As filed with the Securities and Exchange Commission on September 17, 2004
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
- --------------------------------------------------------------------------------
EXACT NAME OF REGISTRANT STATE OR OTHER JURISDICTION OF IRS EMPLOYER
AS SPECIFIED IN ITS CHARTER INCORPORATION OR ORGANIZATION IDENTIFICATION NUMBER
Transportation Technologies Delaware 25-3535407
Industries, Inc.
See Table of Additional Registrants
- --------------------------------------------------------------------------------
3714
(Primary Standard Industrial Classification Code Number)
______________________
980 North Michigan Avenue, Suite 1000
Chicago, Illinois 60611
(312) 280-8844
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
______________________
Donald C. Mueller
Chief Financial Officer
Transportation Technologies Industries, Inc.
980 North Michigan Avenue, Suite 1000
Chicago, Illinois 60611
(312) 280-8844
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
- --------------------------------------------------------------------------------
Copies to:
Roger Meltzer, Esq.
John Papachristos, Esq.
Cahill Gordon & Reindel LLP
80 Pine Street
New York, New York 10005
(212) 701-3000
- --------------------------------------------------------------------------------
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
CALCULATION OF REGISTRATION FEE
=========================================================================================================================
Proposed Proposed Maximum
Amount to Be Maximum Offering Aggregate Amount of
Title of Each Class of Securities to Be Registered Registered Price Per Note Offering Registration Fee
Price(1)
- -------------------------------------------------------------------------------------------------------------------------
12 1/2% Senior Subordinated Notes due 2010 of
Transportation Technologies Industries, Inc...... $100,000,000 100% $100,000,000 $12,670.00
- -------------------------------------------------------------------------------------------------------------------------
Guarantees related to the 12 1/2% Senior Subordinated
Notes due 2010 of Transportation Technologies N/A N/A N/A N/A
Industries, Inc.(2)..............................
=========================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(2) under the Securities Act.
(2) Pursuant to Rule 457(n) under the Securities Act of 1933, no registration
fee is required with respect to the Guarantees.
The Registrants hereby amend this registration statement on the date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this registration
statement shall become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this registration statement shall
become effective on such date the Commission, acting pursuant to said Section
8(a), may determine.
================================================================================
TABLE OF ADDITIONAL REGISTRANTS
Primary
State or Other Standard
Jurisdiction of Industrial
Incorporation or Classification I.R.S. Employee
Name of Additional Registrant(1) Formation Code Number Identification Number
- -------------------------------- --------- ----------- ---------------------
TRUCK COMPONENTS INC. Delaware 3714 36-3535407
GUNITE CORPORATION Delaware 3714 13-3369803
GUNITE EMI CORPORATION Delaware 3714 36-4292516
BRILLION IRON WORKS, INC. Delaware 3714 39-1506942
FABCO AUTOMOTIVE CORPORATION Delaware 3714 13-3369802
BOSTROM HOLDINGS, INC. Delaware 3714 36-4129282
BOSTROM SEATING, INC. Delaware 3714 39-1507179
BOSTROM SPECIALTY SEATING, INC. Delaware 3714 36-4264182
IMPERIAL GROUP HOLDING CORP.-1 Delaware 3714 36-4284007
IMPERIAL GROUP HOLDING CORP.-2 Delaware 3714 36-4284009
IMPERIAL GROUP, L.P. Delaware 3714 36-4284012
JAII MANAGEMENT COMPANY Delaware 3714 N/A
- ----------
1 Address and telephone number of principal executive offices are the same as
Transportation Technologies Industries, Inc.
The information in this prospectus is not complete and may be changed. We may
not consummate the exchange offer until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not an
offer to sell or exchange these securities and it is not soliciting an offer to
acquire or exchange these securities in any jurisdiction where the offer, sale
or exchange is not permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 2004
PROSPECTUS
$100,000,000
TRANSPORTATION TECHNOLOGIES INDUSTRIES, INC.
Offer to Exchange
$100,000,000 Aggregate Principal Amount of 12 1/2%
Senior Subordinated Notes due 2010
for
$100,000,000 Aggregate Principal Amount of 12 1/2%
Senior Subordinated Notes due 2010
Registered Under the Securities Act of 1933, as Amended.
Material Terms of Exchange Offer:
o Expires 5:00 p.m., New York City time, on , 2004 unless extended.
o Subject to certain customary conditions which may be waived by us.
o All outstanding notes that are validly tendered and not withdrawn will be
exchanged.
o Tenders of outstanding notes may be withdrawn any time prior to the
expiration of this exchange offer.
o The exchange of the outstanding notes for exchange notes will not be a
taxable exchange for U.S. federal income tax purposes.
o We will not receive any cash proceeds from the exchange offer.
o The terms of the exchange notes and guarantees to be issued in exchange for
the outstanding notes and guarantees are substantially identical to the
outstanding notes and guarantees, except that the exchange notes and
guarantees will be registered under the Securities Act and certain transfer
restrictions, registration rights and additional interest relating to the
outstanding notes will not apply to the exchange notes.
o Any outstanding notes not validly tendered will continue to remain
outstanding and accrue interest but will remain subject to existing
transfer restrictions.
o There has not previously been any public market for the exchange notes that
will be issued in the exchange offer. We do not intend to list the exchange
notes on any national stock exchange or on the Nasdaq National Market.
There can be no assurance that an active market for such exchange notes
will develop.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
- --------------------------------------------------------------------------------
The date of this prospectus is , 2004.
TABLE OF CONTENTS
Page
----
Where You Can Find More Information...........................................i
Forward-Looking Statements...................................................ii
Prospectus Summary............................................................1
Summary of the Exchange Offer.................................................8
Summary of the Exchange Notes................................................11
Risk Factors.................................................................13
Use of Proceeds..............................................................23
Capitalization...............................................................23
Selected Historical Consolidated Financial and Other Data....................24
Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................28
Industry.....................................................................39
Business.....................................................................45
Management...................................................................56
Certain Relationships and Related Party Transactions.........................60
Security Ownership of Certain Beneficial Owners and Management...............62
Description of Certain Indebtedness..........................................64
Description of Capital Stock.................................................66
The Exchange Offer...........................................................69
Description of the Exchange Notes............................................79
Certain U.S. Federal Income Tax Considerations..............................120
Plan of Distribution........................................................124
Legal Matters...............................................................124
Experts.....................................................................124
Change in Independent Accountants...........................................124
Index to Financial Statements...............................................F-1
Unless the context otherwise requires, references in this prospectus to
"Company," "we," "us," "our" and "TTI" refer to Transportation Technologies
Industries, Inc. and its subsidiaries.
You should not assume that the information contained in, as well as any
information we filed or will file with the Securities and Exchange Commission
(the "SEC") and that is incorporated by reference into, this prospectus is
accurate as of any date other than its respective date. Our business, financial
condition, results of operations and prospects may have changed since that date.
WHERE YOU CAN FIND MORE INFORMATION
We are not currently subject to the periodic reporting and other
informational requirements of the Securities Exchange Act of 1934 (the "Exchange
Act"). We have agreed that, whether or not we are required to do so by the rules
and regulations of the SEC, for so long as any of the notes remain outstanding,
we will furnish to the holders of the notes and (if permitted) file with the SEC
copies of the financial and other information that would be contained in the
annual and quarterly reports that we would be required to file with the SEC if
we were subject to such requirements of the Exchange Act. We will also make such
reports available to securities analysts and broker-dealers upon their request.
