(6) Purchase Money Indebtedness that imposes restrictions on the
property so acquired of the nature described in clause (3) of the preceding
paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by such Restricted Subsidiary
pending its sale or other disposition;
(8) 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;
(9) Liens securing Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described above under the
caption "-- Limitations on Liens" that limit the right of Holley or any
Guarantor to dispose of the assets subject to such Lien;
(10) any instrument governing Indebtedness of a Foreign Restricted
Subsidiary;
(11) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business; and
(12) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
Merger, Consolidation or Sale of Assets
The Company may not, directly or indirectly: (1) consolidate or merge with
or into another Person (whether or not Holley is the surviving corporation); or
(2) sell, assign, transfer, convey or otherwise dispose of (or cause or permit
any of its Restricted Subsidiaries to sell, assign, transfer, convey or
otherwise dispose of) all or substantially all of Holley's properties or assets
(determined on a consolidated basis for Holley and its Restricted Subsidiaries),
in one or more related transactions, to another Person; unless:
(1) either: (a) Holley is the surviving corporation; or (b) the Person
formed by or surviving any such consolidation or merger (if other than
Holley) or to which such sale, assignment, transfer, conveyance or other
disposition shall have been made is a corporation 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 Holley) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes all
the obligations of Holley under the notes, the indenture and the Exchange
and Registration Rights Agreement pursuant to agreements reasonably
satisfactory to the trustee;
(3) immediately after such transaction no Default or Event of Default
exists (including, without limitation, after giving effect to any Liens
incurred, assumed or granted in connection with or in respect of such
transaction); and
(4) Holley or the Person formed by or surviving any such consolidation
or merger (if other than Holley) 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
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applicable four-quarter 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."
In addition, Holley may not, directly or indirectly, lease all or substantially
all of its properties or assets, in one or more related transactions, to any
other Person. This "Merger, Consolidation or Sale of Assets" covenant will not
apply to a sale, assignment, transfer, conveyance or other disposition of assets
between or among Holley and any Guarantors which are Wholly Owned Restricted
Subsidiaries.
Transactions with Affiliates
The Company 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, 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 Holley or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by Holley or such Restricted
Subsidiary with an unrelated Person; and
(2) Holley 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 set forth in an
Officers' Certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the Board of
Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 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 or investment banking firm 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 employment agreement entered into by Holley or any of its
Restricted Subsidiaries in the ordinary course of business and consistent
with the past practice of Holley or such Restricted Subsidiary or are
approved by a majority of the disinterested directors of Holley;
(2) transactions between or among Holley and/or its Restricted
Subsidiaries;
(3) payment of reasonable directors fees to Persons who are not
otherwise Affiliates of Holley; and
(4) Restricted Payments and Permitted Investments that are permitted
by the provisions of the indenture described above under the caption
"-- Restricted Payments."
Additional Subsidiary Guarantees
If Holley or any of its Restricted Subsidiaries creates another Domestic
Restricted Subsidiary after the date of the indenture or acquires another
Domestic Restricted Subsidiary that is a Wholly Owned Restricted Subsidiary
after the date of the indenture, then that newly acquired or created Domestic
Restricted Subsidiary must become a Guarantor and shall (a) execute and deliver
to the trustee a supplemental indenture in form reasonably satisfactory to the
trustee
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pursuant to which such Domestic Restricted Subsidiary shall unconditionally
guarantee all of Holley's obligations under the notes and the indenture on the
terms set forth in the indenture and (b) deliver to the trustee an Opinion of
Counsel that such supplemental indenture has been duly authorized, executed and
delivered by such Restricted Subsidiary and constitutes a legal, valid, binding
and enforceable obligation of such Restricted Subsidiary, subject to normal
exceptions. Thereafter, such Domestic Restricted Subsidiary shall be a Guarantor
for all purposes of the indenture.
In addition, if Holley or any of its Restricted Subsidiaries acquires a
Domestic Restricted Subsidiary that is not a Wholly Owned Restricted Subsidiary
at the time of acquisition, but shall thereafter become a Wholly Owned
Restricted Subsidiary, such Domestic Restricted Subsidiary shall comply with the
provisions of clauses (a) and (b) of the immediately preceding paragraph, and
shall thereafter be a Guarantor for all purposes of the indenture. The Company,
at its option, may cause a Domestic Restricted Subsidiary that is not a Wholly
Owned Restricted Subsidiary to become a Guarantor in accordance with the
provisions of clauses (a) and (b) of the immediately preceding paragraph.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if:
(1) that designation would not cause a Default;
(2) Holley will, on the date of such designation after giving pro
forma effect thereto as if the same had occurred at the beginning of the
applicable four-quarter 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 under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock";
(3) such Subsidiary has no Indebtedness other than Non-Recourse Debt;
(4) such Subsidiary is not party to any agreement, contract,
arrangement or understanding with Holley or any Restricted Subsidiary of
Holley unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to Holley or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of Holley;
(5) such Subsidiary is a Person with respect to which neither Holley
nor any of its Restricted Subsidiaries has any direct or indirect
obligation to subscribe for additional Equity Interests or to maintain or
preserve such Person's financial condition or to cause such Person to
achieve any specified levels of operating results; and
(6) such Subsidiary has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of Holley or any of
its Restricted Subsidiaries.
Any designation of a Subsidiary of Holley 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
"-- Restricted Payments."
If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, all
outstanding Investments owned by Holley and its Restricted Subsidiaries in the
Subsidiary so designated will be deemed to be a Restricted Investment made as of
the time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of the covenant described above under the
caption "-- Restricted Payments" or Permitted Investments, as applicable. All
such outstanding Investments will be valued at their fair market value at the
time
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of such designation (the amount of such Investments, the "Designation Amount").
That designation will only be permitted if such Restricted Payment would be
permitted at that time.
If, at any time, any Unrestricted Subsidiary would fail to meet any of the
requirements set forth in clause (3) through (6) of the first paragraph of this
covenant, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the indenture and any Indebtedness and Liens of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of Holley as of such
date and, if any such Indebtedness or Lien is not permitted to be incurred as of
such date under the indenture, Holley shall be in default of the applicable
covenant(s). The Board of Directors of Holley 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 and Liens by a
Restricted Subsidiary of Holley of any outstanding Indebtedness and Liens of
such Unrestricted Subsidiary and such designation shall only be permitted if:
(1) such Indebtedness is permitted under the covenant described under
the caption "-- 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 four-quarter reference period;
(2) such Liens are permitted under the covenant described under the
caption "-- Limitation on Liens"; and
(3) no Default or Event of Default would be in existence following
such designation.
Limitation on Issuances and Sales of Equity Interests in Restricted
Subsidiaries
The Company will not, and will not permit any of its Restricted
Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any
Equity Interests in any Restricted Subsidiary of Holley to any Person (other
than Holley or a Restricted Subsidiary of Holley), unless:
(1) such transfer, conveyance, sale, lease or other disposition is of
all the Equity Interests in such Restricted Subsidiary; and
(2) the cash Net Proceeds from such transfer, conveyance, sale, lease
or other disposition are applied in accordance with the covenant described
above under the caption "-- Repurchase at the Option of Holders -- Asset
Sales."
In addition, Holley will not permit any Restricted Subsidiary of Holley to issue
any of its Equity Interests (other than, if necessary, shares of its Capital
Stock constituting directors' qualifying shares) to any Person other than to
Holley or a Restricted Subsidiary of Holley.
Limitations on Issuances of Guarantees of Indebtedness
The Company will not permit any of its Restricted Subsidiaries that are not
Guarantors to, directly or indirectly, Guarantee or pledge any assets to secure
the payment of any other Indebtedness of Holley 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.
Payments for Consent
The Company will not, and will not permit any of its 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 indenture 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.
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Reports
Whether or not required by the Commission, so long as any notes are
outstanding, Holley will furnish to the Holders of notes, within 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 Holley 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 Holley's certified independent accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if Holley were required to file such reports.
In addition, whether or not required by the Commission, Holley 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.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on the notes;
(2) default in payment when due of the principal of or premium, if any, on
the notes;
(3) failure by Holley or any of its Subsidiaries to comply with the
provisions described under the captions "-- Repurchase at the Option of
Holders -- Change of Control," "-- Repurchase at the Option of
Holders -- Asset Sales," "-- Covenants -- Restricted Payments" or
"-- Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock";
(4) failure by Holley or any of its Restricted Subsidiaries for 30 days
after notice to comply with any of the other agreements in the
indenture;
(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 for money borrowed by Holley or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by Holley or any of
its Restricted Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the indenture, if that default:
(a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness after 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 Stated
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 $10.0 million or more;
(6) failure by Holley or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $10.0 million, which judgments are
not paid, discharged or stayed for a period of 60 days;
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(7) except as permitted by the indenture, any Guarantor's Subsidiary
Guarantee 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 in writing its obligations under its Subsidiary
Guarantee; and
(8) certain events of bankruptcy or insolvency with respect to Holley or
any of its Restricted Subsidiaries.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to Holley, any Restricted Subsidiary that
is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding notes will
become due and payable immediately without further action or notice. If any
other Event of Default occurs and is continuing, the trustee or the Holders of
at least 25% in principal amount of the then outstanding notes may declare all
the notes to be due and payable immediately.
At any time after a declaration of acceleration with respect to the notes
as described in the preceding paragraph, the Holders of a majority in principal
amount of the then outstanding notes may rescind and cancel such declaration and
its consequences:
(1) if the rescission would not conflict with any judgment or decree;
(2) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
the acceleration;
(3) to the extent the payment of such interest is lawful, if interest
on overdue installments of interest and overdue principal, which has become
due otherwise than by such declaration of acceleration, has been paid;
(4) if Holley has paid the trustee its reasonable compensation and
reimbursed the trustee for its expenses, disbursements and advances; and
(5) in the event of the cure or waiver of an Event of Default
regarding certain events of bankruptcy or insolvency, the trustee shall
have received an Officers' Certificate and an Opinion of Counsel that such
Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding notes may direct the trustee in its
exercise of any trust or power. The trustee may withhold from Holders of the
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) if it
determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the Holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the 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 Holley with the
intention of avoiding payment of the premium that Holley would have had to pay
if Holley then had elected to redeem the notes pursuant to the optional
redemption provisions of the 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 September 15,
2003, by reason of any willful action (or inaction) taken (or not taken) by or
on behalf of Holley with the intention of avoiding the
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prohibition on redemption of the notes prior to September 15, 2003, then the
premium specified in the indenture shall also become immediately due and payable
to the extent permitted by law upon the acceleration of the notes.
The Company is required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, Holley 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 or stockholder of Holley or
any Guarantor, as such, shall have any liability for any obligations of Holley
or the Guarantors under the notes, the indenture, the Guarantors' Subsidiary
Guarantees or for any claim based on, in respect of, or by 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 Company 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 Guarantees ("Legal
Defeasance") except for:
(1) the rights of Holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest on such notes
when such payments are due from the trust referred to below;
(2) Holley'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 Holley's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, Holley may, at its option and at any time, elect to have the
obligations of Holley and the Guarantors released with respect to certain
covenants that are described in the indenture ("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:
(1) Holley must irrevocably deposit with the trustee, in trust, for
the benefit of the Holders of the 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, premium, if any, and interest
on the outstanding notes on the Stated Maturity or on the applicable
redemption date, as the case may be, and Holley must specify whether the
notes are being defeased to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, Holley shall have delivered to
the trustee an Opinion of Counsel reasonably acceptable to the trustee
confirming that (a) Holley has received from, or there has been published
by, the Internal Revenue Service a ruling or (b) since the date of the
indenture, there has been a change in the applicable federal
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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
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, Holley shall have delivered to
the trustee an Opinion of Counsel reasonably acceptable to the trustee
confirming that the Holders of the outstanding notes 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;
(4) no Default or Event of Default shall have occurred and be
continuing 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);
(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 indenture) to which Holley or any
of its Restricted Subsidiaries is a party or by which Holley or any of its
Restricted Subsidiaries is bound;
(6) Holley must have delivered to the trustee an Opinion of Counsel to
the effect that 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) Holley must deliver to the trustee an Officers' Certificate
stating that the deposit was not made by Holley with the intent of
preferring the Holders of notes over the other creditors of Holley with the
intent of defeating, hindering, delaying or defrauding creditors of Holley
or others; and
(8) Holley must deliver to the trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
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 or have the effect of changing
the Stated 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 premium, if any, or interest 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 currency other than that stated in the
notes;
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(6) make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of Holders of notes to receive
payments of principal of or premium, if any, or interest on the notes;
(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) amend, change or modify in any material respect the obligation of
Holley to make and consummate a Change of Control Offer in the event that a
Change of Control has already occurred or make and consummate an Asset Sale
Offer with respect to any Asset Sale that has been consummated or modify
any of the provisions or definitions with respect thereto;
(9) release any Guarantor from any of its obligations under its
Subsidiary Guarantee or the indenture otherwise than in accordance with the
terms of the indenture;
(10) adversely affect the ranking of the notes or any Subsidiary
Guarantee; or
(11) make any change in the preceding amendment and waiver provisions.
Without the consent of any Holder of notes, Holley and the trustee may
amend or supplement the indenture 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 Holley's obligations to Holders
of notes in the case of a merger or consolidation or sale of all or
substantially all of Holley'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 indenture of any such Holder; or
(5) to comply with requirements of the Commission in order to effect
or maintain the qualification of the indenture under the Trust indenture
Act.
Any other amendment or waiver may be effected with the consent of a
majority in aggregate principal amount of the outstanding notes.
GOVERNING LAW
The indenture, the notes and the Guarantors' Subsidiary Guarantees are
governed by the laws of the State of New York.
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of Holley or any Guarantor, the indenture
limits 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, 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, 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
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under the indenture at the request of any Holder of notes, unless such Holder
shall have offered to the trustee security and indemnity satisfactory to it
against any loss, liability or expense.
DEFINITIONS
Set forth below are some of the defined terms used in the indenture.
Reference is made to the indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness 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; and
(2) Indebtedness secured by a Lien encumbering any asset existing at
the time acquired by such specified Person.
"Acquisition Facility" means one or more credit facilities or
subfacilities, the proceeds from which are used to make Asset Acquisitions,
acquire Replacement Assets, repay Acquired Debt, and/or pay related fees and
expenses or other reasonably related uses.
"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.
"Asset Acquisition" means (a) an Investment by Holley or any Restricted
Subsidiary in any other Person pursuant to which such Person shall become a
Restricted Subsidiary, or shall be merged with or into Holley or any Restricted
Subsidiary, or (b) the acquisition by Holley or any Restricted Subsidiary of the
assets of any Person (other than a Restricted Subsidiary) which constitute all
or substantially all of the assets of such Person or comprises any division or
line of business of such Person or any other properties or assets of such Person
other than in the ordinary course of business.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any property,
assets or rights, other than sales of inventory in the ordinary course of
business consistent with past practices; provided that the sale, conveyance
or other disposition of all or substantially all of the assets of Holley
and its Restricted Subsidiaries taken as a whole will be governed by the
provisions of the indenture described above under the caption
"-- Repurchase at the Option of Holders -- Change of Control" and/or the
provisions described above under the caption "-- Covenants -- Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset
Sale covenant; and
(2) the issuance of Equity Interests by any of Holley's Restricted
Subsidiaries or the sale of Equity Interests in any of its 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: (a)
involves assets having a fair market value of less than $1.0 million; or
(b) results in net proceeds to Holley and its Restricted Subsidiaries of
less than $1.0 million;
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(2) a transfer of assets between or among Holley and its Restricted
Subsidiaries;
(3) an issuance of Equity Interests by a Restricted Subsidiary to
Holley or to another Restricted Subsidiary;
(4) disposals or replacements of obsolete equipment in the ordinary
course of business; and
(5) a Restricted Payment or a Permitted Investment that is permitted
by the covenant described above under the caption "-- Restricted Payments."
"Attributable Value" means, as to any particular lease under which any
Person is at the time liable other than a Capital Lease Obligation, and at any
date as of which the amount thereof is to be determined, the total net amount of
rent required to be paid by such Person under such lease during the initial term
thereof as determined in accordance with generally accepted accounting
principles, discounted from the last date of such initial term to the date of
determination at a rate per annum equal to the discount rate which would be
applicable to a Capital Lease Obligation with like term in accordance with
generally accepted accounting principles. The net amount of rent required to be
paid under any such lease for any such period shall be the aggregate amount of
rent payable by the lessee with respect to such period after excluding amounts
required to be paid on account of insurance, taxes, assessments, utility
operating and labor costs and similar charges. In the case of any lease which is
terminable by the lessee upon the payment of a penalty, such net amount shall
also include the lesser of the amount of such penalty (in which case no rent
shall be considered as required to be paid under such lease subsequent to the
first date upon which it may be so terminated) or the rent which would otherwise
be required to be paid if such lease is not so terminated.
"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 such 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, whether such
right is currently exercisable or is exercisable only upon the occurrence of a
subsequent condition.
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"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, all corporate stock (however
designated);
(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 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.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof
(provided that the full faith and credit of
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the United States is pledged in support thereof) having maturities of not
more than twelve months from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case, with any domestic commercial bank having capital
and surplus in excess of $500 million and a Thompson Bank Watch Rating of
"B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation and in each case
maturing within twelve months after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the 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 assets of Holley and its
Subsidiaries taken as a whole to any "person" or "group" (as such terms are
used in Section 13(d)(3) of the Exchange Act);
(2) the adoption of a plan relating to the liquidation or dissolution
of Holley;
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" or "group" (as defined above), other than one or more Permitted
Holders, becomes the Beneficial Owner, directly or indirectly, of more than
50% of the Voting Stock of Holley, measured by voting power rather than
number of shares;
(4) the first day on which a majority of the members of the Board of
Directors of Holley are not Continuing Directors; or
(5) Holley consolidates with, or merges with or into, any Person, or
any Person consolidates with, or merges with or into, Holley, in any such
event pursuant to a transaction in which any of the outstanding Voting
Stock of Holley is converted into or exchanged for cash, securities or
other property, other than any such transaction where the Voting Stock of
Holley outstanding immediately prior to such transaction is converted into
or exchanged for Voting Stock (other than Disqualified Stock) of the
surviving or transferee Person constituting a majority of the outstanding
shares of such Voting Stock of such surviving or transferee Person
immediately after giving effect to such issuance.
"Commission" means the Securities and Exchange Commission.
"Consolidated EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus:
(1) provision for taxes based on income or profits of such Person and
its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net Income;
plus
(2) Consolidated Interest Expense of such Person; plus
(3) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and
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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) of such Person and its 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; minus
(4) non-cash items increasing such Consolidated Net Income for such
period, other than items that were accrued in the ordinary course of
business, in each case, on a consolidated basis and determined in
accordance with GAAP.
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 Holley shall be added to Consolidated Net Income to
compute Consolidated EBITDA of Holley only to the extent that a corresponding
amount would be permitted at the date of determination to be dividended to
Holley by such Restricted Subsidiary without prior approval (that has not been
obtained), pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to that Subsidiary or its stockholders.
"Consolidated Interest Expense" of any Person for any period means the
aggregate interest expense of such Person and its Restricted Subsidiaries
(whether paid or accrued and whether or not capitalized) determined on a
consolidated basis in accordance with GAAP, including, without limitation or
duplication, 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, imputed interest expense with respect to Attributable Value
in Sale and Leaseback Transactions, interest on Indebtedness Guaranteed by (or
secured by a Lien on any assets of) such Person or any of its Restricted
Subsidiaries, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
pursuant to Hedging Obligations.
"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income (but not loss) 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 received in cash by 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;
(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) the Net Income (but not loss) of any Unrestricted Subsidiary shall
be excluded, whether or not distributed to the specified Person or one of
its Subsidiaries;
(5) the cumulative effect of a change in accounting principles shall
be excluded;
(6) any restoration to income of any contingency reserve of an
extraordinary, non-recurring or unusual nature shall be excluded, except to
the extent that provision for such reserve was made out of Consolidated Net
Income accrued at any time following the Issue Date;
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(7) 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 its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or
any of its Restricted Subsidiaries shall be excluded;
(8) any extraordinary gain or loss, together with any related
provision for taxes on such extraordinary gain or loss shall be excluded;
(9) any income or loss attributable to discontinued operations shall
be excluded; and
(10) in the case of a successor to the specified Person by
consolidation or merger or as a transferee of the specified Person's
assets, any earnings of the successor corporation prior to such
consolidation, merger or transfer of assets shall be excluded.
"Continuing Director" means, as of any date of determination, any member of
the Board of Directors of Holley who:
(1) was a member of such Board of Directors on the date of the
indenture; or
(2) was nominated for election or elected to such Board of Directors
with the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election.
"Credit Facility" means the amended and restated Credit Agreement dated as
of September 20, 1999, among Holley, the Guarantors, the lenders party thereto
in their capacities as lenders thereunder and Credit Agricole Indosuez, as
agent, together with the related documents thereto (including, without
limitation, any guarantee agreements and security documents), in each case as
such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including (a) adding an Acquisition Facility, (b) increasing the
amount of available borrowings thereunder (provided that such increase in
borrowings is permitted by the covenant described under
"-- Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock" as
evidenced by an Officers' Certificate delivered to the trustee, which shall be
conclusive) or (c) adding Subsidiaries as additional borrowers or guarantors
thereunder) all or any portion of the Indebtedness under such agreement or any
successor or replacement agreements and whether by the same or any other agent,
lender or group of lenders.
"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.
"Designation Amount" has the meaning ascribed to that term under
"-- Covenants -- Designation of Restricted and Unrestricted Subsidiaries."
"Disqualified Stock" means 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 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 on which the notes mature.
Notwithstanding the preceding sentence, any Capital Stock that would constitute
Disqualified Stock solely because the holders thereof have the right to require
Holley 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 Holley 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
"-- Covenants -- Restricted Payments."
"Domestic Restricted Subsidiary" means a Restricted Subsidiary incorporated
or otherwise organized under the laws of the United States, any State thereof or
the District of Columbia.
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"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).