In addition, we have agreed to furnish to holders of the notes and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act until we become obligated to file
reports with the SEC.
Any reports or documents we file with the SEC may be inspected and copied
at the Public Reference Section of the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of these reports or other documents may be
obtained at prescribed rates from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on
the operation of the Public Reference Room by calling the SEC at (800) 732-0330.
In addition, the SEC maintains a web site that contains reports and other
in-
-i-
formation that is filed through the SEC's Electronic Data Gathering, Analysis
and Retrieval System. The web site can be accessed at http://www.sec.gov.
You should rely on the information provided in this prospectus and the
documents we have incorporated by reference. We have not authorized anyone to
provide you with different information. We are not making an offer of these
securities in any jurisdiction where the offer is not permitted. You should not
assume that the information in this prospectus or any incorporated document is
accurate as of any date other than the date of this prospectus or that document,
as the case may be.
FORWARD-LOOKING STATEMENTS
We make "forward-looking statements" in the "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Industry" and "Business" sections and elsewhere
throughout this prospectus. Whenever you read a statement that is not simply a
statement of historical fact (such as when we describe what we "believe,"
"expect" or "anticipate" will occur, and other similar statements), you must
remember that our expectations may not be correct, even though we believe that
they are reasonable. We do not guarantee that the transactions and events
described in this prospectus will happen as described or that they will happen
at all. You should read this prospectus completely and with the understanding
that actual future results may be materially different from what we expect. The
forward-looking statements made in this prospectus relate only to events as of
the date on which the statements are made. We undertake no obligation, beyond
that required by law, to update any forward-looking statement to reflect events
or circumstances after the date on which the statement is made, even though our
situation will change in the future.
Whether actual results will conform with our expectations and predictions
is subject to a number of risks and uncertainties, many of which are beyond our
control, and reflect future business decisions which are subject to change. Some
of the assumptions, future results and levels of performance expressed or
implied in the forward-looking statements we make inevitably will not
materialize, and unanticipated events may occur which will affect our results.
The "Risk Factors" section of this prospectus describes the principal
contingencies and uncertainties to which we believe we are subject.
-ii-
PROSPECTUS SUMMARY
The following summary contains basic information about the exchange offer.
It likely does not contain all of the information that is important to you. For
a more complete understanding of the exchange offer, we encourage you to read
this entire document and the documents to which we have referred you. The
following summary should be read in conjunction with, and is qualified in its
entirety by, the more detailed information and financial statements (including
the notes to the financial statements) appearing elsewhere in this prospectus.
For a discussion of certain factors to be considered in connection with an
investment decision, see "Risk Factors." Unless otherwise indicated or the
context otherwise requires, the terms "Company," "we," "us," "our" and "TTI"
refer to Transportation Technologies Industries, Inc. and its subsidiaries.
Our Company
We are one of the largest North American manufacturers of truck components
for the heavy- and medium-duty truck industries, including the bus and specialty
vehicle markets. We primarily serve the North American Class 8 truck market and,
to a lesser extent, the Class 5-7 truck market and other industrial markets. We
sell a significant amount of our products in the aftermarket, a stable,
recurring and higher margin portion of our business that accounted for 28% of
our net sales in 2003. We sell our products to substantially all of the Class 8
original equipment manufacturers, or OEMs, which include (1) PACCAR, Inc., with
its Peterbilt and Kenworth brand trucks, (2) Freightliner LLC, with its
Freightliner, Sterling and Western Star brand trucks, (3) Navistar International
Corporation, or International, with its International brand trucks, and (4)
Volvo Truck Corporation, or Volvo/Mack, with its Volvo and Mack brand trucks. We
believe that our reputation for design, quality, customer service, timely
delivery and advanced manufacturing capabilities has helped us to develop
strong, longstanding relationships with the leading OEMs in the industry, and we
remain committed to continuing to build and grow these relationships.
Our strategy of focusing on the truck components industry has enabled us to
grow into one of the leading truck components manufacturers in North America and
to develop TTI as a trusted name for quality and service. We design, manufacture
and market one of the broadest portfolios of truck components in the industry.
Our products include wheel-end components and assemblies, truck body and chassis
parts, seating assemblies and other truck components. We believe that
substantially all Class 8 truck models manufactured in North America contain one
or more TTI components. We also manufacture products for various industrial
end-markets, including industrial components and farm implements. Our products
are marketed under what we believe are some of the most recognized brand names
in the industry, including Gunite, Imperial, Bostrom, Fabco and Brillion. Our
product portfolio is supported by a centralized sales and marketing department
and is manufactured in twelve strategically located facilities across the United
States.
The following table provides a summary of our key products and brands:
Product category 2003 net sales Principal product lines Brand
- ---------------- -------------- ----------------------- -----
(dollars in millions)
Wheel-end components and $198.6 Brake drums, disc wheel hubs, Gunite
assemblies spoke wheels, disc brake rotors
and automatic slack adjusters
Truck body and chassis parts 88.6 Bumpers, fuel tanks, bus Imperial
components and chassis
assemblies, battery boxes and
toolboxes, front-end
crossmembers, muffler
assemblies, crown assemblies and
components
Seating assemblies 43.9 Air suspension and static Bostrom
seating assemblies: high-back,
mid-back, low-back, three-man
and two-man bench seats, school
bus, transit bus and mechanical
seats
Other truck components 29.9 Fabco: steerable drive axles Fabco and Brillion
and gear boxes Brillion:
flywheels, transmission and
engine-related housings and
chassis brackets
Industrial components and farm 79.0 Industrial components: Brillion
implements flywheels, pump housings, small
engine components and other
industrial components
Farm implements: pulverizers,
seeders, mulchers, deep tillers,
grass feeders and cultivators
---------------
Total 2003 net sales $440.0
===============
For the twelve months ended June 30, 2004, our net sales were $502.3
million and our net income was $2.7 million. For the year ended December 31,
2003, our net sales were $440.0 million and our net income was $3.5 million. For
the six months ended June 30, 2004, our net sales were $279.6 million and our
net loss was $3.2 million.
Our Industry
We compete in the North American truck components industry and primarily
serve the Class 8 truck market and, to a lesser extent, the Class 5-7 truck
market and other industrial markets. The trucks in the Class 8 and the Class 5-7
truck markets are used for local and long-haul commercial trucking and are
classified by gross vehicle weight. The Class 8 truck market is comprised of
trucks with gross weight in excess of 33,000 lbs. and the Class 5-7 truck market
is comprised of trucks with gross weight from 16,001 lbs. to 33,000 lbs. We sell
our products primarily to truck OEMs (51% of 2003 net sales) and the related
aftermarket (28% of 2003 net sales), with the remainder of our sales made to
customers in industrial markets. The heavy-duty truck components industry is
characterized by relatively low production volumes as well as considerable
barriers to entry. Foreign competition is relatively limited in the markets in
which we compete.
-2-
The relationship between suppliers and OEMs in the industry generally tends
to be close, cooperative and long-term in nature. In many cases, a supplier's
components are made "standard" equipment on an OEM's product line, meaning that
any truck ordered in that line will come with the standard component unless the
end user specifically requests a different product. As a result, the selection
of a product as standard will generally create a steady demand for that product,
both in the OEM market and in the aftermarket.
According to America's Commercial Transportation Publications, or ACT,
North American Class 8 truck production is expected to increase significantly
from 2003 to 2008. The following chart illustrates historical North American
Class 8 truck production as well as forecasts from ACT:
North American Class 8 Truck Production
[Chart displaying North American Class 8 truck production actual totals for each
year from 1996 to 2003 and estimated totals for each year from 2004 to 2008.
Production numbers for each year are displayed in thousands and are as follows:
1996 - 194
1997 - 224
1998 - 267
1999 - 333
2000 - 252
2001 - 146
2002 - 181
2003 - 177
2004 - 263
2005 - 322
2006 - 343
2007 - 283
2008 - 351]
"E"--Estimated
Source: ACT Research (February, April and August 2004).
After a period of decline and sustained low levels of production from 2000
to 2003, the North American Class 8 truck market began to rebound in the first
quarter of 2004. According to ACT, unit production for 2004 is estimated to
increase approximately 48.7% over 2003 levels to 262,887 units, and truck unit
production is expected to continue to increase from 2003 through 2008 to 350,914
units at a compound annual growth rate of 14.7%. Evidence of the initiation of
this trend can be seen in North American Class 8 truck orders in the first
quarter of 2004. According to ACT, monthly truck order rates began increasing
significantly in December 2003 and have continued to do so since. North American
Class 8 net truck orders for the first seven months of 2004 were 222,885 units,
up 98.9% from 112,070 units ordered in the same period in 2003. Since 2003, all
of the major OEMs have increased their truck build rates to meet the increased
demand.
The following chart illustrates North American Class 8 truck orders, truck
build and backlog for the first six months of 2004 compared to the same period
in 2003:
-3-
North American Class 8 Truck Orders, Truck Build and Backlog
[Chart comparing year to date 2004 North American Class 8 Truck Orders and Truck
Build figures against the same period from 2003 and July 2004 North American
Class 8 Backlog figures against July 2003 figures.
For year to date 2004, the chart indicates that Truck Orders increased 99% to
222,900 units compared to 112,100 for the same period in 2003.
For year to date 2004, the chart indicates that Truck Build increased 43% to
136,900 units compared to 95,700 units for the same period in 2003.
For July 2004, the chart indicates that Backlog increased 156% to 148,600 units
compared to 58,100 units for the same period in 2003.]
Source: "ACT Research--State of the Industry Series: #1-- N.A. Classes 5-8
Vehicles July & Year to Date 2004 Data" (August 2004).
Our Competitive Strengths
Our competitive strengths include:
o Leading and Sustainable Market Positions. We believe that substantially all
Class 8 truck models manufactured in North America contain one or more TTI
components, which include some of the most recognized brand names in the
industry for quality and performance. We believe that we have a number one
or number two market position in North America for many of our product
lines. These product lines represented approximately two-thirds of our net
sales to the Class 5-8 truck OEM markets in 2003. We are also often the
sole-source supplier to our major customers.
o Diverse Product Mix. We offer a broad array of products and services. We
believe that our substantial product breadth provides us with a competitive
advantage because it allows us to meet more of our customers' demands as
they increasingly seek to outsource and streamline their supplier base. Our
diverse product mix also enables us to access various end-markets.
o Strong Customer Relationships. Our focus on providing high-quality products
has enabled us to develop longstanding relationships with our customer
base. Our centralized sales and marketing department enables us to provide
our customers with the valued convenience of "one-stop shopping" for our
entire product portfolio. Our reputation for design, quality, customer
service, timely delivery and advanced manufacturing capabilities has
positioned us well with leading truck OEMs. We provide standard content to
a majority of truck platforms at each of our major customers.
-4-
o Favorable Cost Structure; Improvements in Efficiency and Capacity. We
believe that we have a highly competitive cost structure. Over the past
several years, we have reduced our fixed costs and have increased our
operating efficiencies, resulting in a low fixed-cost structure that we
believe will help maximize our profitability through the projected growth
in truck demand through 2008 with minimal incremental capital investment
and incremental fixed overhead. We believe that these efficiencies have
increased our manufacturing capacity, positioning us more favorably than in
the past to meet the projected growth in North American demand for trucks.
o Significant and Growing Aftermarket Presence. The aftermarket represents a
stable, recurring and higher margin portion of our business. Our
aftermarket sales grew at a compound annual growth rate of 8.9% from 1999
to 2003 and continued to grow through the first quarter of 2004. We believe
that our increased penetration is a direct result of our focus on the
aftermarket.
o Experienced Management Team. Our senior management team is highly
experienced, having spent an average of more than 20 years in heavy
manufacturing, including the Class 8 truck market. This team was
instrumental in founding and building our company through sourcing and
integrating key acquisitions. Additionally, our management team has had
success in growing the business, improving operations and strengthening
customer relationships under various economic conditions.
Our Strategy
We believe that our strong competitive position, in combination with the
cost reduction initiatives that we have implemented since 1999, will enable us
to benefit significantly from the anticipated growth in the North American Class
8 truck market through increased sales and profitability. Despite a 47% decrease
in Class 8 trucks built in 2003 compared to 1999, we estimate that we generated
Class 8 OEM net sales of $889 per Class 8 truck built in 2003 as compared to
$759 in the last truck production peak in 1999, a 17% increase. We believe that
as truck build rates increase, we are well positioned to generate profits and
margins that will compare favorably to those achieved at similar build rates
during the last industry growth period. We are committed to executing this
strategy through the following initiatives:
o Enhance Market Position through Cross-Selling. We believe that by
cross-selling the products offered under each of our brand names as part of
our "one-stop shopping" strategy, we have an opportunity to increase our
market position in the heavy- and medium-duty truck components industries.
OEMs are able to purchase all of our products through one primary company
contact, allowing us to build even stronger relationships with our
customers.
o Increase Products under Standard Supplier Arrangements. We provide standard
content to a majority of truck platforms at each of PACCAR, Freightliner,
International and Volvo/Mack. We continue to focus on these relationships
in order to become the standard supplier for additional truck platforms. We
believe that we have significant opportunities to increase the number of
platforms on which we are the standard supplier as well as the number of
products for which we are the sole-source supplier. We also expect that an
increase in our standard supplier positions will contribute to the
continued growth of our aftermarket business.
o Enhance Profitability through Operating Efficiencies. We intend to build on
the success of our past cost improvement initiatives. We continue to
identify opportunities to enhance our operating performance and improve
profitability.
o Focus on Product Innovation. We have a track record of product innovations
that have translated into increased sales and market share. Our close
relationships with Class 8 OEMs provide us with the opportunity to work
closely with them in their design and engineering processes, enabling us to
secure additional business by responding to OEM requests and initiating
product improvements and design solutions.
-5-
o Expand Truck Aftermarket Penetration. Our success in growing our
aftermarket business has led to a large installed base for our products and
increased use of our replacement parts. We intend to continue our focus on
increasing aftermarket penetration. We believe that our aftermarket
opportunities will be somewhat insulated from any fluctuation in new truck
production due to the record number of trucks produced in the past decade
and our leading OEM market share.
o Disciplined Growth through Acquisitions. We intend to continue to expand
our portfolio of products through select strategic acquisitions in the
industry. Increasing our size and scale, together with continuing to
strengthen our product portfolio, should enable us to further penetrate
existing customers and enhance our position as a "one-stop" supplier to
OEMs.