"Existing Indebtedness" means the Obligations of Holley and its Restricted
Subsidiaries in existence on the date of the indenture, until such amounts are
repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of:
(1) the Consolidated Interest Expense of such Person; plus
(2) the product of (a) all dividend payments, whether or not in cash,
on any series of Disqualified Stock of such Person and on any series of
preferred stock of any of its Restricted Subsidiaries, other than dividend
payments on Equity Interests payable solely in Equity Interests of Holley
(other than Disqualified Stock) or payable to Holley or a Restricted
Subsidiary of Holley, 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, 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
for any period, the ratio of the Consolidated EBITDA of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person for
such period. In the event that the specified Person or any of its Restricted
Subsidiaries incurs, assumes, Guarantees, redeems or repays any Indebtedness
(other than borrowings under working capital facilities in the ordinary course
of business) or issues or redeems preferred stock subsequent to the commencement
of the period for which the Fixed Charge Coverage Ratio is being calculated but
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, redemption or repayment of Indebtedness, or such issuance
or redemption of preferred stock, as if the same had occurred at the beginning
of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of
its Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to
the Calculation Date shall be deemed to have occurred on the first day of
the four-quarter reference period and Consolidated EBITDA for such
reference period shall be calculated without giving effect to clause (3) of
the proviso set forth in the definition of Consolidated Net Income;
(2) the Consolidated EBITDA attributable to operations or businesses
disposed of prior to the Calculation Date shall be excluded; and
(3) the Fixed Charges attributable to 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.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary that is
organized and existing under the laws of a jurisdiction other than the United
States, any State thereof or the District of Columbia.
"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
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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 from time to time.
"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) Holley Performance Systems, Inc., Weiand Automotive Industries,
Inc., Lunati Cams, Inc., Lunati & Taylor Pistons, Inc., LTM Motor Sports
Corporation and Hooker Industries, Inc.; and
(2) any other Subsidiary that executes a Subsidiary Guarantee in
accordance with the provisions of the indenture;
and their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements entered into in the ordinary course of
business relating to Indebtedness permitted to be incurred under the
indenture; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates or foreign currency exchange rates
entered into in the ordinary course of business.
"Holder" means the registered holder of a note.
"Holdings" means KHPP Holdings, Inc., a Delaware corporation.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase price
of any property, except any such balance that constitutes an accrued
expense or trade payable;
(6) representing any Hedging Obligations; or
(7) representing any Disqualified Stock of such Person and any
preferred stock issued by a Restricted Subsidiary of such Person,
if and to the extent any of the preceding items (other than letters of credit,
Hedging Obligations, Disqualified Stock and preferred stock of a Restricted
Subsidiary) would appear as a liability upon a balance sheet of the specified
Person prepared in accordance with GAAP. In addition, the term "Indebtedness"
includes (a) 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), (b) any sale of receivables of such Person, other than in connection
with a disposition of the business operations of such Person relating thereto or
a disposition of defaulted receivables for
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purpose of collection and not as a financing arrangement, and (c) to the extent
not otherwise included, the Guarantee by such 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;
(2) the amount of the unrecovered capital or principal investment of
the purchaser (other than Holley or a Restricted Subsidiary of Holley)
excluding amounts representative of yield or interest earned on such
investment, in the case of any sale of receivables;
(3) the maximum fixed redemption or repurchase price, in the case of
Disqualified Stock of such Person;
(4) the maximum voluntary or involuntary liquidation preferences plus
accrued and unpaid dividends, in the case of preferred stock of a
Restricted Subsidiary of such Person; and
(5) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions, 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.
"Issue Date" means the date of original issuance of notes.
"Kohlberg" means Kohlberg & Co., L.L.C., a Delaware limited liability
company, and its affiliates.
"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 and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person and its Restricted Subsidiaries, determined in accordance with GAAP
and before any reduction in respect of preferred stock dividends and
Disqualified Stock dividends.
"Net Proceeds" means the aggregate cash proceeds received by Holley 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 as a result thereof, in each case after
taking into account any available tax credits or deductions and any tax sharing
arrangements and net of appropriate amounts to be provided by Holley or any
Restricted Subsidiary, as the case may be, as a reserve, in accordance with
GAAP, against any liabilities associated with such Asset Sale and retained by
Holley or any Restricted Subsidiary, as the case may be, after such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale.
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"Non-Recourse Debt" means Indebtedness:
(1) as to which neither Holley 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;
(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 (other than the notes) of Holley 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 Holley or any of its
Restricted Subsidiaries.
"notes" means Holley's 12 1/4% Senior notes due 2007 issued pursuant to the
indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, any Vice President, the Chief Financial
Officer, the Controller or the Secretary of such Person.
"Officers' Certificate" means a certificate signed by two Officers of
Holley.
"Opinion of Counsel" means a written opinion from legal counsel who are
reasonably acceptable to the trustee.
"Permitted Holders" means KHPP Holdings, Inc., a Delaware corporation and
Kohlberg, & Co., L.L.C. a Delaware limited liability company (and any of their
controlled Affiliates), Jeffrey G. King, Robert L. Wineland, James R. Vance and
John H. Nickoloff.
"Permitted Investments" means:
(1) any Investment in Holley or in a Restricted Subsidiary of Holley;
(2) any Investment in Cash Equivalents;
(3) any Investment by Holley or any Restricted Subsidiary of Holley in a
Person, if as a result of such Investment;
(a) such Person becomes a Restricted Subsidiary of Holley; 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, Holley or a Restricted Subsidiary of Holley;
(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 Holley;
(6) loans and advances to employees and officers of Holley and its
Restricted Subsidiaries in the ordinary course of business for bona
fide business purposes not in excess of $1.0 million at any one time
outstanding;
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(7) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon
the bankruptcy or insolvency of such trade creditors or customers;
(8) 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 (8)
since the date of the indenture, not to exceed $1.0 million at any
one time outstanding;
(9) Investments in Hedging Obligations; and
(10) Investments in the notes.
"Permitted Liens" means:
(1) Liens for taxes, assessments, governmental charges or claims which
are not yet delinquent or which are being contested in good faith by
appropriate proceedings, if a reserve or other appropriate provision, if
any, as shall be required in conformity with generally accepted accounting
principles shall have been made therefor;
(2) pledges and deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of statutory obligations (including to secure government contracts);
(3) deposits made to secure the performance of tenders, bids, leases,
and other obligations of like nature incurred in the ordinary course of
business (exclusive of obligations for the payment of borrowed money);
(4) zoning restrictions, servitudes, easements, rights-of-way,
restrictions and other similar charges or encumbrances incurred in the
ordinary course of business which, in the aggregate, do not materially
detract from the value of the property subject thereto or interfere with
the ordinary conduct of the business of Holley or the Guarantors;
(5) Liens arising out of judgments or awards against Holley or any
Guarantor with respect to which Holley or such Guarantor is prosecuting an
appeal or proceeding for review and Holley or such Guarantor is maintaining
adequate reserves in accordance with generally accepted accounting
principles;
(6) any interest or title of a lessor in the property subject to any
lease other than a Capital Lease Obligation; and
(7) any statutory warehousemen's, materialmen's or other similar Liens
for sums not then due and payable (or which, if due and payable, are being
contested in good faith and with respect to which adequate reserves are
being maintained to the extent required by generally accepted accounting
principles).
"Permitted Refinancing Indebtedness" means any Indebtedness of Holley or
any of its Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of Holley or any of its Restricted Subsidiaries (other than
intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on, and any
reasonable prepayment premium with respect to, the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus the
amount of reasonable expenses incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, or has a Weighted Average Life to
Maturity equal to or greater than the
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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 notes or a
Subsidiary Guarantee, 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 notes or such Subsidiary Guarantee, as the case
may be, on terms at least as favorable to the Holders of notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by Holley or by the
Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof.
"Public Equity Offering" means any underwritten public offering of common
stock of Holley or of Holdings pursuant to a registration statement filed with
the Commission in accordance with the Securities Act; provided that in the event
of a Public Equity Offering by Holdings, Holdings contributes to the common
equity capital of Holley (other than Disqualified Stock of Holley) the portion
of the net cash proceeds of such Public Equity Offering necessary to pay the
aggregate redemption price (plus accrued and unpaid interest and Additional
Interest, if any, thereon to the redemption date) of the notes to be so
redeemed.
"Purchase Money Indebtedness" means Indebtedness of Holley or any
Restricted Subsidiary incurred for the purpose of financing all or any part of
the purchase price or the cost of an Asset Acquisition or construction or
improvement of any property; provided that the aggregate principal amount of
such Indebtedness does not exceed such purchase price or cost.
"Replacement Assets" means assets and property that will be used in the
business of Holley and/or its Restricted Subsidiaries as existing on the Issue
Date or in a business the same, similar or reasonably related thereto (including
Equity Interests of a Person which becomes a Restricted Subsidiary).
"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.
"Sale and Leaseback Transaction" of any Person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person more than 365 days after the
later of the acquisition thereof or the completion of construction or
commencement of operation thereof to such lender or investor or to any Person to
whom funds have been or are to be advanced by such lender or investor on the
security of such property or asset. The Stated Maturity of such arrangement
shall be the date of the last payment of rent or any other amount due under such
arrangement prior to the first date on which such arrangement may be terminated
by the lessee without payment of a penalty.
"Significant Subsidiary" means any 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
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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 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
(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 a Guarantee of the notes issued by a Guarantor
pursuant to the indenture.
"Unrestricted Subsidiary" means any Subsidiary of Holley that is designated
by the Board of Directors as an Unrestricted Subsidiary in accordance with the
covenant described under the caption "-- Covenants -- Designation of Restricted
and Unrestricted Subsidiaries."
"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
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, 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 of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person and/or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion is a summary of the material United States federal
income tax considerations relevant to the purchase, ownership and disposition of
the notes by persons acquiring notes on original issuance for cash at the
initial issue price and does not purport to be a complete analysis of all of the
potential tax considerations relating thereto. This summary is based on the
Internal Revenue Code of 1986, Treasury regulations, court decisions, published
positions of the Internal Revenue Service and other applicable authorities, all
as in effect on the date of this prospectus and all of which are subject to
change or differing interpretation, possibly on a retroactive basis. This
summary is limited to persons who will hold the notes as capital assets
(generally, assets held for investment). This summary does not address all of
the tax consequences that may be relevant to investors that may be subject to
special tax treatment (such as financial institutions, tax-exempt organizations,
real estate investment companies, regulated investment companies, insurance
companies, dealers in securities or currencies, non-United States persons or
expatriates). Holders considering the exchange of outstanding notes for exchange
notes should consult their own tax advisors concerning the U.S. federal income
tax consequences in light of their particular situations, as well as any
consequences arising under state, local or foreign income tax or other tax law.
All references to notes in this section apply equally to exchange notes as to
outstanding notes.
TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of outstanding notes for exchange notes pursuant to the
exchange offer will not be considered a taxable exchange for U.S. federal income
tax purposes because the exchange notes will not differ materially in kind or
extent from the outstanding notes and because the exchange will occur by
operation of the terms of the outstanding notes. Accordingly, such exchange will
have no U.S. federal income tax consequences to holders of outstanding notes. A
Holder's adjusted tax basis and holding period in an exchange note will be the
same as such Holder's adjusted tax basis and holding period, respectively, in
the outstanding notes exchange therefor. However, because the notes were issued
with an original issue discount, there will be income tax consequences
associated with the exchange notes.
UNITED STATES HOLDERS
As used herein, the term "United States Holder" means the beneficial owner
of a note that for United States federal income tax purposes is:
- a citizen or resident of the United States,
- a corporation created or organized in or under the laws of the United
States or any state thereof,
- a partnership or other business entity created or organized in or under
the laws of the United States or any state thereof and that, is properly
treated as a United States person for tax purposes,
- an estate the income of which is includable in gross income for United
States federal income tax purposes regardless of its source, or
- a trust the administration of which is subject to the primary supervision
of a United States court and with respect to which one or more United
States persons have the authority to control all substantial decisions.
An individual may, subject to exceptions, be deemed to be a United States
resident, as opposed to a non-resident alien, by virtue of being present in the
United States on at least 31
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days in the calendar year and for an aggregate of at least 183 days during a
three-year period ending in the current calendar year, counting for such
purposes all of the days present in the current year, one-third of the days
present in the immediately preceding year, and one-sixth of the days present in
the second preceding year. Resident aliens are subject to United States federal
income tax as if they were United States citizens.
Payment of Interest and Original Issue Discount
Interest on a note generally will be includable in the income of a United
States Holder as ordinary income at the time such interest is received or
accrued, in accordance with such Holder's method of accounting for United States
federal income tax purposes.
The notes will be issued with original issue discount (the "original issue
discount") from their stated principal amount. The amount of the original issue
discount will be equal to the excess of the stated redemption price at maturity
of the notes (i.e., the principal amount) over their issue price. A Holder must
include the original issue discount in gross income as ordinary interest income
as it accrues on a constant yield method, without regard to the Holder's regular
method of accounting. The original issue discount must, therefore, be included
in income in advance of the receipt of the cash representing that income.
Sale, Exchange or Redemption of notes
Upon the sale, exchange or redemption of a note, a United States Holder
generally will recognize capital gain or loss equal to the difference between
(a) the amount of cash proceeds and the fair market value of any property
received on the sale, exchange or redemption, except to the extent such amount
is attributable to accrued interest income, which is taxable as ordinary income,
and (b) such Holder's adjusted tax basis in the note. A United States Holder's
adjusted tax basis in a note generally will equal the cost of the note to such
Holder increased by the original issue discount previously included in income
and decreased by any principal payments received by such Holder. Such capital
gain or loss will be long-term if the United States Holder's holding period is
more than 12 months and will be short-term if the holding period is equal to or
less than 12 months. Long-term capital gains recognized by individuals are
generally taxed at a maximum federal tax rate of 20.0%, and short-term capital
gains are generally taxed at a maximum federal tax rate of 39.6%.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to same
noncorporate United States Holders with respect to payments of principal and
interest on a note, and to payments of the proceeds of the sale of a note. The
receipt of such payments may be subject, under certain circumstances, to "backup
withholding" at a 31.0% rate. Backup withholding generally applies only if the
Holder (a) fails to furnish his or her Social Security or other taxpayer
identification number ("TIN") within a reasonable time after the request
therefor, (b) furnishes an incorrect TIN, (c) is notified by the IRS that he or
she has failed to report properly interest, dividends or original issue
discount, or (d) fails, under certain circumstances, to provide a certified
statement, signed under penalties of perjury, that the TIN provided is the
correct number and that he or she is not subject to backup withholding. Any
amounts withheld under the backup withholding rules from a payment to a United
States Holder will be allowed as a credit against such Holder's United States
federal income tax and may entitle the Holder to a refund, provided that the
required information is furnished to the Internal Revenue Service.
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NON-U.S. HOLDERS
The following discussion is a summary of the material United States federal
income tax consequences to a Non-U.S. Holder that holds a note. A "Non-U.S.
Holder" is a holder that is not a U.S. Holder.
A Non-U.S. Holder generally will not be subject to United States tax on
interest on a note, provided that such interest is not effectively connected
with a U.S. trade or business of the holder and that
- such 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 issuer
entitled to vote;
- such Non-U.S. Holder is not a controlled foreign corporation with respect
to which the issuer is a "related person" for United States federal
income tax purposes; and
- such Non-U.S. Holder certifies, under penalty of perjury, that it is a
Non-U.S. Holder and provides its name and address.
A Non-U.S. Holder that does not qualify for the exception from tax
described above would generally be subject to United States withholding tax at a
flat rate of 30% (or a lower applicable treaty rate) on payments of interest,
unless the Non-U.S. Holder's income from the notes is effectively connected with
a U.S. trade or business of the holder and the holder timely furnishes two duly
executed copies of IRS Form 4224 (or any successor form) to the withholding
agent, in which case such income would be taxed on a net basis as though the
holder were a United States person.
In addition, gain recognized by a Non-U.S. Holder upon the sale, exchange
or redemption of a note will not be subject to United States federal income tax
unless
- the gain is effectively connected with the conduct of a trade or business
within the United States by the Non-U.S. Holder; or
- the Non-U.S. Holder is an individual present in the United States for 183
days or more during the taxable year in which the note is sold, exchanged
or redeemed, and certain other requirements are met.
A note held by an individual who at the time of his or her death is not a
citizen or resident of the United States will not be includable in such
individual's gross estate subject to United States federal estate tax as a
result of such individual's death, provided that
- the individual did not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the issuer
entitled to vote; and
- the interest on the note would not have been United States trade or
business income if it had been received by such individual at the time of
his or her death.
BACKUP WITHHOLDING
A holder of a note may be subject to backup withholding at a 31% rate with
respect to interest and gross proceeds received with respect to the note. Backup
withholding will not apply, however, to a holder who furnishes a correct
taxpayer identification number or certificate of foreign status and makes any
other required certification, or who is otherwise exempt from backup
withholding. Generally, a holder of a note that is a United States person will
provide such certification on IRS Form W-9 (Request for Taxpayer Identification
Number and Certification) and a Non-U.S. Holder will provide such certification
on IRS Form W-8 (Certificate of Foreign Status).
Backup withholding is not an additional tax. Amounts withheld under the
backup withholding rules may be credited against a holder's tax liability, and a
holder may obtain a refund of any
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excess amounts withheld under the backup withholding rules by filing the
appropriate claim for refund with the IRS (generally, a United States federal
income tax return).
The IRS has issued Treasury regulations, generally effective for payments
made after December 31, 2000, concerning the withholding of tax and reporting
for certain amounts paid to non-resident individuals and foreign corporations.
Among other things, these Treasury regulations may require Non-U.S. Holders to
furnish new certification of their foreign status. Prospective purchasers of
notes should consult their tax advisors concerning the applicability and effect
of these Treasury regulations on an investment in notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for outstanding notes where such outstanding notes were acquired as a
result of market-making activities or other trading activities. Holley has
agreed that, starting on the expiration date and ending on the close of business
one year after the expiration date, it will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until [XXX], 1999, all dealers effecting transactions in
the exchange notes may be required to deliver a prospectus.
Holley will not receive any proceeds from the issuance of the exchange
notes offered hereby or any sale of exchange notes by broker-dealers. Exchange
notes received by broker-dealers for their own account pursuant to the exchange
offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the exchange notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such exchange notes. Any
broker-dealer that resells exchange notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit from any
such resale of exchange notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The letter of transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of one year after the expiration date, Holley will promptly
send additional copies of this prospectus and any amendment or supplement to
this prospectus to any broker-dealer that requests such documents in the letter
of transmittal. Holley has agreed to pay all expenses incident to the exchange
offer, including the expenses of one counsel for the holders of the outstanding
notes, other than dealers' and brokers' discounts, commissions and counsel fees
and will indemnify the holders of the outstanding notes, including any
broker-dealers, against certain liabilities, including liabilities under the
Securities Act.
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LEGAL MATTERS
The validity of the exchange notes offered hereby will be passed upon for
Holley by Hunton & Williams, Atlanta, Georgia.
INDEPENDENT PUBLIC ACCOUNTANTS
The audited consolidated financial statements of Holley Performance
Products Inc. and Subsidiaries for the years ended December 31, 1996 and 1997
and the periods from January 1, 1998 to May 15, 1998 and May 16, 1998 to
December 31, 1998, the consolidated financial statements of Hooker Industries,
Inc. for the years ended June 30, 1999 and 1998 and the audited financial
statements of Nitrous Oxide Systems, Inc. for the year ended December 31, 1998,
all included in this prospectus, have been audited by Arthur Andersen LLP,
independent public accountants, as stated in their reports appearing herein.
The audited consolidated financial statements of Biggs Manufacturing, Inc.
and Subsidiaries for the years ended June 30, 1998 and June 30, 1999 have been
audited by Semple & Cooper LLP, independent public accountants, as stated in its
report appearing herein.
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INDEX TO FINANCIAL STATEMENTS
PAGE
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HOLLEY PERFORMANCE PRODUCTS, INC.
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998.................................................... F-3
Consolidated Statements of Income for each of the years
ended December 31, 1996 and 1997, the period from
January 1, 1998 to May 15, 1998 and the period from
Inception, May 16, 1998, to December 31, 1998........... F-4
Consolidated Statements of Stockholder's Equity for each
of the years ended December 31, 1996 and 1997, the
period from January 1, 1998 to May 15, 1998 and the
period from Inception, May 16, 1998, to December 31,
1998.................................................... F-5
Consolidated Statements of Cash Flows for each of the
years ended December 31, 1996 and 1997, the period from
January 1, 1998 to May 15, 1998 and the period from
Inception, May 16, 1998, to December 31, 1998........... F-6
Notes to Consolidated Financial Statements................ F-7
HOLLEY PERFORMANCE PRODUCTS, INC.
Consolidated Balance Sheets as of December 31, 1998 and
October 3, 1999......................................... F-22
Consolidated Statements of Operations for the periods from
January 1, 1998 to May 15, 1998 and May 16, 1998 to
September 27, 1998 and the nine months ended October 3,
1999.................................................... F-23
Consolidated Statements of Stockholder's Equity for the
nine months ended October 3, 1999....................... F-24
Consolidated Statements of Cash Flows for the periods from
January 1, 1998 to May 15, 1998 and May 16, 1998 to
September 27, 1998 and the nine months ended October 3,
1999.................................................... F-25
Notes to Consolidated Financial Statements................ F-26
PRE ACQUISITION FINANCIAL STATEMENTS
HOOKER INDUSTRIES, INC.
Report of Independent Public Accountants.................. F-32
Consolidated Balance Sheets as of June 30, 1999 and
1998.................................................... F-33
Consolidated Statements of Income for the years ended June
30, 1999 and 1998....................................... F-34
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1999 and 1998...................... F-35
Consolidated Statements of Cash Flows for the years ended
June 30, 1999 and 1998.................................. F-36
Notes to Consolidated Financial Statements................ F-37
NITROUS OXIDE SYSTEMS, INC.
Report of Independent Public Accountants.................. F-44
Balance Sheets as of December 31, 1998 and October 25,
1999.................................................... F-45
Statements of Income for the year ended December 31, 1998
and the nine months and twenty-five days ended October
25, 1999................................................ F-46
Statement of Stockholders' Equity for the year ended
December 31, 1998 and the nine months and twenty-five
days ended October 25, 1999............................. F-47
Statements of Cash Flows for the year ended December 31,
1998 and the nine months and twenty-five days ended
October 25, 1999........................................ F-48
Notes to Financial Statements............................. F-49
BIGGS MANUFACTURING, INC.
Report of Independent Public Accountants.................. F-53
Consolidated Balance Sheets as of June 30, 1999 and
1998.................................................... F-54
Consolidated Statements of Operations and Retained
Earnings (Deficit) for the years ended June 30, 1999 and
1998.................................................... F-55
Consolidated Statements of Cash Flows for the years ended
June 30, 1999 and 1998.................................. F-56
Notes to Consolidated Financial Statements................ F-57
BIGGS MANUFACTURING, INC.
Consolidated Statements of Operations and Retained
Earnings (Deficit) for the year ended June 30, 1999 and
the quarter ended September 30, 1999.................... F-62
Consolidated Statements of Cash Flows for the year ended
June 30, 1999 and the quarter ended September 30,
1999.................................................... F-63
Notes to Consolidated Financial Statements................ F-64
F-1
112
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Holley Performance Products Inc.:
We have audited the accompanying consolidated balance sheet of HOLLEY
PERFORMANCE PRODUCTS INC. (a Delaware corporation) AND SUBSIDIARIES (the
"Company") as of December 31, 1998 and the related consolidated statements of
income, stockholder's equity and cash flows for the period from inception, May
16, 1998, to December 31, 1998. We have also audited the accompanying balance
sheet of the Predecessor (businesses identified in note 1) as of December 31,
1997, and the related statements of income, stockholder's equity and cash flows
for the years ended December 31, 1996 and 1997 and the period from January 1,
1998 to May 15, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Holley Performance Products
Inc. and subsidiaries as of December 31, 1998 and the results of their
operations and cash flows for the period from inception, May 16, 1998, to
December 31, 1998 and the financial position of the Predecessor as of December
31, 1997 and its results of operations and cash flows for the years ended
December 31, 1996 and 1997 and the period from January 1, 1998 to May 15, 1998
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
February 23, 1999
F-2
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HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE
PREDECESSOR ARE NOT COMPARABLE IN CERTAIN RESPECTS.
THE PREDECESSOR THE COMPANY
DECEMBER 31, DECEMBER 31,
1997 1998
--------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ -- $ 2,013
Accounts receivable, net of reserves for doubtful accounts
of $1,118 and $1,686, respectively..................... 10,529 15,174
Inventories............................................... 11,216 22,673
Deferred income taxes..................................... 2,791 4,151
Other current assets...................................... 2,540 845
------- --------
Total current assets.............................. 27,076 44,856
PROPERTY, PLANT AND EQUIPMENT, net.......................... 6,511 26,771
INTANGIBLE ASSETS, net...................................... 297 106,445
------- --------
Total assets...................................... $33,884 $178,072
======= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Bank overdraft............................................ $ 172 $ --
Current portion of long-term debt......................... -- 3,200
Accounts payable.......................................... 3,305 6,923
Accrued liabilities....................................... 8,962 15,171
------- --------
Total current liabilities......................... 12,439 25,294
------- --------
PAYABLE TO PARENT........................................... 9,081 --
------- --------
LONG-TERM DEBT, net of current portion...................... -- 89,888
------- --------
DEFERRED INCOME TAXES....................................... 41 19,099
------- --------
OTHER....................................................... 814 752
------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $1.00 and $0.01 par value; authorized 1,000
and 50,000,000; issued and outstanding 1,000 and
24,966,667, respectively............................... 1 250
Paid-in capital........................................... -- 42,170
Retained earnings......................................... 11,508 619
------- --------
Total stockholder's equity........................ 11,509 43,039
------- --------
Total liabilities and stockholder's equity........ $33,884 $178,072
======= ========
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
114
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE
PREDECESSOR ARE NOT COMPARABLE IN CERTAIN RESPECTS.
THE PREDECESSOR THE COMPANY
------------------------------ ------------
YEAR ENDED JANUARY 1, MAY 16, 1998
DECEMBER 31, 1998 TO TO
----------------- MAY 15, DECEMBER 31,
1996 1997 1998 1998
------- ------- ---------- ------------
NET SALES.......................................... $96,290 $98,803 $36,632 $64,731
COST OF SALES...................................... 65,368 69,192 25,728 44,269
------- ------- ------- -------
Gross profit............................. 30,922 29,611 10,904 20,462
------- ------- ------- -------
SELLING EXPENSES................................... 8,538 9,654 4,018 6,895
GENERAL AND ADMINISTRATIVE EXPENSES................ 8,045 10,836 2,756 4,495
MANAGEMENT FEES TO RELATED PARTY................... 2,285 2,269 842 405
NON-RECURRING CHARGE............................... -- -- -- 452
AMORTIZATION EXPENSE............................... 113 113 45 1,626
------- ------- ------- -------
Operating income......................... 11,941 6,739 3,243 6,589
------- ------- ------- -------
INTEREST EXPENSE................................... -- -- -- 4,705
OTHER INCOME (EXPENSE)............................. (183) 45 (1,395) (231)
------- ------- ------- -------
INCOME BEFORE TAXES................................ 11,758 6,784 1,848 1,653
PROVISION FOR INCOME TAXES......................... 4,514 2,520 797 1,034
------- ------- ------- -------
NET INCOME......................................... $ 7,244 $ 4,264 $ 1,051 $ 619
======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
115
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE
PREDECESSOR ARE NOT COMPARABLE IN CERTAIN RESPECTS.
COMMON PAID-IN DIVISIONAL RETAINED
STOCK CAPITAL EQUITY EARNINGS TOTAL
------- ------- ---------- -------- --------
THE PREDECESSOR
----------------------------------------------------
BALANCE, December 31, 1995................ $ -- $ -- $ 20,185 $ -- $ 20,185
Elimination of divisional equity........ -- -- (20,185) -- (20,185)
Issuance of common stock................ 1 -- -- -- 1
Net income.............................. -- -- -- 7,244 7,244
------- ------- -------- -------- --------
BALANCE, December 31, 1996................ 1 -- -- 7,244 7,245
Net income.............................. -- -- -- 4,264 4,264
------- ------- -------- -------- --------
BALANCE, December 31, 1997................ 1 -- -- 11,508 11,509
Net income.............................. -- -- -- 1,051 1,051
------- ------- -------- -------- --------
BALANCE, May 15, 1998..................... $ 1 $ -- $ -- $ 12,559 $ 12,560
======= ======= ======== ======== ========
THE COMPANY
----------------------------------------------------
Acquisition -- elimination of Predecessor
equity (see Note 1)..................... $ (1) $ -- $ -- $(12,559) $(12,560)
Issuance of common stock................ 250 42,170 -- -- 42,420
Net income.............................. -- -- -- 619 619
------- ------- -------- -------- --------
BALANCE, December 31, 1998................ $ 250 $42,170 $ -- $ 619 $ 43,039
======= ======= ======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
116
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE
PREDECESSOR ARE NOT COMPARABLE IN CERTAIN RESPECTS.
THE PREDECESSOR THE COMPANY
-------------------------------- ------------
YEAR ENDED JANUARY 1, MAY 16, 1998
DECEMBER 31, 1998 TO TO
------------------- MAY 15, DECEMBER 31,
1996 1997 1998 1998
--------- ------- ---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................. $ 7,244 $ 4,264 $ 1,051 $ 619
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............ 1,150 1,063 576 3,547
(Gain) loss on disposal of fixed
assets................................. 188 (85) -- --
Deferred income taxes.................... (2,292) (458) (919) (959)
Changes in assets and liabilities, net of
assets purchased:
Accounts receivable.................... (4,279) 4,094 (3,686) 1,401
Inventories............................ 491 1,439 1,198 (3,464)
Other current assets................... 166 (1,870) 501 (770)
Bank overdraft......................... -- (853) (131) --
Accounts payable....................... 314 623 2,719 265
Accrued liabilities.................... 4,236 (2,562) 1,704 936
--------- ------- --------- --------
Net cash provided by operating
activities........................ 7,218 5,655 3,013 1,575
--------- ------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................ (466) (942) (1,188) (2,819)
Proceeds on disposal of fixed assets........ -- 347 -- 1,053
Cash paid for acquisitions.................. -- -- -- (130,380)
--------- ------- --------- --------
Net cash used in investing
activities........................ (466) (595) (1,188) (132,146)
--------- ------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term
obligations.............................. -- -- -- 94,376
Principal payments on long-term
obligations.............................. -- -- -- (2,362)
Elimination of divisional equity............ (20,185) -- -- --
Changes in payable to parent................ 13,433 (5,060) (1,825) --
Financing costs............................. -- -- -- (1,850)
Proceeds from issuance of equity............ -- -- -- 42,420
--------- ------- --------- --------
Net cash provided by (used in)
financing activities.............. (6,752) (5,060) (1,825) 132,584
--------- ------- --------- --------
NET CHANGE IN CASH............................ -- -- -- 2,013
BALANCE AT BEGINNING OF PERIOD................ -- -- -- --
========= ======= ========= ========
BALANCE AT END OF PERIOD...................... $ -- $ -- $ -- $ 2,013
========= ======= ========= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest...................... $ -- $ -- $ -- $ 3,818
========= ======= ========= ========
Cash paid for income taxes.................. $ -- $ -- $ -- $ 2,350
========= ======= ========= ========
Transfer of assets from (to) Parent......... $ -- $ 704 $ (1,594) $ --
========= ======= ========= ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
117
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION AND BASIS OF PRESENTATION
Holley Performance Products Inc. (a Delaware corporation and "Holley"),
based in Bowling Green, Kentucky, is a leading manufacturer of a diversified
line of performance automotive products, including carburetors, fuel pumps, fuel
injection systems, ignition systems and remanufactured carburetors. The products
are designed to enhance street, off-road, recreational and competitive vehicle
performance through increased horsepower, torque and driveability. In addition
to its automotive performance line, Holley manufactures performance marine,
mobile and stationary industrial engine components and markets a new line of
performance in-tank fuel pumps as well as a recently introduced specialty
chemical line.
Effective May 15, 1998, all outstanding shares of Holley common stock were
purchased by KHPP Acquisition Corporation ("KHPP"), a wholly-owned subsidiary of
KHPP Holdings Corporation ("Holdings"), for $100,000 (the "Acquisition"). At the
time of the Acquisition, KHPP was merged into Holley. The consolidated balance
sheet as of December 31, 1998 and the consolidated statements of income,
stockholder's equity and cash flows for the period from May 16 to December 31,
1998 reflect the accounts of Holley subsequent to the change in ownership which
resulted from the Acquisition. The Acquisition was accounted for using the
purchase method of accounting. The allocation of purchase price has been
tentatively allocated based upon preliminary estimates of the fair value of the
net assets acquired (note 3).
Prior to January 1, 1996, Holley was a division of Coltec Industries, Inc.
("Coltec"). Effective January 1, 1996, Holley was incorporated, and from January
1, 1996 to May 15, 1998, Holley was a wholly-owned subsidiary of Coltec. The
balance sheet as of December 31, 1997 and the statements of income,
stockholder's equity and cash flows for the years ended December 31, 1996 and
1997 and the period from January 1, 1998 through May 15, 1998, are the financial
statements of Holley when it was a wholly-owned subsidiary of Coltec (referred
to herein as the "Predecessor"). The Acquisition and the related application of
purchase accounting (note 3) resulted in changes to the capital structure of the
Predecessor and the historical basis of various assets and liabilities. The
effect of such changes significantly impairs the comparability of the financial
position and results of operations of Holley and the Predecessor.
In August and October of 1998, respectively, Holley purchased the
outstanding common stock of Weiand Automotive Industries, Inc. ("Weiand") and a
group of companies under common ownership, Lunati Cams, Inc., Lunati & Taylor
Pistons, Inc., and LMT Motor Sports Corporation (referred to collectively as
"Lunati"). Weiand is a manufacturer and distributor of induction systems, and
Lunati is a manufacturer of camshafts, crankshafts, pistons and automotive
specialty parts. Both Weiand and Lunati sell their products to automotive parts
retailers throughout the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Holley and
its wholly-owned subsidiaries -- Weiand and Lunati (collectively referred to as
the "Company"). All significant intercompany transactions and balances between
Holley and its subsidiaries have been eliminated in consolidation.
F-7
118
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid investments, purchased
with an original maturity of three months or less.
REVENUES AND ACCOUNTS RECEIVABLE
The Company's customers operate primarily in the automotive parts and
specialty automotive equipment parts industries. The Company generally grants
credit to customers on an unsecured basis. Revenues from sales are recognized at
the time products are shipped. Sales returns and allowances are recorded as a
charge against revenue in the period in which the related sales are recognized.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method for 100% and 75% of inventory,
respectively, as of December 31, 1997 and 1998. Cost for the remaining inventory
as of December 31, 1998, is determined using the first-in, first-out (FIFO)
method. The percentage decrease in inventory accounted for by the LIFO method as
of December 31, 1998, resulted from the Weiand and Lunati acquisitions. Cost
elements included in inventory are material, labor and factory overhead.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment purchased in the Acquisition, as well as the
acquisitions of Weiand and Lunati, are stated at estimated fair market value as
prescribed by the purchase method of accounting. Subsequent purchases of
property, plant and equipment are stated at cost, net of accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, which are as follows (in years):
THE PREDECESSOR THE COMPANY
--------------- -----------
Buildings and improvements.............................. 10-45 10-45
Machinery and equipment................................. 3-20 3-10
Furniture and fixtures.................................. 3-20 3
Computer equipment...................................... 3 3
Expenditures for maintenance and repairs are generally charged to expense
as incurred, whereas expenditures for improvements and replacements are
capitalized.
The cost and accumulated depreciation of assets sold or otherwise disposed
of are removed from the accounts and the resulting gain or loss is reflected in
the consolidated statements of income.
INTANGIBLE ASSETS
Financing costs are amortized over the term of the related outstanding debt
using the effective interest method. The excess of the aggregate purchase price
over the fair value of assets of businesses acquired (goodwill) is being
amortized on a straight-line basis over a period of 40 years. Trade names are
being amortized on a straight-line basis over their estimated useful lives of 40
years. In connection with acquisitions, the Company has entered into various
noncompete agreements with certain individuals. The estimated values allocated
to such agreements are amortized on a straight-line basis over the terms of the
respective agreements.
F-8
119
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Subsequent to an acquisition, the Company continually evaluates whether
events and circumstances have occurred that indicate the remaining estimated
useful life of its intangible assets may warrant revision or that the remaining
balance of such assets may not be recoverable. When factors indicate that such
assets should be evaluated for possible impairment, the Company uses an estimate
of the acquired operation's undiscounted cash flows over the remaining life of
the asset in measuring whether the asset is recoverable.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", ("SFAS 109"). Under
the asset and liability method of SFAS 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
fiscal years in which those temporary differences are expected to be recovered
or settled. Under SFAS 109, the effect on the deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Prior to the Acquisition, the Predecessor was included in the consolidated
Federal income tax return of Coltec. For financial reporting purposes, the
Predecessor provided income taxes as if it filed separately from Coltec while it
was a subsidiary of Coltec. Subsequent to the Acquisition, the Company will be
included in the consolidated Federal income tax return of Holdings.
ACCRUED CLAIMS AND LITIGATION
The Company is partially self-insured for claims arising from employee
health benefits and, prior to May 16, 1998, was partially self-insured for
claims arising from workers' compensation. Excess insurance coverage is
maintained for per-incident and cumulative liability losses for these risks in
amounts management considers adequate. Amounts are currently accrued for the
estimated cost of claims incurred, including related expenses. Management
considers the accrued liabilities for unsettled claims to be adequate; however,
there is no assurance that the amounts accrued will not vary from the ultimate
amounts incurred upon final disposition of all outstanding claims. As a result,
periodic adjustments to the reserves will be made as events occur which indicate
that changes are necessary.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", ("SFAS 123"), encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for employee
stock-based compensation using the intrinsic value method as prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", ("APB Opinion No. 25"), and related Interpretations. As of December
31, 1998, no options to purchase common stock of the Company have been granted.
F-9
120
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NON-RECURRING CHARGE
The non-recurring charge includes expenses related to the closure of a
manufacturing facility and the related movement of inventory and fixed assets to
the Company's manufacturing facility in Bowling Green, Kentucky.
RESEARCH AND DEVELOPMENT COSTS
Research, development, pre-production and start-up costs related to both
present and future products are expensed as incurred. Such costs amounted to
$2,133, $2,688, $884 and $1,387 for the years ended December 31, 1996 and 1997,
and the periods from January 1, 1998 to May 15, 1998, and from May 16, 1998 to
December 31, 1998, respectively, and are classified as a component of general
and administrative expenses in the accompanying consolidated statements of
income.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
LONG-LIVED ASSETS
When factors are present which indicate the cost of assets may not be
recovered, the Company evaluates the realizability of its long-lived assets
based upon the anticipated future undiscounted cash flows generated by the
asset.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates the fair value of financial instruments using quoted
or estimated market prices based upon the current interest rate environment and
the remaining term to maturity. At December 31, 1998, there were no material
differences between the book values of the Company's financial instruments and
their related fair values.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective May 16, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 131 establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. SFAS 131 also
establishes standards for related disclosures about products and services,
geographic areas, and major customers.
Effective May 16, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"),
which establishes standards for reporting and displaying comprehensive income
and its components in a full set of general purpose financial statements.
Comprehensive income encompasses all changes in stockholder's equity (except
those arising from transactions with owners) and includes net income, net
unrealized capital gains or losses on available for sale securities and foreign
currency translation
F-10
121
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
adjustments. Adoption of this pronouncement has not had a material impact on the
Company's results of operations, as comprehensive income for 1998 was the same
as net income for the Company.
3. ACQUISITIONS
HOLLEY
The Acquisition was accounted for as a purchase. Accordingly, the
consolidated financial statements of the Company include the results of
operations of Holley subsequent to May 15, 1998. The purchase price was
$100,000, excluding certain costs related to financing and consummating the
Acquisition. The purchase price was funded from the sale of common stock and the
proceeds from three term notes and a revolving line of credit.
The allocation of the purchase price to the underlying net assets acquired
was based on estimates of the fair value of the net assets as follows:
Purchase price.............................................. $100,000
Financing and other transaction costs....................... 5,511
--------
Total purchase price.............................. 105,511
--------
Less: value assigned to assets and liabilities:
Current assets............................................ 26,266
Property, plant and equipment............................. 17,686
Financing costs........................................... 1,700
Trade name................................................ 23,180
Deferred tax liability, net............................... (10,179)
Current liabilities....................................... (16,867)
Non-current liabilities................................... (814)
--------
40,972
--------
Goodwill.......................................... $ 64,539
========
As of the Acquisition date the Predecessor had net working capital of
$9,179 and property, plant and equipment of $5,773. The tradename, finance costs
and deferred tax liability shown above resulted from the allocation of purchase
price and the resulting deferred tax effect.
F-11
122
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
WEIAND
Effective August 21, 1998, Holley acquired 100% of the outstanding stock of
Weiand for cash of $5,607 excluding certain costs related to consummating the
transaction. The transaction has been accounted for as a purchase. The principal
stockholders of Weiand also entered into agreements not to compete with the
Company. The consolidated financial statements include the results of operations
of Weiand subsequent to August 21, 1998. The purchase price has been tentatively
allocated to the assets acquired and liabilities assumed based on their
estimated fair values as follows:
Purchase price.............................................. $5,607
Financing and other transaction costs....................... 115
------
Total purchase price.............................. 5,722
------
Less: value assigned to assets and liabilities:
Current assets............................................ 1,958
Property, plant and equipment............................. 3,957
Covenants not to compete.................................. 500
Deferred tax liability, net............................... (1,078)
Long-term debt............................................ (1,074)
Current liabilities....................................... (873)
------
3,390
------
Goodwill.......................................... $2,332
======
F-12
123
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
LUNATI
Effective October 29, 1998, Holley acquired 100% of the outstanding stock
of Lunati. The transaction has been accounted for as a purchase. The
consolidated financial statements include the results of operations of Lunati
subsequent to October 29, 1998. The purchase price was $20,000, excluding
certain costs related to financing and consummating the transaction. The
principal stockholders of Lunati also entered agreements not to compete with the
Company. The purchase price has been tentatively allocated to the assets
acquired and liabilities assumed based on their estimated fair values as
follows:
Purchase price.............................................. $20,000
Financing and other transaction costs....................... 997
-------
Total purchase price.............................. 20,997
-------
Less: value assigned to assets and liabilities:
Current assets............................................ 5,683
Property, plant and equipment............................. 5,076
Financing costs........................................... 150
Other assets.............................................. 65
Trade name................................................ 5,290
Covenants not to compete.................................. 4,000
Deferred tax liabilities, net............................. (4,650)
Current liabilities....................................... (386)
Non-current liabilities................................... (441)
-------
14,787
-------
Goodwill.......................................... $ 6,210
=======
The purchase prices of Holley, Weiand and Lunati have been allocated to the
assets acquired and liabilities assumed based on information currently available
as to estimated fair values. An evaluation of the acquired assets and
liabilities assumed is in progress. Upon completion of the evaluation, net
additions or reductions in the fair values currently assigned will be credited
to or charged against amounts allocated to goodwill.
The following unaudited pro forma information combines the consolidated
results of the Company as if the acquisitions of Holley, Weiand and Lunati had
occurred on January 1, 1997. While the Company believes it will realize certain
long-term synergies through the integration of certain operating functions,
there can be no assurances that such synergies can be realized.