Our ability to achieve our business and financial objectives is subject to
a variety of factors, many of which are beyond our control. These risks are
generally associated with being a truck components manufacturer in the Class 8
and Class 5-7 truck markets. For example, we may not be successful in
implementing our strategy if unforeseen factors emerge that diminish the
expected growth in the Class 8 truck market, we experience increased pressure on
our profit margins or unforeseen competing technologies emerge. Such occurrences
could prevent us from implementing our strategies of increasing the number of
our standard supplier positions, continuing to focus on product innovation and
expanding our aftermarket presence. In addition, our pursuit of select strategic
acquisitions and our strategy of increasing profitability through operating
efficiencies may lead to resource constraints which could have a negative impact
on our ability to meet customers' demands, thereby adversely affecting our
relationships with those customers. Moreover, as of June 30, 2004, we had an
aggregate of $325.8 million of total outstanding debt. This substantial level of
indebtedness could increase our vulnerability to any future downturns in the
Class 8 truck market, the truck industry or the economy in general. As a result
of such business or competitive factors, we may decide to alter or discontinue
aspects of our strategy and may adopt alternative or additional strategies. Any
failure to successfully implement our strategy could adversely affect our
business, results of operations or financial position.
In addition, while we may successfully implement our strategies, the
benefits of these achievements may be mitigated in part or in whole if we suffer
from one or more of the risks described in this prospectus. See "Risk Factors"
and "Forward-Looking Statements."
Our History and Corporate Information
We were founded as Johnstown America Industries, Inc. in 1991 with the
purchase of Bethlehem Steel Corporation's freight car manufacturing operations.
After an initial public offering in July 1993, we made a series of acquisitions
in the truck components industry--including the acquisitions of our Gunite,
Imperial, Bostrom, Fabco and Brillion product lines--which we completed between
1995 and 1999. In June 1999, we sold our freight car operations and thereafter
changed our name to Transportation Technologies Industries, Inc. In March 2000,
we were acquired in a going-private transaction by an investor group led by our
management and Trimaran Capital Partners, L.L.C.
Our principal executive offices are located at 980 North Michigan Avenue,
Suite 1000, Chicago, IL 60611. Our telephone number is (312) 280-8844 and our
website is located at www.tti-inc.com. The information on our website is not a
part of this prospectus.
Our Trademarks, Copyrights And Patents
We own or have rights to various trademarks, copyrights and patents used in
our business. These include BOSTROM(R), C-SERIES(R), DUCTILITE(TM), GUNITE(R),
LIBERTY(R), LIBERTY I BOSTROM(R), VIKING(R) and VIKING (Stylized)(R). These
trademarks will appear as capitalized terms elsewhere in this prospectus. This
prospectus may also include trademarks, service marks and trade names of other
companies.
-6-
Certain Transactions
On May 4, 2004, we filed a registration statement relating to the initial
public offering of our common stock. On August 11, 2004, we announced the
postponement of our initial public offering. Our registration with the
Securities and Exchange Commission has not been withdrawn and we expect to
continue to evaluate the timing of that offering. We cannot assure you that the
initial public offering will occur. The consummation of the proposed initial
public offering is subject to market and other conditions beyond our control.
Recent Developments
On August 15, 2004, our President, Andrew M. Weller succeeded Thomas M.
Begel as Chief Executive Officer.
-7-
Summary of the Exchange Offer
On May 21, 2004 we completed the private offering of $100,000,000 aggregate
principal amount of 12 1/2% Senior Subordinated Notes due 2010 (the "outstanding
notes") guaranteed by our present and future restricted subsidiaries (excluding
our restricted subsidiaries that have neither assets nor shareholders' equity in
excess of $1.0 million and all of our foreign restricted subsidiaries). As part
of the offering, we entered into a registration rights agreement with the
holders of the outstanding notes, named therein, in which we agreed, among other
things, to complete the exchange offer for the outstanding notes. Below is a
summary of the exchange offer.
Securities Offered............................. Up to $100,000,000 aggregate
principal amount of new 12
1/2% Senior Subordinated Notes
due 2010, which are issued by
Transportation Technologies
Industries, Inc., guaranteed
by our present and future
restricted subsidiaries
(excluding our restricted
subsidiaries that have neither
assets nor shareholders'
equity in excess of $1.0
million and all of our foreign
restricted subsidiaries), and
have been registered under the
Securities Act (the "exchange
notes"). The terms of the
exchange notes offered in the
exchange offer are
substantially identical to
those of the outstanding
notes, except that certain
transfer restrictions,
registration rights and
additional interest provisions
relating to the outstanding
notes do not apply to the
exchange notes. The issuance
of exchange notes in exchange
for outstanding notes pursuant
to the exchange offer will not
result in a repayment of the
indebtedness of Transportation
Technologies Industries, Inc.
which is presently evidenced
by the outstanding notes.
The Exchange Offer............................. Transportation Technologies
Industries, Inc. is offering
to exchange $1,000 principal
amount of each of its 12 1/2%
Senior Subordinated Notes due
2010, which have been
registered under the
Securities Act, for $1,000
principal amount of each of
its outstanding notes, which
were issued in a private
offering on May 21, 2004. As
of the date of this
prospectus, there are
$100,000,000 principal amount
of outstanding notes.
Transportation Technologies
Industries, Inc. will issue
exchange notes promptly after
the expiration of the exchange
offer.
Registration Rights............................ You are entitled to exchange
your outstanding notes for
freely tradeable exchange
notes with substantially
identical terms. The exchange
offer is intended to satisfy
your registration 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. Accordingly, if you do
not exchange your outstanding
notes, you will not be able to
reoffer, resell or otherwise
dispose of your outstanding
notes unless you comply with
the registration and
prospectus delivery
requirements of the Securities
Act, or there is an available
and applicable exemption from
registration under the
Securities Act.
Resales........................................ Based on interpretations by
the staff of the SEC, as
detailed in a series of
"no-action letters" issued to
third parties, we believe that
the exchange notes issued in
the exchange offer may be
offered for resale, resold or
otherwise transferred by you
without compliance with the
registration and prospectus
delivery requirements of the
Securities Act, provided that:
-8-
o you are acquiring the
exchange notes in the ordinary
course of your business;
o you are not participating,
do not intend to participate
and have no arrangement or
understanding with any person
to participate in a
distribution of the exchange
notes;
o if you are not a broker or
dealer, you, nor any other
person receiving the exchange
notes from you, have no
arrangement with any person to
distribute the exchange notes
in violation of the Securities
Act; and
o you are not an "affiliate"
of ours.
If you do not meet the above
criteria you will have to
comply with the registration
and prospectus delivery
requirements of the Securities
Act in connection with any
reoffer, resale or other
disposition of your exchange
notes.
Each broker or dealer that
receives exchange notes for
its own account in exchange
for outstanding notes that
were acquired as a result of
market-making or other trading
activities must acknowledge
that it will deliver this
prospectus in connection with
any sale of exchange notes.
Accrued Interest on the Exchange Notes
and Outstanding Notes...................... The exchange notes will bear
interest from the most recent
date to which interest has
been paid on the outstanding
notes or if no interest has
been paid, from the issue date
of the outstanding notes. If
your outstanding notes are
accepted for exchange, then
you will receive interest on
the exchange notes and not on
the outstanding notes.
Expiration Date of the Exchange Offer.......... 5:00 p.m., New York City time,
on , 2004, unless we extend
the expiration date.
Conditions to the Exchange Offer............... The exchange offer is subject
to certain customary
conditions, which may be
waived by us. The exchange
offer is not conditioned upon
receiving any minimum
principal amount of
outstanding notes being
tendered.