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
(UNAUDITED) (UNAUDITED)
Net sales.................................................. $117,323 $118,702
======== ========
Net income (loss).......................................... $ (1,725) $ 1,273
======== ========
F-13
124
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
4. INVENTORIES
Inventories as of December 31, 1997 and 1998 consisted of the following:
THE THE
PREDECESSOR COMPANY
1997 1998
----------- -------
Raw materials............................................... $ 6,954 $14,032
Work-in-progress............................................ 1,309 3,877
Finished goods.............................................. 2,953 4,092
Other....................................................... -- 672
------- -------
$11,216 $22,673
======= =======
If the FIFO method had been used to value all inventories, inventories
would have been $4,131 higher as of December 31, 1997. As a result of the
Acquisition, inventories were revalued to fair value at May 16, 1998, which
approximates the FIFO method of determining inventory value as of December 31,
1998.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 1997 and 1998 consisted of
the following:
THE THE
PREDECESSOR COMPANY
1997 1998
----------- -------
Buildings and improvements.................................. $11,112 $ 3,882
Machinery and equipment..................................... 17,969 19,560
Computer equipment.......................................... 742 3,106
Furniture and fixtures...................................... 114 874
Construction in process..................................... 1,135 906
------- -------
31,072 28,328
Less: accumulated depreciation.............................. (24,561) (1,557)
------- -------
$ 6,511 $26,771
======= =======
Depreciation expense was $1,037, $950, $531 and $1,921 for the years ended
December 31, 1996 and 1997 and the periods from January 1, 1998 to May 15, 1998
and from May 16, 1998 to December 31, 1998, respectively.
F-14
125
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
6. INTANGIBLE ASSETS
Intangible and other assets as of December 31, 1997 and 1998 consisted of
the following:
THE THE
PREDECESSOR COMPANY
1997 1998
----------- --------
Costs in excess of net assets acquired...................... $ 450 $ 73,081
Trade names................................................. -- 28,470
Covenants not to compete.................................... -- 4,500
Financing costs............................................. -- 1,704
Other....................................................... 5 316
----- --------
455 108,071
Less: accumulated amortization.............................. (158) (1,626)
----- --------
$ 297 $106,445
===== ========
Amortization expense was $113, $113, $45 and $1,626 for the years ended
December 31, 1996 and 1997 and the periods from January 1, 1998 to May 15, 1998
and from May 16, 1998 to December 31, 1998, respectively.
7. ACCRUED LIABILITIES
Accrued liabilities as of December 31, 1997 and 1998 consisted of the
following:
THE THE
PREDECESSOR COMPANY
1997 1998
----------- -------
Wages and benefits.......................................... $2,379 $ 4,620
Reserve for product returns................................. 3,706 3,894
Allowance for outstanding rebate programs................... 467 1,434
Other....................................................... 2,410 5,223
------ -------
$8,962 $15,171
====== =======
8. LONG-TERM DEBT
Long-term debt as of December 31, 1997 and 1998 consisted of the following:
THE THE
PREDECESSOR COMPANY
1997 1998
----------- -------
Revolving line of credit, maturing June 30, 2003............ $ -- $ 4,375
Term note "A," maturing June 30, 2003....................... -- 19,000
Term note "B," maturing June 30, 2005....................... -- 29,850
Term note "C," maturing June 30, 2006....................... -- 14,925
Term note "D," maturing December 31, 2006................... -- 24,938
Payable to parent........................................... 9,081 --
------ -------
9,081 93,088
Less current portion........................................ -- (3,200)
------ -------
$9,081 $89,888
====== =======
To finance the Acquisition, the Company entered into a credit agreement
(the "Credit Agreement") with a group of lenders on May 16, 1998. The Credit
Agreement provides for term
F-15
126
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
notes of $20,000, $30,000 and $15,000, as well as a revolving line of credit of
up to $15,000. In connection with the acquisition of Lunati in October 1998, the
Company entered into an amendment to the Credit Agreement (the "Amendment"). The
Amendment provides for an additional term loan of $25,000 and increases the
maximum borrowings available under the revolving line of credit to $20,000.
Borrowing availability under the revolving line of credit is subject to
limitations based on eligible accounts receivable and inventory as defined in
the Credit Agreement. As of December 31, 1998, the Company had borrowings of
$93,088 outstanding under the Credit Agreement including $4,375 of borrowings
under the revolving line of credit and $15,092 of unused credit availability.
Both the Credit Agreement and the Amendment allow the Company to choose
among interest rate options as follows:
INTEREST RATE AT
PRIME OPTION LIBOR OPTION DECEMBER 31, 1998
------------ ------------ -----------------
Revolving line of credit.............. Prime + 1.0% LIBOR + 2.5% 8.75%
Term note "A"......................... N/A LIBOR + 2.5% 7.53%
Term note "B"......................... N/A LIBOR + 3.0% 8.03%
Term note "C"......................... N/A LIBOR + 3.5% 8.53%
Term note "D"......................... N/A LIBOR + 3.5% 8.78%
Interest rates for the term notes and the revolving line of credit ranged
from 8.75% to 9.5% during the period from Inception through December 31, 1998.
The weighted average interest rate was 8.13% during the period from Inception
through December 31, 1998. Both the Credit Agreement and the Amendment require
an annual commitment fee of 0.5% of the total commitment, less letters of credit
and amounts borrowed, and require the Company to make quarterly payments of
accrued interest outstanding on the term notes and the revolving line of credit.
Both the term notes and the revolving line of credit are secured by
substantially all assets of the Company.
Both the Credit Agreement and the Amendment require the Company to meet
certain covenants which, among other things, require the maintenance of ratios
related to leverage and cash flow, and limit the level of capital expenditures
and payments of dividends. The Credit Agreement and Amendment also require
mandatory principal prepayments from any proceeds of sales of the Company's
assets or common stock as well as 75% of excess cash flow, as defined. At
December 31, 1998, the Company was in compliance with these covenants.
Future maturities of long-term debt for the years following December 31,
1998 are as follows:
1999........................................................ $ 3,200
2000........................................................ 4,200
2001........................................................ 5,200
2002........................................................ 6,200
2003........................................................ 15,050
Thereafter................................................ 59,238
-------
$93,088
=======
The payable to parent was used to transfer cash between the Predecessor and
Coltec. There was no formal credit arrangement in place, and no interest was
charged.
F-16
127
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
9. INCOME TAXES
The provision for income tax expense consisted of the following:
THE PREDECESSOR THE COMPANY
------------------------------ ------------
YEAR ENDED MAY 16, 1998
DECEMBER 31, JANUARY 1, TO
--------------- 1998 TO DECEMBER 31,
1996 1997 MAY 15, 1998 1998
------ ------ ------------ ------------
Current tax expense........................ $4,054 $2,978 $1,716 $1,993
Deferred tax expense (benefit)............. 460 (458) (919) (959)
------ ------ ------ ------
Income tax expense............... $4,514 $2,520 $ 797 $1,034
====== ====== ====== ======
A reconciliation of the U.S. Federal statutory rate to the effective rate
is as follows:
THE PREDECESSOR THE COMPANY
--------------------------- ------------
YEAR ENDED MAY 16, 1998
DECEMBER 31, JANUARY 1, TO
------------ 1998 TO DECEMBER 31,
1996 1997 MAY 15, 1998 1998
---- ---- ------------ ------------
U.S. Federal statutory rate................ 34.0% 34.0% 34.0% 34.0%
State taxes on income, net of Federal
benefit.................................. 4.0 4.0 4.0 4.0
Expenses not deductible.................... 0.4 0.4 3.1 3.4
Other...................................... -- (1.3) 2.0 --
Non-deductible amortization................ -- -- -- 21.2
---- ---- ---- ----
Income tax expense............... 38.4% 37.1% 43.1% 62.6%
==== ==== ==== ====
Significant components of deferred tax liabilities and assets are as
follows:
THE THE
PREDECESSOR COMPANY
1997 1998
----------- -----------
Reserve on assets.......................................... $ 597 $ 410
Liabilities not yet deductible............................. 2,194 3,741
------ --------
Total current assets............................. 2,791 4,151
------ --------
Other...................................................... 456 283
Trade name................................................. -- (10,681)
Covenants not to compete................................... -- (1,654)
Fixed assets............................................... (497) (7,047)
------ --------
Total noncurrent liabilities, net................ (41) (19,099)
------ --------
Total deferred tax asset (liability)............. $2,750 $(14,948)
====== ========
As of December 31, 1998, the Company had no net operating loss
carryforwards for income tax purposes.
10. BENEFIT PLANS
HOLLEY 401(K) PLAN
Effective May 16, 1998, Holley established 401(k) savings plans for
salaried and non-salaried employees. Participation in the plans is optional.
Employer contributions to the plans are
F-17
128
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
discretionary. During the period from May 16, 1998 to December 31, 1998, the
Company contributed $375 to these plans.
LUNATI 401(K) PLAN
Lunati maintains a profit sharing and a 401(k) savings plan for its
employees. Employer contributions to the plan are discretionary. During the
period from May 16, 1998 to December 31, 1998, the Company did not make
contributions to this plan.
DEFINED BENEFIT PENSION PLAN
Effective May 16, 1998, the Company established a defined benefit pension
plan for its employees. The Projected Unit Credit Actuarial Cost Method is used
to determine the normal cost of the pension plan and estimate pension benefit
obligations.
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at May 16, 1998.......................... $ --
Service cost................................................ 560
Interest cost............................................... 75
Actuarial loss.............................................. 835
Acquisition................................................. 1,650
-------
Benefit obligation at December 31, 1998........... $ 3,120
=======
FAIR VALUE OF PLAN ASSETS
Fair value of plan assets at May 16,1998.................... $ --
Employer contributions...................................... --
-------
Fair value of plan assets at December 31, 1998.............. $ --
=======
FUNDED STATUS
Funded status at December 31, 1998.......................... $(3,120)
Unrecognized actuarial loss................................. 835
-------
Net accrued benefit liability recognized.................... $(2,285)
=======
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost................................................ $ 560
Interest cost............................................... 75
-------
Net periodic benefit cost......................... $ 635
=======
The actuarial assumptions include a discount rate of 6.5% and an annual
rate of compensation increase of 4% for 1998.
Prior to May 16, 1998, the Predecessor participated in the defined benefit
pension plan of Coltec. Under this plan, eligible retired employees were
provided certain health care and life insurance benefits, with some of those
retirees paying a portion of the related costs. The Company's liability under
this plan was not separately calculated; therefore, expense is reflected based
on cash funding requirements. Company contributions to the plan totaled $532,
$496 and $0 for the years ended December 31, 1996 and 1997 and the period from
January 1, 1998 to May 15, 1998, respectively.
F-18
129
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
11. LEASE COMMITMENTS
The aggregate future minimum fixed lease obligations under operating leases
for the Company as of December 31, 1998, are as follows:
OPERATING LEASES
----------------
1999........................................................ $ 716
2000........................................................ 300
2001........................................................ 211
2002........................................................ 87
2003........................................................ 18
Thereafter.................................................. 4
------
Total minimum lease payments...................... $1,336
======
Total rent expense for the Company's operating leases was approximately
$584, $603, $215 and $444 for the years ended December 31, 1996 and 1997 and the
periods from January 1, 1998 to May 15, 1998 and from May 16, 1998 to December
31, 1998, respectively.
12. MAJOR CUSTOMERS
The Company's customers include many large and well-known automotive parts
retailers and distributors. One customer, Auto Sales, Inc., represented 13.8% of
total sales from May 16, 1998 to December 31, 1998. Approximately 1% of the
Company's accounts receivable at December 31, 1997 and 1998 were from this
customer. Management believes the credit risk associated with this customer is
minimal.
13. COMMITMENTS AND CONTINGENCIES
The Company is a party to various lawsuits and claims in the normal course
of business. While the outcome of the lawsuits and claims against the Company
cannot be predicted with certainty, management believes that the ultimate
resolution of the matters will not have a material effect on the financial
position or results of operations of the Company.
The Company, like others in similar businesses, is subject to extensive
federal, state and local environmental laws and regulations. Although Company
environmental policies and practices are designed to ensure compliance with
these laws and regulations, future developments and increasingly stringent
regulation could require the Company to make unforeseen environmental
expenditures.
The Company has established a severance plan for certain members of
management. Under the terms of the severance plan, the participants are entitled
to certain severance benefits which include salary continuation in the event the
participant is terminated by the Company without cause.
14. RELATED-PARTY TRANSACTIONS
The Company paid a fee of $2,000 to Kohlberg & Co., L.L.C. (the majority
shareholder of Holdings and "Kohlberg") in conjunction with the Acquisition. In
August and October of 1998, the Company paid fees totaling $750 to Kohlberg in
conjunction with the acquisitions of Weiand and Lunati (Note 3). These fees have
been capitalized along with other acquisition costs incurred in the
transactions.
F-19
130
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Pursuant to a management agreement, Kohlberg provides the Company with
general corporate administrative services. Kohlberg receives a management fee to
recover its operating expenses based upon an allocation of time devoted to the
Company.
Prior to May 15, 1998, Coltec's staff and management provided certain
operating, corporate and management services to the Predecessor in exchange for
a management fee. Management believes the fees were fair based on the services
provided.
Subsequent to the Acquisition, Holdings issued 3,668,481 stock options to
buy common stock of Holdings to certain members of management of the Company.
The options are exercisable at $1.50 per share, which represented estimated fair
value at the date of grant, and vest at the end of nine years or at an
accelerated rate if certain performance measurements are met. As of December 31,
1998, all options remained unvested and outstanding.
15. ROYALTY AGREEMENT
Effective December 31, 1997, the Predecessor entered into a License
Agreement (the "Agreement") with Coltec. Under the terms of the Agreement,
Coltec granted the Predecessor the use of certain intellectual property,
including but not limited to copyrights, patents, and trademarks, in exchange
for a fee. Fees paid to Coltec under this Agreement from January 1, 1998 to May
15, 1998 totaled $1,054 and are included in other expense in the accompanying
statements of income. The agreement terminated on May 15, 1998 in connection
with the Acquisition.
16. SEGMENT DATA
The Company's reportable segments have a common management team and
infrastructure, however, due to the different nature of the products sold by
each segment, the Company monitors each segment's revenues and gross margin on a
standalone basis when making strategic decisions regarding the allocation of
Company resources.
The Company has two reportable segments: Performance Parts and
Remanufactured Parts. The Company manufactures high performance aftermarket
automotive parts through its Performance Parts segment. Under its Remanufactured
Parts segment, the Company refurbishes used automotive part cores and then
resells the parts as remanufactured products. Both segments sell primarily to
automotive parts distributors throughout the United States.
The accounting policies of the reportable segments are the same as those
described in Note 2. The Company evaluates the performance of its reportable
segments based on gross margin. Intersegment sales and transfers are not
significant.
Summarized financial information concerning the Company's operating
measures for the reportable segments are shown in the following table:
THE COMPANY
HIGH PERFORMANCE REMANUFACTURED
PARTS PARTS TOTAL
---------------- -------------- -------
MAY 16, 1998 TO DECEMBER 31, 1998
Revenues............................................ $47,032 $17,699 $64,731
Gross Margin........................................ 15,339 5,123 20,462
F-20
131
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
THE PREDECESSOR
HIGH PERFORMANCE REMANUFACTURED
PARTS PARTS TOTAL
---------------- -------------- -------
JANUARY 1, 1998 TO MAY 15, 1998
Revenues............................................ $26,651 $ 9,981 $36,632
Gross Margin........................................ 8,901 2,003 10,904
YEAR ENDED DECEMBER 31, 1997
Revenues............................................ $69,293 $29,510 $98,803
Gross Margin........................................ 23,942 5,669 29,611
YEAR ENDED DECEMBER 31, 1996
Revenues............................................ $68,427 $27,863 $96,290
Gross Margin........................................ 26,316 4,606 30,922
Summary balance sheet data for inventory and fixed assets for each of the
Company's reportable segments as of December 31, 1998 and 1997 are shown in the
following table:
THE COMPANY
HIGH PERFORMANCE REMANUFACTURED
PARTS PARTS TOTAL
---------------- -------------- -------
AS OF DECEMBER 31, 1998
Inventory........................................... $18,405 $ 4,268 $22,673
Fixed Assets........................................ 23,937 2,834 26,771
THE PREDECESSOR
AS OF DECEMBER 31, 1997
Inventory........................................... $ 7,798 $ 3,418 $11,216
Fixed Assets........................................ 6,084 427 6,511
F-21
132
HOLLEY PERFORMANCE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
DECEMBER 31, OCTOBER 3,
1998 1999
----------------- ---------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,013 $ 14,487
Accounts receivable, net of reserves for doubtful accounts
of $1,686 and $1,581, respectively..................... 15,174 21,899
Inventories............................................... 22,673 25,460
Deferred income taxes..................................... 4,151 3,049
Other current assets...................................... 845 4,951
-------- --------
Total current assets.............................. 44,856 69,846
PROPERTY, PLANT AND EQUIPMENT, net.......................... 26,771 31,995
INTANGIBLE ASSETS, net...................................... 106,445 131,468
-------- --------
Total assets...................................... $178,072 $233,309
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 3,200 $ --
Accounts payable.......................................... 6,923 7,432
Accrued liabilities....................................... 15,171 13,009
-------- --------
Total current liabilities......................... 25,294 20,441
-------- --------
LONG-TERM DEBT, net of current portion...................... 89,888 147,441
-------- --------
DEFERRED INCOME TAXES....................................... 19,099 18,173
-------- --------
OTHER....................................................... 752 741
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $0.01 par value; 1,000 authorized, issued
and outstanding........................................ 250 250
Paid-in capital........................................... 42,170 47,170
Retained earnings (deficit)............................... 619 (907)
-------- --------
Total stockholder's equity........................ 43,039 46,513
-------- --------
Total liabilities and stockholder's equity........ $178,072 $233,309
======== ========
The accompanying notes are an integral part of these consolidated balance
sheets.
F-22
133
HOLLEY PERFORMANCE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE
PREDECESSOR ARE NOT COMPARABLE IN CERTAIN RESPECTS.
THE
PREDECESSOR THE COMPANY
----------- --------------------------
JANUARY 1, MAY 16, JANUARY 1,
1998 TO 1998 TO 1999 TO
MAY 15, SEPTEMBER 27, OCTOBER 3,
1998 1998 1999
----------- ------------- ----------
NET SALES............................................... $36,632 $39,156 $94,739
COST OF SALES........................................... 25,728 26,085 62,610
------- ------- -------
Gross profit.......................................... 10,904 13,071 32,129
------- ------- -------
SELLING EXPENSES........................................ 4,018 4,067 11,629
GENERAL AND ADMINISTRATIVE EXPENSES..................... 2,756 2,852 6,572
MANAGEMENT FEES TO RELATED PARTY........................ 842 189 650
NONRECURRING CHARGE..................................... -- -- 755
AMORTIZATION EXPENSE.................................... 45 846 2,936
------- ------- -------
Operating income...................................... 3,243 5,117 9,587
------- ------- -------
INTEREST EXPENSE........................................ -- 2,649 7,412
OTHER INCOME (EXPENSE).................................. (1,395) (81) (9)
------- ------- -------
INCOME BEFORE TAXES AND EXTRAORDINARY ITEM.............. 1,848 2,387 2,166
PROVISION FOR INCOME TAXES.............................. 797 1,045 2,038
------- ------- -------
INCOME BEFORE EXTRAORDINARY ITEM........................ 1,051 1,342 128
EXTRAORDINARY ITEM, NET................................. -- -- 1,654
------- ------- -------
NET INCOME (LOSS)....................................... $ 1,051 $ 1,342 $(1,526)
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
134
HOLLEY PERFORMANCE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
------------ ------- --------- -------
THE COMPANY
BALANCE, December 31, 1998........................ $250 $42,170 $ 619 $43,039
Net loss........................................ -- -- (1,526) (1,526)
Capital contribution............................ -- 5,000 -- 5,000
---- ------- ------- -------
BALANCE, October 3, 1999.......................... $250 $47,170 $ (907) $46,513
==== ======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
135
HOLLEY PERFORMANCE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE
PREDECESSOR ARE NOT COMPARABLE IN CERTAIN RESPECTS.
THE
PREDECESSOR THE COMPANY
------------ --------------------------
JANUARY 1, MAY 16, JANUARY 1,
1998 TO 1998 TO 1999 TO
MAY 15, SEPTEMBER 27, OCTOBER 3,
1998 1998 1999
------------ ------------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................... $ 1,051 $ 1,342 $(1,526)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization....................... 576 2,088 6,585
Deferred income taxes............................... (919) 778 1,277
Writeoff of existing finance costs.................. -- -- 1,654
Changes in assets and liabilities, net of assets
purchased:
Accounts receivable............................... (3,686) 138 (2,223)
Inventories....................................... 1,198 493 (1,006)
Other current assets.............................. 501 (2,074) (3,022)
Bank overdraft.................................... (131) 58 --
Accounts payable.................................. 2,719 (587) (1,550)
Accrued liabilities............................... 1,704 4,055 (4,004)
------- --------- -------
Net cash provided by (used in) operating
activities................................... 3,013 6,233 (3,815)
------- --------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions.............................. -- (111,224) (29,527)
Capital expenditures................................... (1,188) (1,606) (3,024)
Proceeds from the sale of fixed assets................. -- 1,080 10
Loss on the disposal of fixed assets................... -- -- (59)
------- --------- -------
Net cash used in investing activities.......... (1,188) (111,750) (32,600)
------- --------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments/proceeds on long-term obligations... -- 73,926 49,389
Changes in payable to parent........................... (1,825) 168 --
Financing costs........................................ -- (1,098) (5,500)
Proceeds from the issuance of equity................... -- 37,420 5,000
------- --------- -------
Net cash provided by (used in) financing
activities................................... (1,825) 110,416 48,889
------- --------- -------
NET CHANGE IN CASH....................................... $ -- $ 4,899 $12,474
BALANCE AT BEGINNING OF PERIOD........................... -- -- 2,013
------- --------- -------
BALANCE AT END OF PERIOD................................. $ -- $ 4,899 $14,487
======= ========= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest................................. $ -- $ -- 6,673
======= ========= =======
Cash paid for income taxes............................. $ -- $ -- 2,884
======= ========= =======
Transfer of assets from (to) Parent.................... $(1,594) $ -- $ --
======= ========= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
136
HOLLEY PERFORMANCE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The consolidated balance sheets as of December 31, 1998 and October 3, 1999
and the consolidated statements of operations and cash flows for the periods
from January 1, 1998 to May 15, 1998, May 16, 1998 to September 27, 1998 and the
nine months ended October 3, 1999 have been prepared by the Company in
accordance with the accounting policies described in its annual financial
statements and should be read in conjunction with the notes thereto.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and changes in cash flows at May 15, 1998, September 27,
1998 and October 3, 1999 and for all periods presented have been made. The
results of operations for the nine months ended October 3, 1999 are not
necessarily indicative of the operating results to be expected for the full
year.