Procedures for Tendering Outstanding Notes..... If you wish to tender
outstanding notes for exchange
notes pursuant to the exchange
offer, you must:
o complete, sign and date the
accompanying letter of
transmittal, or a facsimile of
the letter of transmittal, and
mail or otherwise deliver the
letter of transmittal,
together with your outstanding
notes, to the exchange agent
at the address provided in the
section "The Exchange
Offer--Exchange Agent"; or
o arrange for The Depository
Trust Company to transmit
certain required information,
including an agent's message
forming part of a book-entry
transfer in which you agree to
be bound by the terms of the
letter of transmittal, to the
exchange agent in connection
with a book-entry transfer.
-9-
See "The Exchange
Offer--Procedures for
Tendering Outstanding Notes."
By executing the letter of
transmittal, you will
represent to us that you are
acquiring the exchange notes
in the ordinary course of your
business, that you are not
participating, do not intend
to participate and have no
arrangement or understanding
with any person to participate
in the distribution of
exchange notes, and that you
are not an "affiliate" of
ours. See "The Exchange
Offer--Procedures for
Tendering Outstanding Notes."
Special Procedures for Beneficial Holders...... If you are the beneficial
holder of outstanding notes
that are registered in the
name of your broker, dealer,
commercial bank, trust company
or other nominee, and you wish
to tender in the exchange
offer, you should contact the
person in whose name your
outstanding notes are
registered promptly and
instruct such person to tender
on your behalf. See "The
Exchange Offer--Procedures for
Tendering Outstanding Notes."
Guaranteed Delivery Procedures................. If you wish to tender your
outstanding notes and you
cannot deliver such notes, the
letter of transmittal or any
other required documents to
the exchange agent before the
expiration date, you may
tender your outstanding notes
according to the guaranteed
delivery procedures set forth
in "The Exchange
Offer--Guaranteed Delivery
Procedures."
Withdrawal Rights.............................. Tenders may be withdrawn at
any time before 5:00 p.m., New
York City time, on the
expiration date.
Acceptance of Outstanding Notes and
Delivery of Exchange Notes................. Subject to certain conditions,
we will accept for exchange
any and all outstanding notes
which are properly tendered in
the exchange offer before 5:00
p.m., New York City time, on
the expiration date. The
exchange notes will be
delivered promptly after the
expiration date. See "The
Exchange Offer--Terms of the
Exchange Offer."
Certain Income Tax Considerations.............. The exchange of outstanding
notes for exchange notes
generally will not be a
taxable event for United
States federal income tax
purposes. See "Certain Income
Tax Considerations" for more
information.
Use of Proceeds................................ We will not receive any
proceeds from the issuance of
the exchange notes.
Exchange Agent................................. U.S. Bank National Association
is serving as exchange agent
in connection with the
exchange offer. The address,
telephone number and facsimile
number of the exchange agent
are set forth in "The Exchange
Offer--Exchange Agent."
Please review the information in the section "The Exchange Offer" for more
detailed information concerning the exchange offer.
-10-
Summary of the Exchange Notes
The following summary contains basic information about the exchange notes.
It does not contain all the information that may be important to you. For a more
complete understanding of the exchange notes, please refer to the section of
this document entitled "Description of the Exchange Notes," particularly those
subsections to which we have referred you.
Issuer......................................... Transportation Technologies
Industries, Inc.
Notes Offered.................................. $100,000,000 aggregate
principal amount of 12 1/2%
Senior Subordinated Notes due
2010.
Guarantees..................................... Our present and future
restricted subsidiaries
(excluding our restricted
subsidiaries that have neither
assets nor shareholders'
equity in excess of $1.0
million and all of our foreign
restricted subsidiaries) will
guarantee the exchange notes
on a senior subordinated
basis. The guarantees will
rank junior in right of
payment to their senior debt,
but will rank equal in right
of payment to the subsidiary
guarantors' existing and
future senior subordinated
debt.
Maturity Date.................................. March 31, 2010.
Interest Rate.................................. 12 1/2% per year.
Interest Payment Dates......................... Each March 31 and September
30, beginning September 30,
2004. We may elect at our
option to pay up to one-half
of the interest payment due on
September 30, 2004 through the
issuance of additional
exchange notes in a principal
amount equal to the amount of
such interest.
Ranking........................................ The exchange notes will be
unsecured senior subordinated
obligations and will rank
junior in right of payment to
all of our senior debt.
Therefore, if we default, your
right to payment under the
exchange notes will be junior
to the rights of holders of
our senior debt to collect
money we owe them at the time.
The exchange notes will rank
equal in right of payment to
our existing and future senior
subordinated debt.
Optional Redemption............................ We can choose to redeem some
or all of the exchange notes
at the specified prices, plus
accrued interest, at any time
(which may be more than once).
Change of Control Offer........................ If we experience a change of
control, we must offer to
purchase your exchange notes
at 101% of their face amount,
plus accrued interest.
We might not be able to pay
you the required price for the
exchange notes you present to
us at the time of a change of
control, because:
o we might not have enough
funds at that time; or
o the terms of our senior debt
may prevent us from paying.
-11-
Asset Sale Proceeds Offer...................... We may have to use the net
cash proceeds from selling
assets to offer to purchase
your exchange notes at their
face amount, plus accrued
interest.
Certain Indenture Provisions................... The indenture governing the
notes will limit what we (and
most or all of our
subsidiaries) may do. The
provisions of the indenture
will, among other things,
limit our ability to:
o incur additional debt;
o pay dividends and make
distributions;
o issue stock of subsidiaries;
o make certain investments;
o repurchase stock;
o create liens;
o enter into transactions with
affiliates;
o enter into sale-leaseback
transactions;
o merge or consolidate; and
o transfer and sell assets.
These covenants are subject to
a number of important
limitations and exceptions.
See "Description of the
Exchange Notes--Certain
Covenants."
Risk Factors
See "Risk Factors" beginning on page 13 for a discussion of certain risks
relating to us, our business and the exchange notes.
-12-
RISK FACTORS
You should carefully consider the following factors, in addition to other
information included in this prospectus. If any of these risks actually occurs,
our business, financial condition or results of operations will likely suffer.
Risks Related to the Exchange Notes
Our substantial debt could adversely affect our financial condition and
prevent us from fulfilling our obligations under the exchange notes.
We have a substantial amount of debt in relation to our shareholders'
equity. As of June 30, 2004, we had:
o an aggregate of $325.8 million of outstanding total debt (excluding unused
commitments and $18.9 million of outstanding letters of credit);
o total shareholders' equity of $16.6 million; and
o a total debt to equity ratio of 19.6x.
We may incur additional debt in the future, including senior debt under our
senior credit facilities, subject to the limitations imposed by our senior
subordinated notes indenture and our senior credit facilities. See "Description
of Certain Indebtedness--Senior Credit Facilities."
Our substantial debt could have important consequences to you. For example,
it could:
o make it more difficult for us to satisfy our obligations with respect to
the exchange notes;
o increase our vulnerability to general adverse economic and industry
conditions;
o require us to dedicate a substantial portion of our cash flow from
operations to payments on our debt, thereby limiting our ability to fund
working capital, capital expenditures and other general corporate purposes;
o limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
o place us at a competitive disadvantage compared to our competitors that
have less debt; and
o limit, together with the financial and other restrictive covenants in our
debt, among other things, our ability to borrow additional funds. Failing
to comply with such covenants could result in an event of default which, if
not cured or waived, could have a material adverse effect on us.
You should also be aware that certain of our borrowings, primarily
borrowings under our senior credit facilities, are and will continue to be at
variable rates of interest, which exposes us to the risk of increasing interest
rates, and that the debt outstanding under our senior credit facilities is
secured and matures prior to the maturity of the exchange notes. As of June 30,
2004, the carrying value of our total debt was $325.8 million of which $225.8
million, or 69.3%, was subject to variable interest rates.
Despite current debt levels, we and our subsidiaries may still be able to
incur substantially more debt. This could further exacerbate the risks described
above.
We and our subsidiaries may be able to incur substantial additional debt in
the future. The terms of the indenture do not fully prohibit us or our
subsidiaries from doing so. The senior credit facilities permit total revolving
borrowings of up to $50.0 million and all of those borrowings would be senior to
the exchange notes and the related
-13-
subsidiary guarantees. For example, we may incur additional debt to, among other
things, finance future acquisitions, expand through internal growth, fund our
working capital needs, comply with regulatory requirements, adequately respond
to competition or for general financial reasons alone. If new debt is added to
our and our subsidiaries' current debt levels, the related risks that we and
they now face could intensify.
To service our debt, we will require a significant amount of cash. Our
ability to generate cash depends on many factors beyond our control.
Our ability to service our debt, including these exchange notes, and to
fund our planned capital expenditures will depend on our financial and operating
performance. This, in part, is subject to prevailing economic conditions and to
financial, business and other factors beyond our control. If our cash flow and
capital resources are insufficient to fund our debt service obligations, we may
be forced to reduce or delay capital expenditures, sell assets, obtain
additional equity capital or restructure our debt. Our cash flow and available
borrowings may not be sufficient to service our debt in the future. In the
absence of such operating results and resources, we could face substantial cash
flow problems and might be required to sell material assets or operations to
meet our debt service and other obligations. We cannot assure you as to the
timing of such sales or the proceeds which we could realize from such sales.
Your right to receive payments on these exchange notes will be junior to
our senior credit facilities and the guarantees of these exchange notes will be
junior to our guarantors' guarantees of our senior credit facilities.
The payment of principal of and interest on, and any premium or other
amounts owing in respect of, the exchange notes will be subordinated to the
prior payment in full of all of our existing and future senior debt, including
all amounts owing under our senior credit facilities. As of June 30, 2004, the
aggregate amount of our senior debt was approximately $225.8 million (excluding
unused commitments and $18.9 million of outstanding letters of credit).
Consequently, in the event that we are party to a bankruptcy, liquidation,
dissolution, reorganization or similar proceeding, our assets will be available
to pay obligations on the exchange notes only after our senior debt has been
paid in full, and we cannot assure you that there will be sufficient assets to
pay amounts due on all or any of the exchange notes. Similarly, the subsidiary
guarantees of the exchange notes will be subordinated to the prior payment in
full of all existing and future senior debt of the guarantor subsidiaries,
including all amounts owing pursuant to the guarantees by the guarantor
subsidiaries under the senior credit facilities. See "Description of the
Exchange Notes--Subordination" and "--Guarantees."
The exchange notes will rank equally with all of our existing and future
senior subordinated debt. As of June 30, 2004, we had no other senior
subordinated debt outstanding other than the notes to be exchanged.
The indenture permits us and the guarantor subsidiaries to incur certain
secured debt, including debt under the senior credit facilities, which will be
secured by liens on substantially all of our assets and those of the guarantor
subsidiaries. The exchange notes and the subsidiary guarantees of the exchange
notes are unsecured and therefore do not have the benefit of collateral.
Accordingly, if an event of default occurs under the senior credit facilities,
the senior lenders will have a prior right to our assets and those of the
guarantor subsidiaries, and may foreclose upon such collateral to the exclusion
of the holders of the exchange notes, notwithstanding the existence of an event
of default with respect thereto. In such event, such assets would first be used
to repay in full amounts outstanding under the senior credit facilities,
resulting in all or a portion of our assets being unavailable to satisfy the
claims of the holders of exchange notes and other unsecured debt.
We are subject to a number of restrictive covenants which, if breached, may
restrict our business and financing activities.
Our senior credit facilities and the indenture contain restrictive debt
covenants that, among other things, restrict our ability to:
o incur additional debt;
-14-
o pay dividends and make distributions;
o issue stock of subsidiaries;
o make certain investments;
o repurchase stock;
o create liens;
o enter into affiliate transactions;
o enter into sale-leaseback transactions;
o merge or consolidate; and
o transfer and sell assets.
Our senior credit facilities also require us to meet certain financial
tests, including maintenance of a maximum ratio of funded debt to EBITDA, a
minimum ratio of consolidated EBITDA less capital expenditures to consolidated
fixed charges and a minimum ratio of consolidated EBITDA to consolidated
interest expense. We were in compliance with the financial tests under our
senior credit facilities as of June 30, 2004, the last date on which such
financial tests applied.
These restrictive covenants and financial tests may limit our ability to
expand or to pursue our business strategies. Our ability to comply with these
and other provisions of our debt agreements may be affected by changes in our
business condition or results of operations, adverse regulatory developments or
other events beyond our control. The breach of any of these covenants would
result in a default under our debt agreements, which could, in turn, cause the
debt under our senior credit facilities to become immediately due and payable.
Such a default could allow our creditors to accelerate any other debt to which a
cross-acceleration provision applies. If our debt were to be accelerated, we
cannot assure you that we would be able to repay it. In addition, a default
could give our lenders the right to terminate any commitments that they had made
to provide us with additional funds. See "Description of Certain
Indebtedness--Senior Credit Facilities."
We are a holding company. If the subsidiary guarantees are held
unenforceable, you may not have recourse against our subsidiaries.
We are a holding company and we derive all of our operating income from our
subsidiaries. The holders of the notes will have no direct claim against our
subsidiaries other than the claim created by the subsidiary guarantees, which
may be subject to legal challenge in the event of the bankruptcy of a
subsidiary. If such a challenge were upheld, the guaranty of that subsidiary
would be invalidated and unenforceable. To the extent that the guaranty of a
subsidiary is not enforceable, the rights of holders of the exchange notes to
participate in any distribution of assets of any such guarantor subsidiary upon
liquidation, bankruptcy, reorganization or otherwise may, as is the case with
other of our unsecured creditors, be subject to prior claims of creditors of
that guarantor subsidiary. We must rely upon dividends and other payments from
our subsidiaries to generate the funds necessary to meet our obligations,
including the payment of principal of and interest on the exchange notes. The
indenture contains covenants that restrict the ability of our restricted
subsidiaries to enter into any agreement limiting distributions and transfers,
including dividends. However, the ability of our subsidiaries to pay dividends
and make other payments may be restricted by, among other things, applicable
state corporate laws and other laws and regulations or by terms of agreements to
which they may become party. See "Description of the Exchange Notes."
Federal and state statutes allow courts, under specific circumstances, to
void guarantees and require note holders to return payments received from
guarantors.