Holley Performance Products, Inc. (a Delaware corporation and "Holley"),
based in Bowling Green, Kentucky, is a leading manufacturer of a diversified
line of performance automotive products, including carburetors, fuel pumps, fuel
injection systems, ignition systems and remanufactured carburetors. The products
are designed to enhance street, off-road, recreational and competitive vehicle
performance through increased horsepower, torque and driveability. In addition
to its automotive performance line, Holley manufactures performance marine,
mobile and stationary industrial engine components and markets a new line of
performance in-tank fuel pumps as well as a recently introduced specialty
chemical line.
Effective May 15, 1998, all outstanding shares of Holley common stock were
purchased by KHPP Acquisition Corporation ("KHPP"), a wholly-owned subsidiary of
KHPP Holdings Corporation ("Holdings"), for $100,000 (the "Acquisition"). At the
time of the Acquisition, KHPP was merged into Holley. The consolidated balance
sheets as of December 31, 1998 and October 3, 1999 and the consolidated
statements of operations, stockholder's equity and cash flows for the period
from May 16, 1998 to September 27, 1998 and the nine months ended October 3,
1999 reflect the accounts of Holley subsequent to the change in ownership which
resulted from the Acquisition. The Acquisition was accounted for using the
purchase method of accounting.
Prior to January 1, 1996, Holley was a division of Coltec Industries, Inc.
("Coltec"). On January 1, 1996, Holley was incorporated, and from January 1,
1996 to May 15, 1998, Holley was a wholly-owned subsidiary of Coltec. The
consolidated statements of operations and cash flows for the period from January
1, 1998 to May 15, 1998 are the financial statements of Holley when it was a
wholly-owned subsidiary of Coltec (referred to herein as the "Predecessor"). The
Acquisition and the related application of purchase accounting resulted in
changes to the capital structure of the Predecessor and the historical basis of
various assets and liabilities. The effect of such changes significantly impairs
the comparability of the financial position and results of operations of Holley
and the Predecessor.
In August and October of 1998, respectively, Holley purchased the
outstanding common stock of Weiand Automotive Industries, Inc. ("Weiand") and a
group of companies under common ownership, Lunati Cams, Inc., Lunati & Taylor
Pistons, Inc., and LMT Motor Sports Corporation (referred to collectively as
"Lunati"). Weiand is a manufacturer and distributor of induction systems, and
Lunati is a manufacturer of camshafts, crankshafts, pistons and automotive
specialty parts. Both Weiand and Lunati sell their products to automotive parts
retailers throughout the United States.
F-26
137
HOLLEY PERFORMANCE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
2. INVENTORIES
Inventories of the Company consist of the following:
DECEMBER 31, 1998 OCTOBER 3, 1999
----------------- ---------------
Raw materials........................................ $14,032 $ 8,172
Work-in-progress..................................... 3,877 3,639
Finished goods....................................... 4,092 12,084
Other................................................ 672 1,565
------- -------
$22,673 $25,460
======= =======
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment of the Company consist of the following:
DECEMBER 31, 1998 OCTOBER 3, 1999
----------------- ---------------
Land................................................. $ -- $ 380
Buildings and improvements........................... 3,882 10,532
Machinery and equipment.............................. 19,560 18,643
Computer equipment................................... 3,106 2,397
Furniture and fixtures............................... 874 816
Construction in process.............................. 906 4,118
------- -------
28,328 36,886
Less: accumulated depreciation..................... (1,557) (4,891)
------- -------
$26,771 $31,995
======= =======
Depreciation expense was $259, $1,625 and $3,649 for the periods from
January 1, 1998 to May 15, 1998, May 16, 1998 to September 27, 1998 and the nine
months ended October 3, 1999, respectively.
4. ACCRUED LIABILITIES
Accrued liabilities of the Company consist of the following:
DECEMBER 31, 1998 OCTOBER 3, 1999
----------------- ---------------
Wages and benefits................................... $ 4,620 $ 4,835
Reserve for product returns.......................... 3,894 3,894
Allowance for outstanding rebate programs............ 1,434 770
Other................................................ 5,223 3,510
------- -------
$15,171 $13,009
======= =======
F-27
138
HOLLEY PERFORMANCE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
5. LONG-TERM DEBT
Long-term debt of the Company consists of the following:
DECEMBER 31, OCTOBER 3,
1998 1999
------------ ---------------
Revolving line of credit, maturing June 27, 2003......... $ 4,375 $ --
Term note "A", maturing June 27, 2003.................... 19,000 --
Term note "B", maturing June 27, 2005.................... 29,850 --
Term note "C", maturing June 27, 2006.................... 14,925 --
Term note "D", maturing December 31, 2006................ 24,938 --
Senior notes, maturing September 15, 2007, net of debt
discount of $5,481..................................... -- 144,519
KEDFA note, maturing September 24, 2009.................. -- 527
Long-term lease obligation............................... -- 2,395
------- --------
93,088 147,441
Less current portion..................................... (3,200) --
------- --------
$89,888 $147,441
======= ========
On September 20, 1999, the Company issued $150,000 of 12 1/4% Senior notes
due 2007 at a discount of 3.7%. The debt discount will be amortized as a
non-cash charge to interest expense using the effective interest method over the
term of the debt. The notes are unsecured and subordinate to the Company's other
indebtedness. The proceeds from the notes were used to repay existing
indebtedness and to fund the acquisitions of NOS and Earl's in October 1999.
6. NON-RECURRING CHARGE
The non-recurring charge includes expenses related to the closure of a
manufacturing facility and the related movement of inventory and fixed assets to
the Company's manufacturing facility in Bowling Green, Kentucky.
7. ACQUISITIONS
In May 1999, the Company acquired a super charger product line from
Automoco Corporation for a total purchase price of approximately $2.3 million in
a transaction which was accounted for as a purchase.
F-28
139
HOLLEY PERFORMANCE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
In July 1999, the Company completed the acquisition of Hooker Industries,
Inc., ("Hooker") for a net purchase price of approximately $21.5 million. Hooker
is a manufacturer of performance exhaust systems, headers, mufflers and
Harley-Davidson exhaust pipes. The purchase price has been tentatively allocated
to the net assets acquired based on their estimated fair value as follows:
Purchase price.............................................. $21,504
Financing and other transaction costs....................... 1,137
-------
Total purchase price.............................. 22,641
-------
Less: value assigned to assets and liabilities
Current assets............................................ 4,920
Property, plant and equipment............................. 574
Financing costs........................................... 887
Current liabilities....................................... (1,899)
-------
4,482
-------
Goodwill.......................................... $18,159
=======
On October 1, 1999, the Company completed the acquisition of Biggs
Manufacturing, Inc. (also known as "FlowTech") for a net purchase price of
approximately $4.0 million. FlowTech is a leading manufacturer of performance
exhaust systems, headers, mufflers and exhaust accessories. The purchase price
has been tentatively allocated to the net assets acquired based on their
estimated fair value as follows:
Purchase price.............................................. $4,000
Transaction costs........................................... 226
------
Total purchase price.............................. 4,226
------
Less: value assigned to assets and liabilities
Current assets............................................ 3,588
Property, plant and equipment............................. 908
Other assets.............................................. 90
Current liabilities....................................... (1,343)
Non-current liabilities................................... (2,569)
Deferred tax liabilities.................................. (52)
------
622
------
Goodwill.......................................... $3,604
======
Subsequent to October 3, 1999, the Company completed the acquisition of
Nitrous Oxide Systems, Inc. ("NOS") for a net purchase price of approximately
$12.5 million. NOS is a leading manufacturer of nitrous oxide injection systems
to the performance aftermarket.
Subsequent to October 3, 1999, the Company completed the acquisition of
Earl's Supply Company, Inc. (also known as Earl's Performance Products,
"Earl's") for a net purchase price of approximately $14.3 million. Earl's is a
provider of underhood performance fittings, brake lines and hoses.
F-29
140
HOLLEY PERFORMANCE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
In the second quarter of 1999, the Company finalized its purchase price
allocation for the Acquisition. In the third quarter of 1999, the Company
finalized its purchase price allocations for the acquisitions of Lunati and
Weiand.
8. SEGMENT DATA
The Company's reportable segments have a common management team and
infrastructure, however, due to the different nature of the products sold by
each segment, the Company monitors each segment's revenues and gross margin on a
standalone basis when making strategic decisions regarding the allocation of
Company resources.
The Company has two reportable segments: Performance Parts and
Remanufactured Parts. The Company manufactures high performance after market
automotive parts through its Performance Parts segment. Under its Remanufactured
Parts segment, the Company refurbishes used automotive part cores and then
resells the parts as remanufactured products. Both segments sell primarily to
automotive parts distributors throughout the United States.
The accounting policies of the reportable segments are the same as those
described in Note 2 of the Company's annual Financial Statements. The Company
evaluates the performance of its reportable segments based on gross margin.
Intersegment sales and transfers are not significant.
Summarized financial information concerning the Company's operating
measures for the reportable segments is shown in the following table:
THE COMPANY
HIGH PERFORMANCE REMANUFACTURED
PARTS PARTS TOTAL
---------------- -------------- -------
NINE MONTHS ENDED OCTOBER 3, 1999
Revenues.................................... $75,488 $19,251 $94,739
Gross Margin................................ 27,322 4,807 32,129
MAY 16 TO SEPTEMBER 27, 1998
Revenues.................................... $28,655 $10,501 $39,156
Gross Margin................................ 9,680 3,391 13,071
THE PREDECESSOR
HIGH PERFORMANCE REMANUFACTURED
PARTS PARTS TOTAL
---------------- -------------- -------
JANUARY 1, 1998 TO MAY 15, 1998
Revenues.................................... $26,651 $ 9,981 $36,632
Gross Margin................................ 8,901 2,003 10,904
F-30
141
HOLLEY PERFORMANCE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Summary balance sheet data for inventory and fixed assets for each of the
Company's reportable segments as of October 3, 1999 and December 31, 1998 is
shown in the following table:
THE COMPANY
HIGH PERFORMANCE REMANUFACTURED
PARTS PARTS TOTAL
---------------- -------------- -------
AS OF OCTOBER 3, 1999
Inventory................................... $21,649 $ 3,811 $25,460
Fixed Assets................................ 29,276 2,719 31,995
AS OF DECEMBER 31, 1998
Inventory................................... $18,405 $ 4,268 $22,673
Fixed Assets................................ 23,937 2,834 26,771
9. LITIGATION
In May 1999, the Union Pacific Railroad Company ("Union Pacific") initiated
litigation against the Company alleging that certain soil and groundwater
contamination found on Union Pacific's property had migrated from an adjacent
facility owned by Weiand. The complaint seeks costs totaling in excess of $5
million. At this time, the Company is unable to assess the likelihood of an
unfavorable outcome, or in the event of such an outcome, the amount of any
resulting liability. The Company is investigating Union Pacific's claims and
intends to defend them vigorously. Recently, the Company discovered possible
soil contamination on the Weiand property, which has not yet been confirmed or
assessed. The property owner may assert claims for damage to the property. The
Company intends to defend any such claims vigorously.
F-31
142
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Holley Performance Products Inc.:
We have audited the accompanying consolidated balance sheets of Hooker
Industries, Inc. and subsidiary as of June 30, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Hooker
Industries, Inc. and subsidiary as of June 30, 1999 and 1998, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
August 5, 1999
F-32
143
HOOKER INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1999 AND 1998
1999 1998
----------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 4,434,203 $3,893,159
Accounts receivable, net of allowance for doubtful
accounts of $58,000.................................... 3,168,225 2,735,114
Inventories............................................... 1,873,987 1,454,345
Prepaid expenses.......................................... 25,875 14,354
Deferred tax benefit...................................... 217,355 111,638
----------- ----------
Total current assets.............................. 9,719,645 8,208,610
PROPERTY AND EQUIPMENT, net of accumulated depreciation..... 611,465 662,115
NONCURRENT ASSETS:
Deposits.................................................. 24,496 23,038
Cash surrender value of life insurance.................... -- 9,332
Other assets.............................................. -- 565
Deferred tax benefit...................................... 315,032 249,761
----------- ----------
Total noncurrent assets........................... 339,528 282,696
----------- ----------
Total assets...................................... $10,670,638 $9,153,421
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 246,721 $ 292,745
Accrued expenses.......................................... 1,726,827 1,270,315
----------- ----------
Total current liabilities......................... 1,973,548 1,563,060
DEFERRED COMPENSATION....................................... 869,349 648,161
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.10 par value per share, 2,000,000 shares
authorized; 330,354 and 330,454 shares issued and
outstanding, respectively.............................. 33,035 33,045
Retained earnings......................................... 7,794,706 6,909,155
----------- ----------
Total stockholders' equity........................ 7,827,741 6,942,200
----------- ----------
Total liabilities and stockholders' equity........ $10,670,638 $9,153,421
=========== ==========
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets.
F-33
144
HOOKER INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
1999 1998
----------- -----------
NET SALES................................................... $12,107,745 $10,513,114
COST OF GOODS SOLD.......................................... 5,533,668 4,992,227
----------- -----------
Gross profit.............................................. 6,574,077 5,520,887
OPERATING EXPENSES:
Selling expenses.......................................... 412,034 369,479
Administrative expenses................................... 3,259,745 2,826,479
Shipping expenses......................................... 812,440 679,169
Marketing expenses........................................ 959,311 955,859
----------- -----------
Total operating expenses.......................... 5,443,530 4,830,986
----------- -----------
INCOME FROM OPERATIONS...................................... 1,130,547 689,901
OTHER INCOME (EXPENSE):
Interest expense.......................................... (48,645) (53,023)
Interest income........................................... 204,345 166,548
Other income, net......................................... 43,591 21,329
Gain on sale of assets.................................... 16,887 10,426
----------- -----------
Total other income................................ 216,178 145,280
INCOME BEFORE PROVISION FOR INCOME TAXES.................... 1,346,725 835,181
PROVISION FOR INCOME TAXES.................................. 462,576 302,552
----------- -----------
NET INCOME.................................................. $ 884,149 $ 532,629
=========== ===========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-34
145
HOOKER INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
COMMON COMMON RETAINED
SHARES STOCK EARNINGS TOTAL
------- ------- ---------- ----------
BALANCE, June 30, 1997........................... 330,454 $33,045 $6,404,655 $6,437,700
Foreign currency loss.......................... -- -- (28,129) (28,129)
Net income..................................... -- -- 532,629 532,629
------- ------- ---------- ----------
Total comprehensive income............. -- -- 504,500 504,500
------- ------- ---------- ----------
BALANCE, June 30, 1998........................... 330,454 33,045 6,909,155 6,942,200
Foreign currency gain.......................... -- -- 3,621 3,621
Net income..................................... -- -- 884,149 884,149
------- ------- ---------- ----------
Total comprehensive income............. -- -- 887,770 887,770
------- ------- ---------- ----------
Repurchase of common stock..................... (100) (10) (2,219) (2,229)
------- ------- ---------- ----------
BALANCE, June 30, 1999........................... 330,354 $33,035 $7,794,706 $7,827,741
======= ======= ========== ==========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-35
146
HOOKER INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
1999 1998
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 884,149 $ 532,629
Depreciation.............................................. 179,549 171,058
Deferred income taxes..................................... (170,988) (38,031)
Deferred compensation..................................... 221,188 194,556
Decrease in cash surrender value-life insurance in lieu of
premium payments....................................... 2,982 --
Gain on sale of fixed assets.............................. (16,887) (10,426)
Adjustments to reconcile net income to net cash provided
by operating activities:
Accounts receivable.................................... (433,111) 253,936
Inventories............................................ (419,642) (106,387)
Prepaid expenses....................................... (11,521) 23,843
Deposits............................................... (1,458) 14,787
Other assets........................................... 565 19,627
Accounts payable....................................... (46,024) 16,210
Accrued expenses....................................... 456,512 (222,694)
---------- ----------
Net cash provided by operating activities......... 645,314 849,108
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets.................................. (130,612) (206,896)
Proceeds from sale of fixed assets........................ 18,600 12,700
Proceeds from redemption of life insurance (cash surrender
value)................................................. 6,350 (2,337)
---------- ----------
Net cash used by investing activities............. (105,662) (196,533)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to repurchase and retire common stock............ (2,229) --
Payments on notes payable to related parties.............. -- (198,000)
---------- ----------
Net cash used by financing activities............. (2,229) (198,000)
---------- ----------
EFFECT OF TRANSLATION RATE CHANGES.......................... 3,621 (28,129)
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 541,044 426,446
CASH AND CASH EQUIVALENTS, beginning of year................ 3,893,159 3,466,713
---------- ----------
CASH AND CASH EQUIVALENTS, end of year...................... $4,434,203 $3,893,159
========== ==========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-36
147
HOOKER INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1. GENERAL
Hooker Industries, Inc. (the "Company") develops, manufactures and
wholesales after market motor vehicle accessories and related products. The
Company operates manufacturing facilities and administrative offices in Ontario,
California and Ciudad Industrial, Mexico.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and Casler de Mexico, S.A. de C. V. ("Casler"), a wholly owned subsidiary. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
REVENUE RECOGNITION
The Company recognizes revenue upon shipment of the product to the
customer.
CASH AND CASH EQUIVALENTS
The Company considers all short-term investments with an original maturity
date of six months or less to be cash equivalents.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts represents an estimate by the Company's
management of specific accounts deemed uncollectable. The estimated allowance
considers prior bad debt experience and customer receivables outstanding beyond
established credit terms.
INVENTORIES
Inventories are stated at the lower of cost or market, determined by the
first-in, first-out basis.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, less accumulated depreciation.
Depreciation expense is computed under the straight-line method over the
estimated useful lives of the assets.
The following estimated useful lives are used by the Company:
TYPE OF ASSET ESTIMATED USEFUL LIFE
- ------------- ---------------------
Machinery and equipment..................................... 5 years
Vehicles.................................................... 3 years
Office equipment............................................ 5 years
Leasehold improvements...................................... 5-20 years
When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is reflected in income for the period. The cost of maintenance and repairs
is charged against income as incurred, whereas significant renewals or
betterments are capitalized. Included in the accompanying statements of income
are provisions for depreciation and amortization in the amount of $179,547 and
$171,058 in 1999 and 1998, respectively.
F-37
148
HOOKER INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOREIGN CURRENCY TRANSLATION
Assets and liabilities accounted for in foreign currencies are translated
into dollars at the rates prevailing at the balance sheet date. Expenses are
translated at average monthly rates throughout the year. No revenues are
accounted for in foreign currencies. The realized exchange differences resulting
from these translations are included as components of comprehensive income in
the accompanying consolidated statements of stockholders' equity. The foreign
currency translation gain (loss) amounted to $3,621 in 1999 and $(28,129) in
1998, respectively.
PRODUCT DEVELOPMENT COSTS
Research and development costs are charged to operations when incurred and
are included in operating expenses. The Company incurred $227,428 and $236,837
in product development costs in fiscal 1999 and 1998, respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". This
standard requires, among other things, recognition of future tax benefits,
measured by enacted tax rates, attributable to deductible temporary differences
between financial statement and income tax bases of assets and liabilities and
to net operating loss carryforwards, to the extent that realization of such
benefits is more likely than not.
ENVIRONMENTAL MATTERS
Environmental expenditures are expensed or capitalized as appropriate,
depending on their future economic benefit. Environmental accruals are
established for sites where it is probable that a loss has been incurred and the
amount of the loss can be reasonably estimated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent 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.
LONG-LIVED ASSETS
When factors are present which indicate the carrying value of assets may
not be recovered, the Company evaluates the realizability of its long-lived
assets based upon the anticipated future undiscounted cash flows generated by
the asset.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates the fair value of financial instruments using quoted
or estimated market prices based upon current interest rates and the remaining
term to maturity. At June 30, 1999, there were no material differences in the
book values of the Company's financial instruments and their related fair
values.
F-38
149
HOOKER INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130")
and Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," ("SFAS No. 133").
SFAS No. 130 established standards for reporting and display of
comprehensive income and its components. Comprehensive income encompasses all
changes in stockholders' equity, except those arising from transaction with
owners, including foreign currency translation adjustments. The Company opted
for early adoption of the provisions of this pronouncement. The Company has
elected to disclose comprehensive income, which includes net income and foreign
currency translation gains (losses), in the consolidated statements of
stockholders' equity.
SFAS No. 133 establishes standards for the way companies account for and
report information about derivative instruments and hedging activities in annual
financial statements. The statement was originally effective for financial
statement periods beginning after June 15, 1999, but was later amended to be
effective for financial statement periods beginning after June 15, 2000. The
Company will adopt the provisions of this statement in association with its
consolidated financial statements issued for the required period. The Company
does not expect the adoption of this standard to have a material effect on the
Company's consolidated financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 consolidated financial
statements in order to conform with the 1999 presentation.
3. INVENTORIES
Inventories at June 30, 1999 and 1998 consisted of:
1999 1998
---------- ----------
Raw materials............................................... $ 374,985 $ 449,500
Work in process............................................. 514,578 242,316
Finished goods.............................................. 984,424 762,529
---------- ----------
$1,873,987 $1,454,345
========== ==========
F-39
150
HOOKER INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1999 and 1998 consisted of:
1999 1998
----------- -----------
Land..................................................... $ 20,113 $ 20,113
Machinery and equipment.................................. 2,596,444 2,571,591
Vehicles................................................. 270,851 250,958
Office equipment......................................... 158,361 150,032
Leasehold improvements................................... 402,078 416,420
Property and equipment at Casler......................... 312,257 295,298
----------- -----------
3,760,104 3,704,412
Accumulated depreciation................................. (3,148,639) (3,042,297)
----------- -----------
Net book value........................................... $ 611,465 $ 662,115
=========== ===========
5. ACCRUED EXPENSES
Accrued expenses as of June 30, 1999 and 1998 consisted of:
1999 1998
---------- ----------
Allowance for outstanding rebate program.................... $ 515,721 $ 471,844
Wages and benefits.......................................... 929,308 567,925
Other....................................................... 281,798 230,546
---------- ----------
$1,726,827 $1,270,315
========== ==========
6. COMMITMENTS AND CONTINGENCIES
LEASE OF FACILITIES
The Company leases the land and buildings in Ontario, California from H & S
Properties, Inc., a related party, pursuant to various operating lease
agreements, which expire August 31, 2004. The lease agreements do not provide
for any renewal options upon completion of the current lease term. The monthly
rent payments are subject to an annual adjustment based upon the consumer price
index.
The Company leases the land and buildings in Ciudad Industrial, Tijuana,
Mexico from a third-party. The lease term is from August 1, 1994 through July
31, 1999. A renewal option is available covering the succeeding five year period
ending July 31, 2004. The lease does not provide for rent escalations during the
initial lease term or renewal period.
Rental expense for the years ended June 30, 1999 and 1998 were as follows:
1999 1998
-------- --------
Related party rental expense................................ $261,401 $249,292
Third party rental expense.................................. 87,253 85,316
-------- --------
$348,654 $334,608
======== ========
F-40
151
HOOKER INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minimum future lease payments under the above operating leases are as
follows:
YEARS ENDING JUNE 30,
- ---------------------
2000...................................................... $ 344,801
2001...................................................... 344,801
2002...................................................... 344,801
2003...................................................... 344,801
2004...................................................... 344,801
Thereafter.................................................. 28,733
----------
Total minimum future lease payments............... $1,752,738
==========
CONSULTING AGREEMENT
The Company has entered into a consulting agreement with Primos Computer
Services, S.A. ("Primos") dated July 27, 1993, with an effective date of August
1, 1994. Pursuant to the terms of the agreement, Primos has been contracted to
assist in connection with the development and operation of commercial business
ventures within Mexico. Primos fulfills its commitment by providing advice and
consultation to the Company on international trade, identification, evaluation,
and negotiation of suitable business opportunities, importation and exportation
matters, personnel recruitment and training, material supply sources and
purchases, sales, and similar activities in Mexico agreed upon between the
parties. The agreement originally provided for monthly compensation in the
amount of $8,564 and was amended on March 3, 1999 to provide monthly
compensation of $9,356 effective August 1, 1999. The agreement remains in effect
until terminated by the Company.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with its president and
chairman of the board of directors dated September 6, 1994, with an effective
date of July 1, 1994 and continuing through June 30, 2004 or upon death of the
employee named in the agreement, whichever comes first. Subject to provisions
regarding termination, the agreements provide for automatic extensions on a
daily basis, commencing July 1, 2001, so that a remaining term of at least three
years exists at all times. The agreements provide for minimum base salaries,
incentive bonuses and other fringe benefits. The minimum base salaries are
subject to adjustment annually on July 1. The adjusted minimum salary, which is
based upon the consumer price index, may in no instance decrease. In the event
employment is terminated by the Company for reasons other than disability, or by
the employee for reasons as defined in the agreement, the agreement shall
terminate requiring payment to the employee within 30 days of termination a lump
sum including, but not limited to, an amount equal to the total remaining salary
that would have been paid to the employee over the term of the agreement.
Terminations occurring as a result of death or disability require continued
payment of salaries for a period of 12 months following the date of death or
disability.
Notwithstanding any other benefits described in the agreement, the
president may become entitled to a post-employment benefit at a rate of 20
percent applied to a comparison of the market value (as defined in the
agreement) of the Company on June 30, 1994 with that of the June 30th following
his termination subject to proration and income aggregation guidelines as set
forth in the agreement. In the event employment is terminated by the Company, or
by the employee for reasons as defined in the agreement, the post-employment
benefit is payable within 30 days after publication of the Company's financial
statements following termination. Termina-
F-41
152
HOOKER INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tion for other reasons permit the Company to pay post-employment benefits in
equal quarterly payments with 10 percent compounded interest for a period of
five years. The liability under this agreement is being accrued over the
officer's remaining period of employment so that, on the date of his retirement,
the present value of the estimated payment will be accrued.
CONTINGENCIES
The Company is subject to various legal proceedings and claims that arise
in the ordinary course of business. In the opinion of management, the amount of
any ultimate liability with respect to these actions will not materially affect
the Company's financial statements.
The Internal Revenue Service ("IRS") is in the process of examining the
Company's federal income tax return for the 1998 fiscal year. At this time it is
too early to determine the amount of adjustments, if any, which may be proposed.
7. STOCK PURCHASE AGREEMENT
In accordance with a corporate stock redemption and cross purchase
agreement adopted September 6, 1994, the Company is obligated, upon the death of
the chairman of the board or the president, to purchase not less than one
hundred (100%) percent of the decedent's shares of the Company's capital stock.
The Company, at the request of the decedent's personal representative may,
through Board of Directors' resolution and unanimous vote of the remaining
shareholders party to this agreement, waive its obligation to purchase said
shares and allow the decedent's spouse or heir to retain decedent's stock
interest in the Company.
In addition, the agreement provides that, upon termination of employment of
the minority stockholder, the Company is obligated to purchase one hundred
(100%) percent of the terminated shareholder's shares of the Company's capital
stock.
At June 30, 1999, these shareholders owned 327,170 shares of the common
stock outstanding.
8. INCOME TAXES
Income tax expense consisted of the following:
1999 1998
--------- --------
CURRENT PROVISION:
Federal................................................... $ 499,379 $264,562
State..................................................... 134,185 76,021
--------- --------
633,564 340,583
DEFERRED PROVISION (BENEFIT)................................ (170,988) (38,031)
--------- --------
$ 462,576 $302,552
========= ========
F-42
153
HOOKER INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes differs from that computed at the Federal
statutory corporate tax rate. A reconciliation of income tax computed at the
U.S. Federal statutory rate to the Company's effective tax rate is as follows at
June 30:
1999 1998
-------- --------
U.S. Federal statutory tax provision........................ $457,887 $274,397
State income taxes, net of Federal taxes.................... 80,803 50,174
Other....................................................... (76,114) (22,019)
-------- --------
$462,576 $302,552
======== ========
The components of the deferred tax asset are as follows as of June 30:
1999 1998
--------- ---------
Depreciation................................................ $ 25,846 $ 25,276
Accounts receivable reserve................................. 23,177 23,177
Inventories................................................. 19,826 27,174
Accrued expenses............................................ 159,266 58,916
Deferred compensation....................................... 304,272 226,856
--------- ---------
Total deferred tax assets......................... 532,387 361,399
Less current portion.............................. (217,355) (111,638)
--------- ---------
$ 315,032 $ 249,761
========= =========
9. CASH FLOW INFORMATION
Cash paid for interest and income taxes was as follows as of June 30:
1999 1998
-------- --------
Interest.................................................... $ 33 $ 20,653
Income taxes................................................ 670,181 367,270
10. ECONOMIC DEPENDENCY
A material part of the Company's business is dependent upon three
customers, the loss of whom would have an adverse effect on the Company. During
the years ended June 30, 1999 and 1998, these three customers accounted for
approximately 57 percent of revenues in each year. Although there are no
executed continuing contracts with these customers, the Company feels that any
reduction in sales to any one customer would result in corresponding increases
in sales to the other customers.
11. CONCENTRATION OF CREDIT RISK FOR CASH HELD AT BANKS
The Company maintains cash balances at several banks. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation up to
$100,000.
12. SUBSEQUENT EVENT
In July 1999, the outstanding stock of the Company was acquired by Holley
Performance Products, Inc. ("Holley").
F-43
154
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Holley Performance Products, Inc.:
We have audited the accompanying balance sheet of NITROUS OXIDE SYSTEMS,
INC. (a California corporation) as of December 31, 1998, and the related
statements of income, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Nitrous Oxide Systems, Inc.
as of December 31, 1998, and the results of its operations and cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
December 17, 1999
F-44
155
NITROUS OXIDE SYSTEMS, INC.
BALANCE SHEETS
DECEMBER 31, OCTOBER 25,
1998 1999
------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 50,303 $ 12,345
Accounts receivable, net of reserve for doubtful accounts
of $46,022 and $16,772, respectively................... 899,540 1,007,723
Inventories............................................... 1,547,468 1,344,965
Deferred income taxes..................................... 3,000 3,000
Due from related party.................................... 100,582 --
---------- ----------
Total current assets.............................. 2,600,893 2,368,033
EQUIPMENT, net.............................................. 104,321 106,130
OTHER ASSETS................................................ 25,910 26,040
---------- ----------
Total assets...................................... $2,731,124 $2,500,203
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable -- current.................................. $ 6,473 $ 3,354
Book overdraft............................................ 46,001 230,304
Accounts payable.......................................... 268,203 266,337
Accrued liabilities....................................... 286,288 269,175
Accrued bonuses........................................... 154,204 --
---------- ----------
Total current liabilities......................... 761,169 769,170
---------- ----------
NOTES PAYABLE -- NONCURRENT................................. 11,076 7,722
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock (no par, 100 shares authorized, 20 shares
issued and outstanding)................................ 10,500 10,500
Retained earnings......................................... 1,948,379 1,712,811
---------- ----------
Total stockholders' equity........................ 1,958,879 1,723,311
---------- ----------
Total liabilities and stockholders' equity........ $2,731,124 $2,500,203
========== ==========
The accompanying notes are an integral part of these balance sheets.
F-45
156
NITROUS OXIDE SYSTEMS, INC.
STATEMENTS OF INCOME
NINE MONTHS
TWENTY-FIVE
YEAR ENDED DAYS ENDED
DECEMBER 31, OCTOBER 25,
1998 1999
------------ -----------
(UNAUDITED)
NET SALES................................................... $8,234,214 $9,479,006
COST OF SALES............................................... 5,314,135 6,095,271
---------- ----------
Gross profit.............................................. 2,920,079 3,383,735
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 2,544,513 2,317,291
---------- ----------
Operating income.......................................... 375,566 1,066,444
OTHER INCOME (EXPENSE)...................................... (5,602) 2,580
---------- ----------
INCOME BEFORE TAXES......................................... 369,964 1,069,024
PROVISION FOR INCOME TAXES.................................. 7,082 18,500
---------- ----------
NET INCOME.................................................. $ 362,882 $1,050,524
========== ==========
The accompanying notes are an integral part of these financial statements.
F-46
157
NITROUS OXIDE SYSTEMS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
COMMON RETAINED
STOCK EARNINGS TOTAL
------- ----------- -----------
BALANCE, December 31, 1997.............................. $10,500 $ 1,695,364 $ 1,705,864
Dividends............................................. -- (109,867) (109,867)
Net income............................................ -- 362,882 362,882
------- ----------- -----------
BALANCE, December 31, 1998.............................. 10,500 1,948,379 1,958,879
Dividends (unaudited)................................. -- (1,286,092) (1,286,092)
Net income (unaudited)................................ -- 1,050,524 1,050,524
BALANCE, October 25, 1999 (unaudited)................... $10,500 $ 1,712,811 $ 1,723,311
======= =========== ===========
The accompanying notes are an integral part of this financial statement.
F-47
158
NITROUS OXIDE SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS
TWENTY-FIVE
YEAR ENDED DAYS ENDED
DECEMBER 31, OCTOBER 25,
1998 1999
------------ -----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 362,882 $ 1,050,524
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 55,235 33,773
Changes in assets and liabilities:
Accounts receivable.................................. (380,092) (108,183)
Inventories.......................................... (205,182) 202,503
Accounts payable..................................... 86,411 (1,866)
Book overdraft....................................... 46,001 184,303
Accrued liabilities.................................. 156,721 (171,317)
Other assets......................................... (64,675) 100,452
--------- -----------
Net cash provided by operating activities......... 57,301 1,290,189
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (18,429) (35,582)
--------- -----------
Net cash used in investing activities............. (18,429) (35,582)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable....................... (14,339) (6,473)
Dividends paid............................................ (109,867) (1,286,092)
--------- -----------
Net cash used in financing activities............. (124,206) (1,292,565)
--------- -----------
NET CHANGE IN CASH.......................................... (85,334) (37,958)
BALANCE AT BEGINNING OF PERIOD.............................. 135,637 50,303
--------- -----------
BALANCE AT END OF PERIOD.................................... $ 50,303 $ 12,345
========= ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 2,255 $ 1,070
========= ===========
Cash paid for income taxes................................ $ -- $ 5,482
========= ===========
The accompanying notes are an integral part of these financial statements.
F-48
159
NITROUS OXIDE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Nitrous Oxide Systems, Inc. (the "Company") was incorporated under the laws
of California in January, 1979 and is a manufacturer of performance nitrous
systems from its manufacturing facility located in California.
The Company sells its products to automotive parts retailers throughout the
United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all short-term investments with an original maturity
date of six months or less to be cash equivalents. Negative cash balances of
$46,001 and $230,304 at December 31, 1998 and October 25, 1999, respectively,
have been reclassified to "Book overdraft" on the balance sheets.
REVENUES AND ACCOUNTS RECEIVABLE
The Company's customers operate primarily in the automotive parts and
specialty automotive equipment parts industries. The Company generally grants
credit to its customers on an unsecured basis. Revenues from sales are
recognized at the time products are shipped.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
EQUIPMENT
Equipment is valued at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, which are as
follows:
YEARS
-----
Machinery and equipment..................................... 7
Office equipment............................................ 5
Automobiles................................................. 5
Expenditures for maintenance and repairs are generally charged to expense
as incurred, whereas expenditures for improvements and replacements are
capitalized.
The cost and accumulated depreciation of assets sold or otherwise disposed
of are removed from the accounts and the resulting gain or loss is reflected in
the statements of income.
INCOME TAXES
For federal income tax purposes, the Company is organized as an "S"
corporation. As a result, the liability for federal income taxes passes through
to the stockholders, and no provision for these income taxes is recorded by the
Company. Bonuses and distributions are paid to stockholders to provide cash with
which to satisfy related federal income tax liabilities. These bonuses totaled
$152,000 for 1998, and are included in selling, general and administrative
expenses in the accompanying statement of income. The Company expenses these
bonuses as compensation expense in the period in which the stockholder tax
liability was generated. The
F-49
160
NITROUS OXIDE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
State of California does not recognize "S" corporation tax status; therefore, a
provision for California state income taxes is included in the Company's
operating results.
Deferred tax liabilities and assets are recognized using the California
state corporate income tax rate for the tax effects of differences between the
financial statement and tax bases of assets and liabilities. A valuation
allowance is established to reduce deferred tax assets if it is more likely than
not that a deferred tax asset will not be realized.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
LONG-LIVED ASSETS
When factors are present which indicate the cost of assets may not be
recovered, the Company evaluates the realizability of its long-lived assets
based upon the anticipated future undiscounted cash flows generated by the
asset.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates the fair value of financial instruments using quoted
or estimated market prices based upon the current interest rate environment and
the remaining term to maturity. At December 31, 1998, there were no material
differences in the book values of the Company's financial instruments and their
related fair values.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The balance sheet as of October 25, 1999 and the statements of income and
cash flows for the nine months and twenty-five days then ended have been
prepared by the Company in accordance with the accounting policies described in
its annual financial statements for the year ended December 31, 1998 and should
be read in conjunction with the notes thereto.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
result of operations and changes in cash flows at October 25, 1999 have been
made. The results of operations for the nine months and twenty-five days ended
October 25, 1999 are not necessarily indicative of the operating results for the
full year.
3. INVENTORIES
Inventories of the Company as of December 31, 1998 and October 25, 1999
consisted of the following:
1998 1999
---------- -----------
(UNAUDITED)
Raw materials............................................... $1,031,911 $ 833,430
Finished goods.............................................. 515,557 511,535
---------- ----------
$1,547,468 $1,344,965
========== ==========
F-50
161
NITROUS OXIDE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. EQUIPMENT
Equipment as of December 31, 1998 and October 25, 1999 consisted of the
following:
1998 1999
--------- -----------
(UNAUDITED)
Machinery and equipment..................................... $ 335,389 $ 351,215
Office equipment............................................ 177,432 180,472
Automobiles................................................. 76,624 93,340
--------- ---------
589,445 625,027
Less: accumulated depreciation............................ (485,124) (518,897)
--------- ---------
$ 104,321 $ 106,130
========= =========
5. INCOME TAXES
The tax effects of temporary differences as of December 31, 1998 and
October 25, 1999 are as follows:
1998 1999
--------- -----------
(UNAUDITED)
Current deferred tax assets:
Asset reserves and liabilities not yet deductible for tax
purposes............................................... $ 3,000 $ 3,000
--------- ---------
$ 3,000 $ 3,000
========= =========
6. NOTES PAYABLE
At December 31, 1998, the Company had two notes payable to a bank bearing
interest at 9.3% to 9.5% and secured by fixed assets. Principal and interest
payments on the notes are due in monthly installments of $1,158. The notes
mature in April 1999 and October 2002.
7. BENEFIT PLANS
PROFIT SHARING PLAN
Effective December 27, 1983, the Company established a profit sharing plan
for salaried and non-salaried employees. Participation in the plans is optional.
Employer contributions to the plan are discretionary. During 1998, the Company
expensed $39,913 for contributions related to this plan.
DEFINED CONTRIBUTION PENSION PLAN
Effective January 1, 1996, the Company established a defined contribution
pension plan for its employees. Employer contributions to this plan are equal to
5% of each participant's annual salary. During 1998, the Company expensed
$39,925 for contributions related to this plan.
8. MAJOR CUSTOMERS
The Company's customers include many automotive parts retailers and
distributors. A-Tech Motorsports represented 11.4% of total sales in 1998.
Approximately 18% of the Company's account's receivable at December 31, 1998
were from this customer. Management believes the credit risk associated with
this customer is minimal.
F-51
162
NITROUS OXIDE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. CONTINGENCIES
The Company is a party to various lawsuits and claims in the normal course
of business. While the outcome of the litigation and claims against the Company
cannot be predicted with certainty, management believes that the ultimate
resolution of the matters will not have a material effect on the financial
position or results of operations of the Company.
The Company, like others in similar businesses, is subject to extensive
federal, state and local environmental laws and regulations. Although Company
environmental policies and practices are designed to ensure compliance with
these laws and regulations, future developments and increasingly stringent
regulation could require the Company to make unforeseen environmental
expenditures.
10. RELATED-PARTY TRANSACTIONS
The Company leases certain facilities and equipment from Lakeshore
Enterprises (a company which is owned by the stockholders of the Company) under
operating leases. The aggregate future minimum fixed lease obligations under
operating leases for the Company as of December 31, 1998, are as follows:
1999........................................................ $ 322,200
2000........................................................ 322,200
2001........................................................ 12,600
----------
Total minimum lease payments to related party............... $ 657,000
==========
Rent expense under these related party leases totaled $322,200 for the year
ended December 31, 1998.
The Company has a receivable of $100,582 from Lakeshore Enterprises as of
December 31, 1998.
11. LEASE COMMITMENTS
In addition to the related party leases discussed above, the Company rents
machinery and equipment from non-related parties under operating leases with
terms of up to five years. Annual expense under these leases is approximately
$10,000.
12. SUBSEQUENT EVENT
Effective October 26, 1999, the outstanding stock of the Company was
purchased by Holley Performance Products, Inc. for approximately $12.5 million.