-15-
Under federal bankruptcy law and comparable provisions of state fraudulent
transfer laws, a guarantee could be voided, or claims in respect of a guarantee
could be subordinated to all other debts of that guarantor, if, among other
things, the guarantor, at the time it incurred the debt evidenced by its
guarantee:
o received less than reasonably equivalent value or fair consideration for
the incurrence of such guarantee; and
o was insolvent or rendered insolvent by reason of such incurrence; or
o was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
o intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could
be voided and required to be returned to the guarantor, or to a fund for the
benefit of the creditors of that guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
o the sum of all of its debts, including contingent liabilities, were greater
than the fair saleable value of all of its assets; or
o the present fair saleable value of its assets were less than the amount
that would be required to pay its probable liability on its existing debts,
including contingent liabilities, as they become absolute and mature; or
o it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that each guarantor, after giving effect to its
guarantee of these exchange notes, will not be insolvent, will not have
unreasonably small capital for the business in which it is engaged and will not
have incurred debts beyond its ability to pay such debts as they mature. We
cannot assure you, however, as to what standard a court would apply in making
such determinations or that a court would agree with our conclusions.
You cannot be sure that an active trading market will develop for the
exchange notes.
There is no existing trading market for the exchange notes. If such a
market were to develop, the exchange notes could trade at prices that may be
lower than the initial offering price depending on many factors, including
prevailing interest rates, our operating results and the market for similar
securities. As a result, your ability to resell the exchange notes may be
limited. We do not intend to apply for listing or quotation of the exchange
notes on any securities exchange or stock market; however, we expect that the
exchange notes will be able to trade in the Portal Market of the National
Association of Securities Dealers, Inc.
We may not have the ability to raise the funds necessary to finance the
change of control offer required by the indenture.
Upon the occurrence of certain specified kinds of change of control events,
we will be required to offer to repurchase all exchange notes. However, it is
possible that we will not have sufficient funds at the time of the change of
control to make the required repurchase of exchange notes or that restrictions
in our senior credit facilities
-16-
will not allow such repurchases. If we fail to repurchase the exchange notes
upon a change of control, we will be in default under both the exchange notes
and our senior credit facilities. Any future debt that we may incur may also
contain restrictions on repurchases in the event of a change of control or
similar event. In addition, certain important corporate events, such as
leveraged recapitalizations that would increase the level of our debt, would not
constitute a "change of control" under the indenture. See "Description of the
Exchange Notes--Change of Control Offer."
The notes will be issued with original issue discount.
The notes will be considered to be issued with original issue discount for
U.S. federal income tax purposes. Accordingly, certain holders of the notes will
be required to include original issue discount in gross income for U.S. federal
income tax purposes in advance of receipt of cash payments to which the income
is attributable. See "Certain U.S. Federal Income Tax Considerations."
If you fail to exchange your outstanding notes by properly tendering them
in the exchange offer, your outstanding notes will continue to be restricted
securities and may have reduced liquidity.
Because we anticipate that most holders of outstanding notes will elect to
exchange their outstanding notes, we expect that the liquidity of the market for
any outstanding notes remaining after the completion of the exchange offer may
be substantially limited. Any outstanding note tendered and exchanged in the
exchange offer will reduce the aggregate principal amount of the outstanding
notes left outstanding. Following the exchange offer, if you did not tender your
outstanding notes you generally will not have any further registration rights
and your outstanding notes will continue to be subject to transfer restrictions.
Accordingly, the liquidity of the market for any outstanding notes could be
adversely affected.
Outstanding notes which you do not tender or we do not accept will,
following the exchange offer, continue to be restricted securities. You may not
offer or sell untendered outstanding notes except pursuant to an exemption from,
or in a transaction not subject to, the Securities Act and applicable state
securities laws. We will issue exchange notes in exchange for the outstanding
notes pursuant to the exchange offer only following the satisfaction of
procedures and conditions described elsewhere in this prospectus. These
procedures and conditions include timely receipt by the exchange agent of the
outstanding notes and of a properly completed and duly executed letter of
transmittal.
Risks Related to Our Business and Industry
Our business is affected by the cyclical nature of the industries and
markets that we serve.
The heavy- and medium-duty truck and truck components industries, the Class
8 truck OEM market and, to a lesser extent, the Class 5-7 truck OEM market are
highly cyclical. These industries and markets fluctuate in response to factors
that are beyond our control, such as general economic conditions, interest
rates, federal and state regulations, consumer spending, fuel costs and our
customers' inventory levels and production rates. These industries and markets
are particularly sensitive to the industrial sector of the economy, which
generates a significant portion of the freight tonnage hauled by trucks.
Economic downturns in the industries or markets that we serve generally result
in reductions in sales of our products, which could reduce our profits and cash
flows. Weakness in overall economic conditions or in the markets that we serve,
or significant reductions by our customers in their inventory levels or future
production rates, could result in a reduction in demand for our products and
could have a material adverse effect on our business, results of operations or
financial condition.
We are dependent on sales to a small number of our major customers, and on
our status as standard supplier on certain truck platforms of each of our major
customers.
Sales, including aftermarket sales, to PACCAR, Freightliner, International
and Volvo/Mack constituted approximately 22%, 13%, 13% and 10%, respectively, of
our 2003 net sales. No other customer accounted for more than 5% of our net
sales during this period. The loss of any significant portion of sales to any of
our major customers could have a material adverse effect on our business,
results of operations and financial condition.
-17-
We are a standard supplier on a majority of truck platforms at each of our
major customers, which results in recurring revenue as our standard components
are installed on most trucks ordered from that platform, unless the end user
specifically requests a different product, generally at an additional charge.
The selection of one of our products as standard may also create a steady demand
for that product in the aftermarket. We may not maintain our current standard
supplier positions in the future, and may not become the standard supplier for
additional truck platforms. The loss of a significant standard supplier position
or a significant number of standard supplier positions with a major customer
could have a material adverse effect on our business, results of operations or
financial condition.
Increased cost of raw materials, especially steel scrap and pig iron, and
purchased components may adversely affect our financial performance.
Our business is subject to the risk of price increases and fluctuations and
periodic delays in the delivery of raw materials and purchased components that
are beyond our control. Our operations require substantial amounts of steel
scrap, pig iron, electricity, coke, natural gas, sheet and formed steel and
aluminum, bearings, purchased components, fasteners, foam, fabrics, silicon
sand, binders, sand additives, coated sand and tube steel. Fluctuations in the
delivery of these materials may be driven by the supply/demand relationship for
a material, factors particular to that material or governmental regulation for
raw materials such as electricity and natural gas. In addition, if any of our
suppliers seek bankruptcy relief or otherwise cannot continue their business as
anticipated, the availability or price of raw materials could be adversely
affected. Fluctuations in prices and/or availability of the raw materials or
purchased components used by us, which at times may be more pronounced during
periods of higher truck builds, may affect our profitability and, as a result,
have a material adverse effect on our business, results of operations or
financial condition.
Steel scrap and pig iron are major raw materials used in our business to
produce our wheel-end and industrial components. Steel scrap is derived from,
among other sources, junked automobiles, industrial scrap, railroad cars,
agricultural and heavy machinery and demolition steel scrap from obsolete
structures, containers and machines. Pig iron is a low-grade cast iron which is
a product of smelting iron ore with coke and limestone in a blast furnace. The
availability and price of steel scrap and pig iron are subject to market forces
largely beyond our control, including North American and international demand
for steel scrap and pig iron, freight costs, speculation and foreign exchange
rates. Steel scrap and pig iron availability and price may also be subject to
governmental regulation. We are not always able, and may not be able in the
future, to pass on increases in the price of steel scrap and pig iron to our
customers. In particular, when raw material prices increase rapidly or to
significantly higher than normal levels, we may not be able to pass price
increases through to our customers on a timely basis, if at all, which could
adversely affect our operating margins and cash flow. Any fluctuations in the
price or availability of steel scrap or pig iron may have a material adverse
effect on our business, results of operations or financial condition. See
"Business--Raw Materials and Suppliers."