F-52
163
INDEPENDENT AUDITORS' REPORT
To The Stockholders and Board of Directors of
Biggs Manufacturing, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Biggs
Manufacturing, Inc. and Subsidiaries as of June 30, 1999 and 1998, and the
related consolidated statements of operations and retained earnings (deficit),
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. Those standards require that we plan and perform the audits 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 consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 financial position of Biggs
Manufacturing, Inc. and Subsidiaries as of June 30, 1999 and 1998, and the
results of their operations, and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
SEMPLE & COOPER LLP
Phoenix, Arizona
January 11, 2000
F-53
164
BIGGS MANUFACTURING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND 1998
1999 1998
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1)........................ $ 122,763 $ 74,568
Accounts receivable
-- trade, net of allowance for doubtful accounts (Notes
1 and 4)............................................. 2,624,867 2,281,499
-- other................................................ 3,897 535
Notes receivable.......................................... 56,327 --
Note receivable -- related entity (Note 2)................ 16,531 193,085
Inventory, net of allowance for obsolescence (Notes 1, 3
and 4).................................................. 1,384,615 1,033,081
Prepaid expenses.......................................... -- 10,528
Deferred income tax asset (Notes 1 and 5)................. 34,732 83,082
---------- ----------
Total Current Assets............................... 4,243,732 3,676,378
---------- ----------
PROPERTY AND EQUIPMENT: (Notes 1 and 4)
Leasehold improvements.................................... 66,524 13,716
Machinery and equipment................................... 1,673,554 1,439,881
Motor vehicles............................................ 4,000 4,000
Office furniture and equipment............................ 66,443 62,978
---------- ----------
1,810,521 1,520,575
Less: accumulated depreciation............................ (816,094) (590,233)
---------- ----------
994,427 930,342
---------- ----------
OTHER ASSETS:
Intangibles, net of accumulated amortization (Note 1)..... 16,051 28,473
Property held for sale.................................... -- 14,000
Refundable deposits....................................... 18,685 4,804
---------- ----------
34,736 47,277
---------- ----------
Total Assets....................................... $5,272,895 $4,653,997
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable -- current portion (Note 4)................. $ 125,324 $ 115,324
Accounts payable -- trade................................. 1,532,191 1,131,165
Accrued salaries and wages................................ 84,044 50,643
Accrued commissions....................................... 121,655 --
Accrued fines (Note 6).................................... 41,587 111,723
Accrued expenses.......................................... 96,376 129,437
Accrued other (Note 7).................................... -- 175,000
Income taxes payable (Note 1)............................. 36,743 3,669
---------- ----------
Total Current Liabilities.......................... 2,037,920 1,716,961
---------- ----------
LONG-TERM LIABILITIES:
Notes payable -- long-term portion (Note 4)............... 2,620,052 2,489,701
Notes payable to stockholder (Note 2)..................... 2,193 6,486
Deferred income taxes payable (Notes 1 and 5)............. 51,650 42,746
---------- ----------
2,673,895 2,538,933
---------- ----------
COMMITMENTS AND CONTINGENCIES: (NOTES 6 AND 9).............. -- --
STOCKHOLDERS' EQUITY:
Common stock -- no par value, 100 shares authorized,
issued and outstanding.................................. 23,000 23,000
Additional paid-in capital................................ 500,000 500,000
Retained earnings (deficit)........................... 38,080 (124,897)
---------- ----------
561,080 398,103
---------- ----------
Total Liabilities and Stockholders' Equity......... $5,272,895 $4,653,997
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-54
165
BIGGS MANUFACTURING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
1999 1998
--------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT
----------- ------- ---------- -------
Revenues........................................... $11,762,287 100.0% $8,776,494 100.0%
Cost of revenues................................. 8,277,614 70.4 6,127,510 69.8
----------- ----- ---------- -----
Gross profit..................................... 3,484,673 29.6 2,648,984 30.2
General and administrative expenses.............. 2,931,306 24.9 2,552,614 29.1
----------- ----- ---------- -----
Income from operations........................... 553,367 4.7 96,370 1.1
----------- ----- ---------- -----
OTHER INCOME (EXPENSE):
Interest expense............................ (293,391) (2.5) (233,044) (2.7)
Gain on sale of fixed assets................ -- -- 5,000 .1
Other income................................ -- -- 155,524 1.8
----------- ----- ---------- -----
(293,391) (2.5) (72,520) (.8)
----------- ----- ---------- -----
Income before provision for income taxes......... 259,976 2.2 23,850 .3
Income taxes -- deferred (Notes 1 and 6)......... (96,999) (.8) (1,433) (.1)
----------- ----- ---------- -----
Net income....................................... 162,977 1.4% 22,417 .2%
===== =====
Retained earnings (deficit) at beginning of
year.......................................... (124,897) (147,314)
----------- ----------
Retained earnings (deficit) at end of year....... $ 38,080 $ (124,897)
=========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-55
166
BIGGS MANUFACTURING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
1999 1998*
------------ -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers.............................. $ 11,415,556 $ 8,853,665
Cash paid to suppliers and employees...................... (11,053,535) (8,714,304)
Interest paid............................................. (283,092) (209,552)
Income taxes paid......................................... (6,671) 5,365
------------ -----------
Net cash provided (used) by operating activities... 72,258 (64,826)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Disbursements for loans receivable........................ (95,286) --
Collection of loans receivable............................ 38,959 --
Disbursements for loans to related entity................. (85,744) (211,364)
Collection of loans from related entity................... 262,298 164,711
Purchase of property and equipment........................ (289,946) (342,615)
Proceeds from sale of property held for sale.............. 14,000 (14,000)
------------ -----------
Net cash used by investing activities.............. (155,719) (403,268)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable............................... 11,441,869 10,132,738
Repayment of notes payable................................ (11,301,518) (9,880,202)
Disbursements for patents................................. (4,402) (6,353)
Repayment of notes payable to stockholder................. (4,293) (6,898)
------------ -----------
Net cash provided by financing activities.......... 131,656 239,285
------------ -----------
Net increase (decrease) in cash and cash equivalents........ 48,195 (228,809)
Cash and cash equivalents at beginning of year.............. 74,568 303,377
------------ -----------
Cash and cash equivalents at end of year................ $ 122,763 $ 74,568
============ ===========
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income.................................................. $ 162,977 $ 22,417
------------ -----------
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization............................. 242,685 202,286
CHANGES IN ASSETS AND LIABILITIES:
Accounts receivable
-- trade................................................ (343,368) (83,322)
-- other................................................ (3,362) (31)
Deferred income tax asset................................. 48,350 (28,482)
Inventory................................................. (351,534) (321,143)
Income tax refund receivable.............................. -- 5,465
Prepaid expenses.......................................... 10,528 (10,528)
Refundable deposits....................................... (13,881) (500)
Accounts payable -- trade................................. 401,026 308,024
Accrued salaries and wages................................ 33,401 (15,546)
Accrued commissions....................................... 121,655 (78,808)
Accrued fines............................................. (70,136) (162,477)
Accrued expenses.......................................... (33,061) (106,996)
Accrued other............................................. (175,000) 175,000
Deferred income taxes payable............................. 8,904 26,146
Income taxes payable...................................... 33,074 3,669
------------ -----------
(90,719) (87,243)
------------ -----------
Net cash provided (used) by operating activities............ $ 72,258 $ (64,826)
============ ===========
- ---------------
*As restated, for comparative purposes only.
The accompanying notes are an integral part of the consolidated financial
statements.
F-56
167
BIGGS MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS AND USE OF
ESTIMATES
OPERATIONS
Biggs Manufacturing, Inc. is a Corporation which was duly formed and
organized under the laws of the State of Arizona on January 6, 1994. The
principal business purpose of the Corporation and its subsidiaries is to
manufacture and sell after market automotive exhaust systems throughout the
United States.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries, FlowTech S.A. De C.V. and FlowTech Servicios
S.A. De C.V. All significant intercompany accounts and transactions have been
eliminated in consolidation.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are considered to be all highly liquid
investments purchased with an initial maturity of three (3) months or less.
ACCOUNTS RECEIVABLE -- TRADE
The Company provides for potentially uncollectible accounts receivable by
use of the allowance method. The allowance is provided based upon a review of
the individual accounts outstanding, and prior history of uncollectible accounts
receivable. At June 30, 1999 and 1998, allowances of $80,109 and $81,939,
respectively, have been provided for potentially uncollectible accounts
receivable. For the years ended June 30, 1999 and 1998, the Company had bad debt
expense in the amounts of $30,000 and $377,127, respectively.
INVENTORY
Inventory is stated at the lower of cost, first-in, first-out method, or
market. For the years ended June 30, 1999 and 1998, inventory is stated net of
an allowance for obsolete inventory, in the amount of $20,000.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided for
on the accelerated and straight-line methods over the estimated useful lives of
the assets. Maintenance and repairs that neither materially add to the value of
the property nor appreciably prolong its life are charged to expense as
incurred. Betterments or renewals are capitalized when incurred. For the years
ended June 30, 1999 and 1998, depreciation expense was $225,861 and $176,398,
respectively.
F-57
168
BIGGS MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated useful lives for asset classifications, are as follows:
Leasehold improvements...................................... 7-10 years
Machinery and equipment..................................... 5-10 years
Motor vehicles.............................................. 5 years
Office furniture and equipment.............................. 5-7 years
INTANGIBLES
As of June 30, 1998, intangibles consist primarily of professional fees and
costs incurred in the formation of the Company. These costs were being amortized
ratably over a five (5) year period. During the year ended June 30, 1999, the
Company elected to expense the remaining unamortized costs in accordance with
SOP 98-5. As of June 30, 1999, intangibles consist of unamortized cost of
patents and trademarks. At June 30, 1999 and 1998, accumulated amortization was
$1,776 and $111,437, respectively. For the years ended June 30, 1999 and 1998,
amortization expense was $16,824 and $25,888, respectively. The Company
periodically evaluates the estimated net realizable value of its intangibles and
records impairments if the net book value exceeds the estimated net future cash
flows.
INCOME TAXES
The Company provides for deferred income taxes on an asset and liability
method, whereby deferred tax assets are recognized for deductible temporary
differences and operating loss carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settle.
2. RELATED PARTY TRANSACTIONS
NOTE RECEIVABLE FROM A RELATED ENTITY
As of June 30, 1999 and 1998, the Company has a non-interest bearing note
receivable from a related entity, with an outstanding balance of $16,531 and
$193,085, respectively. The note receivable is due on demand and, in the opinion
of management, is fully collectible.
NOTES PAYABLE TO STOCKHOLDER
As of June 30, 1999 and 1998, the Company has non-interest bearing notes
payable to a corporate stockholder in the aggregate amount of $2,193 and $6,486,
respectively. The aforementioned notes payable to stockholder have been
subordinated to the notes to Norwest Bank (See Note 4). Due to the maturity of
the bank notes, these notes are, in the opinion of management, long-term in
nature.
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BIGGS MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORY
For the years ended June 30, 1999 and 1998, inventory consisted of the
following:
1999 1998
---------- ----------
Raw materials............................................... $ 542,576 $ 471,156
Work in progress............................................ 188,739 95,767
Finished goods.............................................. 673,300 486,158
---------- ----------
1,404,615 1,053,081
Less: allowance for obsolete Inventory...................... (20,000) (20,000)
---------- ----------
$1,384,615 $1,033,081
========== ==========
4. NOTES PAYABLE
At June 30, 1999 and 1998, notes payable consist of the following:
1999 1998
---------- ----------
$3,500,000 line of credit with Norwest Business Credit, Inc.
The line of credit is due June, 2001, with an interest rate
at the bank's base rate plus 2%; collateralized by accounts
receivable, inventory, equipment, and other general assets
of the Company.............................................. $2,504,181 $2,258,225
Term loan with Norwest Business Credit, Inc., with monthly
principal installments of $6,771, due June, 2001, interest
at the bank's base rate plus 2%; collateralized by accounts
receivable, inventory, equipment, and other general assets
of the Company.............................................. 169,267 250,519
Capital expenditure loan with Norwest Business Credit, Inc.,
with monthly principal installments of $2,006, due June,
2001, interest at the bank's base rate plus 2%;
collateralized by accounts receivable, inventory, equipment
and other general assets of the Company..................... 71,928 96,281
---------- ----------
2,745,376 2,605,025
Less: current portion of long-term notes payable............ (125,324) (115,324)
---------- ----------
$2,620,052 $2,489,701
========== ==========
A schedule of future minimum principal payments due on long-term notes
payable outstanding at June 30, 1999, is as follows:
YEAR ENDING
JUNE 30, AMOUNT
----------- ----------
2000........................................................ $ 125,324
2001........................................................ 2,620,052
----------
$2,745,376
==========
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BIGGS MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In relation to the aforementioned notes payable, the Company was in default
on the notes due to violations of the following loan covenants. Subsequent to
the year end, the loan was paid in full as a result of the sale of the Company.
(See Note 10 -- Subsequent Events).
1. The Company must maintain an average debt service coverage ratio of not
less than 1.2 to 1 for each fiscal quarter.
2. The Company must provide audited financial statements for the year ended
June 30, 1999 within ninety (90) days of the year ended June 30, 1999.
3. The Company must achieve net income for each fiscal quarter of not less
than $50,000.
4. The Company's net worth for each fiscal year shall increase by not less
than $200,000, including net income of not less than $200,000.
5. The Company may not expend or contract to make unfinanced capital
expenditures in excess of $100,000 in the aggregate during any fiscal
year.
6. The Company may not increase the salary of any director, officer or
consultant by more than ten percent (10%) in any one year.
5. DEFERRED INCOME TAXES
At June 30, 1999 and 1998, amounts for components of deferred tax assets
and liabilities, are as follows:
1999 1998
------- -------
Deferred income tax asset
- -- current portion:
Allowance for doubtful accounts........................ $28,732 $24,582
Inventory reserve...................................... 6,000 6,000
Legal matters.......................................... -- 52,500
------- -------
$34,732 $83,082
======= =======
Deferred income taxes payable
-- long-term portion:
Depreciation and amortization.......................... $51,650 $42,746
======= =======
6. ACCRUED FINES
As of June 30, 1997, the Company had accrued a fine from OSHA in the
approximate amount of $274,000. This fine was levied in relation to a June, 1997
fatal accident. The Company successfully appealed the original amount of the
OSHA fine, which was subsequently reduced by approximately $219,000. The
remaining accrual represents out-of-pocket expenses and legal expenses incurred
by the Company in relation to the accident.
7. ACCRUED OTHER
Subsequent to the year ended June 30, 1998, the Company entered into a
settlement agreement with the creditors of the Super Shops bankruptcy over
alleged preferential payments made to the Company for the year ended June 30,
1998. The settlement called for payments totaling $175,000, which was accrued
for the year ended June 30, 1998, and subsequently paid during the year ended
June 30, 1999.
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BIGGS MANUFACTURING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. CONCENTRATIONS
SIGNIFICANT CUSTOMERS
For the year ended June 30, 1999, the Company had three (3) customers that
represented approximately 17%, 13% and 12% of total revenues, respectively. At
June 30, 1999, amounts due from these customers included in accounts receivable
were $654,713, $115,199 and $265,178, respectively.
For the year ended June 30, 1998, the Company had three (3) customers that
represented approximately 12.4%, 11.2% and 10.3% of total revenues,
respectively. At June 30, 1998, amounts due from these customers included in
accounts receivable were $369,088, $308,430 and $600,755, respectively.
CREDIT RISK
The Company maintains cash and cash equivalents at one financial
institution. Deposits not to exceed $100,000 at each financial institution are
insured by the Federal Deposit Insurance Corporation. At June 30, 1999 and 1998,
the Company had uninsured cash and cash equivalents in the approximate amounts
of $115,600 and $2,700, respectively.
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASE
During the year ended June 30, 1999, the Company leased office and
warehouse space in Tempe, Arizona, and a manufacturing facility in Sonoyta,
Sonora, Mexico. The terms of the Tempe lease provide for monthly payments
ranging from $12,000 to $15,000, expiring December, 2003. The terms of the
Sonoyta manufacturing plant lease provide for monthly payments of $3,000,
expiring September 2002. Both lease agreements also require the Company to pay
common area maintenance, taxes and other incidental costs.
A schedule of future minimum lease payments due under the operating lease
agreement for each of the next five (5) years, is as follows:
YEAR ENDING JUNE 30, AMOUNT
- -------------------- --------
2000........................................................ $201,972
2001........................................................ 206,844
2002........................................................ 180,510
2003........................................................ 177,426
2004........................................................ 90,024
--------
$856,776
========
For the years ended June 30, 1999 and 1998, rent expense under the
aforementioned operating lease agreements was $212,746 and $189,229,
respectively.
10. SUBSEQUENT EVENTS
On October 1, 1999, all of the outstanding stock of the Company was
acquired by Holley Performance Products, Inc. As such, the Company has become a
wholly-owned subsidiary of the acquiring entity.
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BIGGS MANUFACTURING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
UNAUDITED
YEAR ENDED QUARTER ENDED
JUNE 30, 1999 SEPTEMBER 30, 1999
------------- ------------------
Revenues.................................................... $11,762,000 $2,730,000
Cost of revenues.......................................... 8,278,000 1,951,000
----------- ----------
Gross profit.............................................. 3,484,000 779,000
General and administrative expenses....................... 2,931,000 612,000
----------- ----------
Income from operations.................................... 553,000 167,000
----------- ----------
OTHER INCOME (EXPENSE):
Interest expense..................................... (293,000) (81,000)
Gain on sale of fixed assets......................... -- --
Other income......................................... -- --
----------- ----------
(293,000) (81,000)
----------- ----------
Income before provision for income taxes.................. 260,000 86,000
Income taxes -- deferred (Notes 1 and 6).................. (97,000) (24,000)
----------- ----------
Net income................................................ 163,000 62,000
Retained earnings (deficit) at beginning of year.......... (125,000) 38,000
----------- ----------
Retained earnings (deficit) at end of year................ $ 38,000 $ 100,000
=========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
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BIGGS MANUFACTURING, INC.
STATEMENTS OF CASH FLOWS
UNAUDITED
YEAR ENDED QUARTER ENDED
JUNE 30, SEPTEMBER 30,
1999 1999
----------- ------------------
Net income.................................................. $163,000 $ 62,000
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 243,000 85,000
Changes in Assets and Liabilities:
Accounts receivable.................................. (347,000) 602,000
Inventory............................................ (352,000) (112,000)
Other assets......................................... (3,000) 13,000
Deferred taxes....................................... 57,000 (100,000)
Accounts payable..................................... 401,000 (608,000)
Accrued liabilities.................................. (90,000) 134,000
-------- ---------
Net cash used by operating activities............. 72,000 76,000
-------- ---------
Cash flows from investing activities:
Loan receivable........................................... 120,000 --
Purchase of property and equipment........................ (290,000) --
Purchase of property held for sale........................ 14,000 --
-------- ---------
Net cash used by investing activities............. (156,000) --
-------- ---------
Cash flows from financing activities:
Notes payable............................................. 140,000 (178,000)
Patents................................................... (4,000) --
Repayment of notes payable to stockholder................. (4,000) --
-------- ---------
Net cash provided by financing activities......... 132,000 (178,000)
-------- ---------
Net decrease in cash and cash equivalents................... 48,000 (102,000)
Cash and cash equivalents at beginning of year.............. 75,000 123,000
-------- ---------
Cash and cash equivalents at end of year.................... $123,000 $ 21,000
======== =========
The accompanying notes are an integral part of the financial statements.
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BIGGS MANUFACTURING, INC.
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
1. ORGANIZATION AND BASIS OF PRESENTATION
Biggs Manufacturing, Inc. (the "Company") is a Corporation which was duly
formed and organized under the laws of the State of Arizona on January 6, 1994.
The principal business purpose of the Corporation is to manufacture and sell
after market automotive exhaust systems throughout the United States.
On October 1, 1999, the common stock of the Company was purchased by Holley
Performance Products Inc., the Company's balance sheet as of September 30, 1999
is included in the balance sheet of Holley Performance Products, Inc. as of
October 3, 1999.
The consolidated statements of income and cash flows for the periods ended
June 30, 1999 and September 30, 1999 have been prepared by the Company in
accordance with the accounting policies described in its annual financial
statements for the year ended June 30, 1999 and should be read in conjunction
with the notes thereto.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the results of operations and
changes in cash flows for all periods presented have been made. The results of
operations for the period ended September 30, 1999 are not necessarily
indicative of the operating results to be expected for the full year.
PERVASIVENESS OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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175
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information or
to represent anything not contained in this Prospectus. You must not rely on any
unauthorized information or representations. This Prospectus is an offer to sell
only the notes offered hereby, but only under circumstances and in jurisdictions
where it is lawful to do so. The information contained in this Prospectus is
current only as of its date.
------------------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary.................... 1
Risk Factors.......................... 12
Forward-Looking Statements............ 17
Where You Can Get More Information.... 18
The Exchange Offer.................... 19
Use of Proceeds....................... 27
Capitalization........................ 28
Unaudited Pro Forma Consolidated
Financial Information............... 29
Selected Historical Consolidated
Financial Information............... 36
Notes to Selected Historical
Consolidated Financial
Information......................... 37
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 39
Industry Overview..................... 48
Business.............................. 52
Management............................ 63
Certain Transactions.................. 66
Security Ownership.................... 66
Description of the Exchange Notes..... 67
Federal Income Tax Consequences....... 103
Plan of Distribution.................. 106
Legal Matters......................... 107
Independent Public Accountants........ 107
Index to Financial Statements......... F-1
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$150,000,000
HOLLEY PERFORMANCE
PRODUCTS INC.
Offer to Exchange its 12 1/4%
Senior Notes due 2007,
Series B, for any and all
outstanding 12 1/4%
Senior Notes due 2007
- ------------------------------------------------------
- ------------------------------------------------------
176
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Holley Performance Products Inc.
The Bylaws of Holley Performance Products Inc. ("Holley") provide for the
indemnification of Holley's directors and officers. Insofar as indemnification
for liabilities under the Securities Act may be permitted to directors, officers
or controlling persons of Holley pursuant to Holley's by-laws and the Delaware
General Corporation Law ("DGCL"), Holley is aware that it is the opinion of the
SEC that such indemnification is against public policy as expressed in the
Securities Act of 1933, as amended and is therefore unenforceable.
Holley's Bylaws provide for indemnification of the Company's directors and
officers against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by them in
connection with any action, suit or proceeding if they acted in good faith and
in a manner they reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful;
except that, in the case of an action, suit or proceeding by or in the right of
the Company, there shall be no indemnification in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of such person's duties unless, and
then only to the extent that, a court of proper jurisdiction shall determine
that despite such adjudication such person is fairly and reasonably entitled to
indemnification.
The Directors and officers of Holley may also be indemnified against
liability incurred in their capacity as officers and/or directors pursuant to
Section 145 of the DGCL.
Holley maintains insurance covering expenditures that may be incurred in
connection with the lawful indemnification of the Company's directors and
officers for their liabilities and expenses.
Biggs Manufacturing, Inc.
The Articles of Incorporation provide that no director of Biggs
Manufacturing, Inc. ("Biggs") shall be personally liable for money damages in
any action brought by or in the right of Biggs for breach of the Directors'
duties to Biggs and its Shareholders, except for any liability of the Director
for actual omissions that involve intentional misconduct or a knowing or
culpable violation of any corporate law, for acts or omissions that a Director
believes to be contrary to the best interest of the Corporation or its
Shareholders or involve the absence of good faith on the part of the Director,
for any transaction from which a Director derived an improper personal benefit,
for acts or omissions that show a reckless disregard for the Director's duty to
Biggs or its Shareholders in circumstances in which the Director was aware, or
should have been aware, in the ordinary course in performing the Director's
duties, of a risk of serious injury to Biggs or its Shareholders, or for acts or
omissions that constitute an unexcused pattern or an inattention that amounts to
an abdication of the Director's duty to the Corporation or its Shareholders.
The Directors and officers of Biggs may also be indemnified against
liability incurred in their capacity as officers and/or directors pursuant to
Article 5 of the Arizona Business Corporation Act.
LMT Motor Sports, Inc.
The Bylaws of LMT Motor Sports, Inc. ("LMT") provide that any person made a
party to any action by reason of the fact that he, his testator, or intestate
representative, is or was a Director, Officer or employee of LMT, or of any
corporation in which he served as such at the
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request of LMT, shall be indemnified by LMT against the reasonable expenses,
including attorney's fees, actually and necessarily incurred by him in
connection with the defense of such action, suit or proceedings, or in
connection with any appeal therein, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding, or in connection with any
appeal therein that such Officer, Director or employee is liable for negligence
or misconduct in the performance of his duties. The foregoing rights of
indemnification are not deemed exclusive of any rights which any Officer,
Director or employee may be entitled. The amount of indemnification to which any
Officer or any Director may be entitled shall be fixed by the Board of
Directors, except that in any case where there is no disinterested majority of
the Board available, the amount shall be fixed by arbitration pursuant to the
then existing rules of the American Arbitration Association.
The Directors and officers of LMT may also be indemnified against liability
incurred in their capacity as officers and/or directors pursuant to Article 8,
Subarticle E of the Mississippi Business Corporation Act.
Lunati & Taylor Pistons Inc.
The Bylaws of Lunati & Taylor Pistons, Inc. provide that LTP shall
indemnify its directors and officers to the full extent of the Mississippi
Business Corporation Act ("MBCA") and consistent with the provisions of the
MBCA. Article 8, Subarticle E of the MBCA sets forth the provisions in
connection with the indemnification of officers and directors.
Lunati Cams, Inc.
The Bylaws of Lunati Cams, Inc. ("Lunati") provides that any person made a
party to any action by reason of the fact that he is or was a director or
officer of Lunati, shall be indemnified by Lunati against the reasonable
expenses, including attorney's fees, actually and necessarily incurred by him in
connection with the defense of such action, suit or proceedings, or in
connection with any appeal therein, except in relation to matters as to which it
shall be adjudges in such action, suit or proceeding, or in connection with any
appeal therein that such officer or director is liable for negligence or
misconduct in the performance of his duties. The Bylaws provide that the
foregoing rights of indemnification are not deemed to be exclusive. The Bylaws
provide that the amount of indemnity to which any officer or any director may be
entitled shall be fixed by the Board of Directors, except that in the case where
there is no disinterested majority of the Board available, the amount shall be
fixed by arbitration pursuant to the then existing rules of the American
Arbitration Association.
The Directors and officers of Lunati may also be indemnified against
liability incurred in their capacity as officers and/or directors pursuant to
Chapter 18, Part 5 of the Tennessee Business Corporation Act.
Holley Performance Systems, Inc.
The Certificate of Incorporation ("Charter") and the Bylaws of Holley
Performance Systems, Inc. ("HPS") provide for the indemnification of HPS's
directors and officers to the fullest extent permitted under the DGCL. As
permitted by the DGCL, the Charter provides that directors of HPS shall not be
personally liable to HPS or its shareholders for monetary damages for breach of
fiduciary duty as a director, except for those specific breaches and acts or
omissions with respect to which the DGCL expressly provides shall not eliminate
or limit such personal liability. The Bylaws of HPS may require HPS, among other
things, to reimburse or advance expenses to a director or officer entitled to
indemnification as a result of any threatened claims or proceedings brought
against them as to which they could be indemnified.
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178
Hooker Industries, Inc.
The Directors and officers of Hooker Industries, Inc. may be indemnified
against liability incurred in their capacity as officers and/or directors
pursuant to Section 317 of the California General Corporation Law.
Weiand Automotive Industries, Inc.
The Directors and officers of Weiand Automotive Industries, Inc. may be
indemnified against liability incurred in their capacity as officers and/or
directors pursuant to Section 317 of the California General Corporation Law.
Nitrous Oxide Systems, Inc.
The Bylaws of Nitrous Oxide Systems, Inc. provide that the company shall
both indemnify its agents against expenses, judgments, fees, settlements and
other amounts and shall advance expenses reasonably expected to be incurred by
such agents to the fullest extent permitted under Section 317 of the California
General Corporation Law.
Earl's Supply Company, Inc.
The Articles of Incorporation and Bylaws of Earl's Supply Company, Inc. do
not expressly provide for indemnification of the company's directors and
officers. However, the directors and officers are covered by and subject to the
applicable indemnification provisions of the California General Corporation Law.
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ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES.
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1a -- Certificate of Incorporation of Holley Performance Products
Inc., as amended
3.1b -- Bylaws of Holley Performance Products Inc.
3.2a -- Certificate of Incorporation of Holley Performance Systems,
Inc.
3.2b -- Bylaws of Holley Performance Systems, Inc.
3.3a -- Articles of Incorporation of Weiand Automotive Industries,
Inc., as amended
3.3b -- Bylaws of Weiand Automotive Industries, Inc.
3.4a -- Articles of Incorporation of Lunati Cams, Inc., as amended
3.4b -- Bylaws of Lunati Cams, Inc.
3.5a -- Articles of Incorporation of LMT Motor Sports Corporation
3.5b -- Bylaws of LMT Motor Sports Corporation
3.6a -- Articles of Incorporation of Lunati & Taylor Pistons
3.6b -- Bylaws of Lunati & Taylor Pistons
3.7a -- Articles of Incorporation of Hooker Industries, Inc.
3.7b -- Bylaws of Hooker Industries, Inc., as amended
3.8a -- Articles of Incorporation of Biggs Manufacturing, Inc.
3.8b -- Bylaws of Biggs Manufacturing, Inc.
3.9a -- Articles of Incorporation of Nitrous Oxide Systems, Inc.
3.9b -- Bylaws of Nitrous Oxide Systems, Inc.
3.10a -- Articles of Incorporation of Earl's Supply Company, Inc.
3.10b -- Bylaws of Earl's Supply Company, Inc.
4.1 -- Indenture for the 12 1/4% Senior notes due 2007, dated as of
September 20, 1999, between Holley Performance Products
Inc., the Guarantors and State Street Bank and Trust
Company, as Trustee
4.2 -- Form of Global note for 12 1/4% Senior note due 2007
4.3 -- Form of Global note for 12 1/4% Senior note due 2007, Series
B
5* -- Legal Opinion of Hunton & Williams
10 -- Amended and Restated Credit Agreement dated as of September
20, 1999, by and among KHPP Holdings, Inc., Holley, Credit
Agricole Indosuez as Administrative Agent and Comerica Bank
as Co-Agent
12.1 -- Calculation of Ratio of Earnings to Fixed Charges
12.2 -- Calculation of Ratio of EBITDA to Cash Interest Expense
12.3 -- Calculation of Ratio of Net Debt to EBITDA
21 -- Subsidiaries
23.1* -- Consent of Arthur Andersen LLP
23.2 -- Consent of Hunton & Williams (included in Exhibit 5)
23.3 -- Consent of Semple & Cooper LLP
24 -- Power of attorney is contained in the signature page of this
Registration Statement
25 -- Statement of the eligibility and qualification on Form T-1
of State Street Bank and Trust Company, as Trustee under the
Indenture
27 -- Financial Data Schedule (for SEC use only)
99.1 -- Form of Letter of Transmittal
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180
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
99.2 -- Form Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees
99.3 -- Form of Notice of Guaranteed Delivery
- ---------------
* Filed herewith.
ITEM 22. UNDERTAKINGS.
A. The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of the securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this 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.
B. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
C. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11, or 13 of this
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181
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 this Registration Statement through the date of responding to the
request.
D. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Amendment No. 3 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Bowling
Green, State of Kentucky, on this 19th day of January, 2000.
HOLLEY PERFORMANCE PRODUCTS INC.
By: /s/ ROBERT L. WINELAND
------------------------------------
Robert L. Wineland
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated above:
SIGNATURE TITLE
--------- -----
/s/ JEFFREY G. KING Chief Executive Officer, President and
- ----------------------------------------------------- Director (principal executive officer)
Jeffrey G. King
/s/ ROBERT L. WINELAND Vice President, Chief Financial Officer and
- ----------------------------------------------------- Secretary (principal financial and
Robert L. Wineland accounting officer)
Executed pursuant to Power of Attorney granted to Robert L. Wineland:
/s/ CHRISTOPHER LACOVARA Vice President, Treasurer, Assistant Secretary
- ----------------------------------------------------- and Director
Christopher Lacovara
/s/ EVAN D. WILDSTEIN Assistant Secretary and Director
- -----------------------------------------------------
Evan D. Wildstein
/s/ JAMES A. KOHLBERG Director
- -----------------------------------------------------
James A. Kohlberg
/s/ MARION H. ANTONINI Director
- -----------------------------------------------------
Marion H. Antonini
/s/ WILLIAM F. ANDREWS Director
- -----------------------------------------------------
William F. Andrews
/s/ JAMES D. WIGGINS Director
- -----------------------------------------------------
James D. Wiggins
/s/ SAMUEL P. FRIEDER Director
- -----------------------------------------------------
Samuel P. Frieder
II-7
183
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Amendment No. 3 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Bowling
Green, State of Kentucky, on this 19th day of January, 2000.
HOLLEY PERFORMANCE SYSTEMS, INC.
By: /s/ ROBERT L. WINELAND
------------------------------------
Robert L. Wineland
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated above:
SIGNATURE TITLE
--------- -----
Executed pursuant to Power of Attorney granted to Robert L. Wineland:
/s/ JEFFREY G. KING Chief Executive Officer, President and
- ----------------------------------------------------- Director (principal executive officer)
Jeffrey G. King
/s/ ROBERT L. WINELAND Vice President, Chief Financial Officer and
- ----------------------------------------------------- Secretary (principal financial and
Robert L. Wineland accounting officer)
/s/ CHRISTOPHER LACOVARA Vice President, Treasurer, Assistant Secretary
- ----------------------------------------------------- and Director
Christopher Lacovara
II-8
184
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Amendment No. 3 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Bowling
Green, State of Kentucky, on this 19th day of January, 2000.
WEIAND AUTOMOTIVE INDUSTRIES, INC.
By: /s/ ROBERT L. WINELAND
------------------------------------
Robert L. Wineland
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated above:
SIGNATURE TITLE
--------- -----
Executed pursuant to Power of Attorney granted to Robert L. Wineland:
/s/ JEFFREY G. KING Chief Executive Officer, President and
- ----------------------------------------------------- Director (principal executive officer)
Jeffrey G. King
/s/ ROBERT L. WINELAND Vice President, Chief Financial Officer and
- ----------------------------------------------------- Secretary (principal financial and
Robert L. Wineland accounting officer)
/s/ CHRISTOPHER LACOVARA Vice President, Treasurer, Assistant Secretary
- ----------------------------------------------------- and Director
Christopher Lacovara
II-9
185
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Amendment No. 3 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Bowling
Green, State of Kentucky, on this 19th day of January, 2000.
LUNATI CAMS, INC.
By: /s/ ROBERT L. WINELAND
------------------------------------
Robert L. Wineland
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated above:
SIGNATURE TITLE
--------- -----
Executed pursuant to Power of Attorney granted to Robert L. Wineland:
/s/ JEFFREY G. KING Chief Executive Officer, President and
- ----------------------------------------------------- Director (principal executive officer)
Jeffrey G. King
/s/ ROBERT L. WINELAND Vice President, Chief Financial Officer and
- ----------------------------------------------------- Secretary (principal financial and
Robert L. Wineland accounting officer)
/s/ CHRISTOPHER LACOVARA Vice President, Treasurer, Assistant Secretary
- ----------------------------------------------------- and Director
Christopher Lacovara
II-10
186
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Amendment No. 3 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Bowling
Green, State of Kentucky, on this 19th day of January, 2000.
LMT MOTOR SPORTS CORPORATION
By: /s/ ROBERT L. WINELAND
------------------------------------
Robert L. Wineland
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated above:
SIGNATURE TITLE
--------- -----
Executed pursuant to Power of Attorney granted to Robert L. Wineland:
/s/ JEFFREY G. KING Chief Executive Officer, President and
- ----------------------------------------------------- Director (principal executive officer)
Jeffrey G. King
/s/ ROBERT L. WINELAND Vice President, Chief Financial Officer and
- ----------------------------------------------------- Secretary (principal financial and
Robert L. Wineland accounting officer)
/s/ CHRISTOPHER LACOVARA Vice President, Treasurer, Assistant Secretary
- ----------------------------------------------------- and Director
Christopher Lacovara
II-11
187
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Amendment No. 3 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Bowling
Green, State of Kentucky, on this 19th day of January, 2000.
LUNATI & TAYLOR PISTONS
By: /s/ ROBERT L. WINELAND
------------------------------------
Robert L. Wineland
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated above:
SIGNATURE TITLE
--------- -----
Executed pursuant to Power of Attorney granted to Robert L. Wineland:
/s/ JEFFREY G. KING Chief Executive Officer, President and
- ----------------------------------------------------- Director (principal executive officer)
Jeffrey G. King
/s/ ROBERT L. WINELAND Vice President, Chief Financial Officer and
- ----------------------------------------------------- Secretary (principal financial and
Robert L. Wineland accounting officer)
/s/ CHRISTOPHER LACOVARA Vice President, Treasurer, Assistant Secretary
- ----------------------------------------------------- and Director
Christopher Lacovara
II-12
188
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Amendment No. 3 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Bowling
Green, State of Kentucky, on this 19th day of January, 2000.
HOOKER INDUSTRIES, INC.
By: /s/ ROBERT L. WINELAND
------------------------------------
Robert L. Wineland
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated above:
SIGNATURE TITLE
--------- -----
Executed pursuant to Power of Attorney granted to Robert L. Wineland:
/s/ JEFFREY G. KING Chief Executive Officer, President and
- ----------------------------------------------------- Director (principal executive officer)
Jeffrey G. King
/s/ ROBERT L. WINELAND Vice President, Chief Financial Officer and
- ----------------------------------------------------- Secretary (principal financial and
Robert L. Wineland accounting officer)
/s/ CHRISTOPHER LACOVARA Vice President, Treasurer, Assistant Secretary
- ----------------------------------------------------- and Director
Christopher Lacovara
/s/ EVAN D. WILDSTEIN Vice President, Assistant Secretary and
- ----------------------------------------------------- Director
Evan D. Wildstein
II-13
189
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Amendment No. 3 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Bowling
Green, State of Kentucky, on this 19th day of January, 2000.
BIGGS MANUFACTURING, INC.
By: /s/ ROBERT L. WINELAND
------------------------------------
Robert L. Wineland
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated above:
SIGNATURE TITLE
--------- -----
Executed pursuant to Power of Attorney granted to Robert L. Wineland:
/s/ JEFFREY G. KING Chief Executive Officer, President and
- ----------------------------------------------------- Director (principal executive officer)
Jeffrey G. King
/s/ ROBERT L. WINELAND Vice President, Chief Financial Officer and
- ----------------------------------------------------- Secretary (principal financial and
Robert L. Wineland accounting officer)
/s/ CHRISTOPHER LACOVARA Vice President, Treasurer, Assistant Secretary
- ----------------------------------------------------- and Director
Christopher Lacovara
II-14
190
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Amendment No. 3 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Bowling
Green, State of Kentucky, on this 19th day of January, 2000.
NITROUS OXIDE SYSTEMS, INC.
By: /s/ ROBERT L. WINELAND
------------------------------------
Robert L. Wineland
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated above:
SIGNATURE TITLE
--------- -----
Executed pursuant to Power of Attorney granted to Robert L. Wineland:
/s/ JEFFREY G. KING Chief Executive Officer, President and
- ----------------------------------------------------- Director (principal executive officer)
Jeffrey G. King
/s/ ROBERT L. WINELAND Vice President, Chief Financial Officer and
- ----------------------------------------------------- Secretary (principal financial and
Robert L. Wineland accounting officer)
/s/ CHRISTOPHER LACOVARA Vice President, Treasurer, Assistant Secretary
- ----------------------------------------------------- and Director
Christopher Lacovara
II-15
191
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Amendment No. 3 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Bowling
Green, State of Kentucky, on this 19th day of January, 2000.
EARL'S SUPPLY COMPANY, INC.
By: /s/ ROBERT L. WINELAND
------------------------------------
Robert L. Wineland
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated above:
SIGNATURE TITLE
--------- -----
Executed pursuant to Power of Attorney granted to Robert L. Wineland:
/s/ JEFFREY G. KING Chief Executive Officer, President and
- ----------------------------------------------------- Director (principal executive officer)
Jeffrey G. King
/s/ ROBERT L. WINELAND Vice President, Chief Financial Officer and
- ----------------------------------------------------- Secretary (principal financial and
Robert L. Wineland accounting officer)
/s/ CHRISTOPHER LACOVARA Vice President, Treasurer, Assistant Secretary
- ----------------------------------------------------- and Director
Christopher Lacovara
/s/ EVAN D. WILDSTEIN Vice President, Assistant Secretary and
- ----------------------------------------------------- Director
Evan D. Wildstein
II-16
192
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Holley Performance Products Inc.:
We have audited the accompanying consolidated balance sheet of HOLLEY
PERFORMANCE PRODUCTS INC. (a Delaware corporation) AND SUBSIDIARIES as of
December 31, 1998 and the related consolidated statements of income,
stockholder's equity and cash flows for the period from inception, May 16, 1998,
to December 31, 1998. We have also audited the accompanying balance sheet of the
Predecessor (businesses identified in Note 1) as of December 31, 1997, and the
related statements of income, stockholder's equity and cash flows for the years
ended December 31, 1996 and 1997 and the period from January 1, 1998 to May 15,
1998 included in this registration statement and have issued our report thereon
dated February 23, 1999.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying schedule of valuation
and qualifying accounts is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. The information presented in this schedule as of and for
the periods ended December 31, 1996, December 31, 1997, May 15, 1998 and
December 31, 1998 has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly states in
all material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Nashville, Tennessee
February 23, 1999
S-1
193
FINANCIAL STATEMENT SCHEDULE
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND DEDUCTIONS END OF
CLASSIFICATION PERIOD EXPENSES FROM RESERVES PERIOD
-------------- ------------ ---------- ------------- ----------
(IN THOUSANDS)
VALUATION AND QUALIFYING ACCOUNTS DEDUCTED
FROM THE ASSETS TO WHICH THEY APPLY:
Allowance for doubtful accounts:
For the period from May 16, 1998 to
December 31, 1998...................... $1,575 $ 397 $ (286) $1,686
For the period from January 1, 1998 to
May 15, 1998........................... 1,118 457 -- 1,575
For the year ended December 31, 1997..... 14 1,104 -- 1,118
For the year ended December 31, 1996..... 12 54 (52) 14
Allowance for outstanding rebate programs:
For the period from May 16, 1998 to
December 31, 1998...................... $1,071 $1,940 $(1,577) $1,434
For the period from January 1, 1998 to
May 15, 1998........................... 467 1,193 (589) 1,071
For the year ended December 31, 1997..... 383 2,855 (2,771) 467
For the year ended December 31, 1996..... -- 608 (225) 383
Reserve for product returns:
For the period from May 16, 1998 to
December 31, 1998...................... $3,629 $ 265 $ -- 3,894
For the period from January 1, 1998 to
May 15, 1998........................... 3,706 -- (77) 3,629
For the year ended December 31, 1997..... 4,292 334 (920) 3,706
For the year ended December 31, 1996..... 3,811 481 -- 4,292
S-2
194
INDEX TO EXHIBITS
EXHIBIT
NUMBER
- -------
3.1a -- Certificate of Incorporation of Holley Performance Products
Inc., as amended
3.1b -- Bylaws of Holley Performance Products Inc.
3.2a -- Certificate of Incorporation of Holley Performance Systems,
Inc.
3.2b -- Bylaws of Holley Performance Systems, Inc.
3.3a -- Articles of Incorporation of Weiand Automotive Industries,
Inc., as amended
3.3b -- Bylaws of Weiand Automotive Industries, Inc.
3.4a -- Articles of Incorporation of Lunati Cams, Inc., as amended
3.4b -- Bylaws of Lunati Cams, Inc.
3.5a -- Articles of Incorporation of LMT Motor Sports Corporation
3.5b -- Bylaws of LMT Motor Sports Corporation
3.6a -- Articles of Incorporation of Lunati & Taylor Pistons
3.6b -- Bylaws of Lunati & Taylor Pistons
3.7a -- Articles of Incorporation of Hooker Industries, Inc.
3.7b -- Bylaws of Hooker Industries, Inc., as amended
3.8a -- Articles of Incorporation of Biggs Manufacturing, Inc.
3.8b -- Bylaws of Biggs Manufacturing, Inc.
3.9a -- Articles of Incorporation of Nitrous Oxide Systems, Inc.
3.9b -- Bylaws of Nitrous Oxide Systems, Inc.
3.10a -- Articles of Incorporation of Earl's Supply Company, Inc.
3.10b -- Bylaws of Earl's Supply Company, Inc.
4.1 -- Indenture for the 12 1/4% Senior Notes due 2007, dated as of
September 20, 1999, between Holley Performance Products
Inc., the Guarantors and State Street Bank and Trust
Company, as Trustee
4.2 -- Form of Global Note for 12 1/4% Senior Note due 2007
4.3 -- Form of Global Note for 12 1/4% Senior Note due 2007, Series
B
5* -- Legal Opinion of Hunton & Williams
10 -- Amended and Restated Credit Agreement as of September 20,
1999, by and among KHPP Holdings, Inc., Holley Credit
Agricole Indosuez as Administrative Agent and Comerica Bank
as Co-Agent
12.1 -- Calculation of Ratio of Earnings to Fixed Charges
12.2 -- Calculation of Ratio of EBITDA to Cash Interest Expense
12.3 -- Calculation of Ratio of Net Debt to EBITDA
21 -- Subsidiaries
23.1* -- Consent of Arthur Andersen LLP
23.2 -- Consent of Hunton & Williams (included in Exhibit 5)
23.3 -- Consent of Semple & Cooper LLP
24 -- Power of attorney is contained in the signature page of this
Registration Statement
25 -- Statement of the eligibility and qualification on Form T-1
of State Street Bank and Trust Company, as Trustee under the
Indenture
27 -- Financial Data Schedule (for SEC use only)
99.1 -- Form of Letter of Transmittal
195
EXHIBIT
NUMBER
- -------
99.2 -- Form Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees
99.3 -- Form of Notice of Guaranteed Delivery
- ---------------
* Filed herewith.