We operate in highly competitive markets.
The markets in which we operate are highly competitive. We compete with a
number of other manufacturers and distributors that produce and sell similar
products. Our products primarily compete on the basis of price, manufacturing
and distribution capability, product design, product quality, product delivery
and product service. Some of our competitors are companies, or divisions, units
or subsidiaries of companies, that are larger and have greater financial and
other resources than we do. Our products may not be able to compete successfully
with the products of these other companies, divisions or units. In addition, our
competitors may foresee the course of market development more accurately than we
do, develop products that are superior to our products, have the ability to
produce similar products at a lower cost than we can or adapt more quickly than
we do to new technologies or evolving regulatory, industry or customer
requirements. As a result, our products may not be able to compete successfully
with their products. We expect these competitive pressures in our markets to
remain strong. See "Business--Competition."
-18-
Potential competition from foreign truck components suppliers, especially
in the aftermarket, may lead to an increase in truck components imports into
North America, adversely affecting our market share and negatively affecting our
ability to compete.
Foreign truck components suppliers may in the future increase their
currently modest share of the markets in which we compete. Some of these foreign
suppliers may be owned, controlled or subsidized by their governments, and their
decisions with respect to production, sales and exports may be influenced more
by political and economic policy considerations than by prevailing market
conditions. In addition, foreign truck components suppliers may be subject to
less restrictive regulatory and environmental regimes that could provide them
with a cost advantage relative to North American suppliers. Therefore, there is
a risk that some foreign suppliers may increase their sales of truck components
in North American markets despite decreasing profit margins or losses. If future
trade cases do not provide relief from such potential trade practices, U.S.
protective trade laws are weakened or world demand for trucks and/or truck
components decreases, an increase of truck component imports into the United
States may occur, which could have a material adverse effect on our business,
results of operations or financial condition.
Cost reduction and quality improvement initiatives by OEMs could have a
material adverse effect on our business.
We are primarily a components supplier to the heavy- and medium-duty truck
industries, which are characterized by a small number of OEMs that are able to
exert considerable pressure on components suppliers to reduce costs, improve
quality and provide additional design and engineering capabilities. Given the
fragmented nature of the industry, OEMs continue to demand and receive price
reductions and measurable increases in quality through their use of competitive
selection processes, rating programs and various other arrangements. We may be
unable to generate sufficient production cost savings in the future to offset
such price reductions. OEMs may also seek to save costs by relocating production
to countries with lower cost structures, which could in turn lead them to
purchase components from local suppliers with lower production costs.
Additionally, OEMs have generally required component suppliers to provide more
design engineering input at earlier stages of the product development process,
the costs of which have, in some cases, been absorbed by the suppliers. Future
price reductions, increased quality standards and additional engineering
capabilities required by OEMs may reduce our profitability and have a material
adverse effect on our business, results of operations or financial condition.
If we are unable to successfully integrate any future acquisitions, our
profitability could be adversely affected.
We have acquired a number of businesses in the past, and may consider
acquiring businesses in the future, that expand our portfolio of products and
thereby strengthen our position as a "one-stop" supplier to OEMs. Integrating
any acquired business requires substantial management, financial and other
resources and may pose risks with respect to customer service and market share.
Furthermore, integrating an acquisition involves a number of special risks, some
or all of which could have a material adverse effect on our business, results of
operations and financial condition. These risks include:
o unforeseen operating difficulties and expenditures;
o difficulties in assimilation of acquired personnel, operations and
technologies;
o the need to manage a significantly larger and more geographically dispersed
business;
o impairment of goodwill and other intangible assets;
o diversion of management's attention from ongoing development of our
business or other business concerns;
o potential loss of customers;
-19-
o failure to retain key personnel of the acquired businesses;
o the use of substantial amounts of our available cash; and
o the incurrence of additional indebtedness.
We may not be able to successfully integrate businesses that we acquire in
the future. Such acquisitions would not enhance our competitive position,
business or financial prospects and could have a material adverse effect on our
business, results of operations and financial position.
Equipment failures, delays in deliveries or catastrophic loss at any of our
facilities could lead to production or service curtailments or shutdowns.
We manufacture our products at twelve facilities and provide logistical
services at six JIT sequencing facilities in the United States. An interruption
in production or service capabilities at any of these facilities as a result of
equipment failure or other reasons could result in our inability to produce our
products, which would reduce our net sales and earnings for the affected period.
In the event of a stoppage in production at any of our facilities, even if only
temporary, or if we experience delays as a result of events that are beyond our
control, delivery times to our customers could be severely affected. Any
significant delay in deliveries to our customers could lead to increased returns
or cancellations and cause us to lose future sales. Our facilities are also
subject to the risk of catastrophic loss due to unanticipated events such as
fires, explosions or violent weather conditions. We may experience plant
shutdowns or periods of reduced production as a result of equipment failure,
delays in deliveries or catastrophic loss, which could have a material adverse
effect on our business, results of operations or financial condition.
We may incur potential product liability, warranty and product recall
costs.
We are subject to the risk of exposure to product liability, warranty and
product recall claims in the event any of our products results in property
damage, personal injury or death, or does not conform to specifications. We may
not be able to continue to maintain suitable and adequate insurance in excess of
our self-insured amounts on acceptable terms that will provide adequate
protection against potential liabilities. In addition, if any of our products
prove to be defective, we may be required to participate in a recall involving
such products. A successful claim brought against us in excess of available
insurance coverage, if any, or a requirement to participate in any product
recall, could have a material adverse effect on our business, results of
operations or financial condition.
We may not be able to continue to meet our customers' demands for our
products and services, and may be unable to develop product innovations.
We must continue to meet our customers' demand for our products and
services. However, we may not be successful in doing so. If our customers'
demand for our products and/or services exceeds our ability to meet that demand,
we may be unable to continue to provide our customers with the products and/or
services they require to meet their business needs. Factors that could result in
our inability to meet customer demands include an unforeseen spike in demand for
our products and/or services, a failure by one or more of our suppliers to
supply us with the raw materials and other resources that we need to operate our
business effectively or poor management of our company or one or more divisions
or units of our company, among other factors. Our ability to provide our
customers with products and services in a reliable and timely manner, in the
quantity and quality desired and with a high level of customer service, may be
severely diminished as a result. If this happens, we may lose some or all of our
customers to one or more of our competitors, which would have a material adverse
effect on our business, results of operations and financial condition.
In addition, it is important that we continue to meet our customers'
demands for product innovation, improvement and enhancement, including the
continued development of new-generation products, design improvements and
innovations that improve the quality and efficiency of our products. Developing
product innovations has been and will continue to be a significant part of our
strategy. However, such development will require us to continue to invest in
research and development and sales and marketing. In the future, we may not have
sufficient resources to make such necessary investments, or we may be unable to
make the technological advances necessary to
-20-
carry out product innovations sufficient to meet our customers' demands. We are
also subject to the risks generally associated with product development,
including lack of market acceptance, delays in product development and failure
of products to operate properly. We may, as a result of these factors, be unable
to meaningfully focus on product innovation as a strategy and may therefore be
unable to meet our customers' demand for product innovation.
Our products may be rendered obsolete or less attractive by changes in
regulatory, legislative or industry requirements.
Changes in regulatory, legislative or industry requirements may render
certain of our products obsolete or less attractive. Our ability to anticipate
changes in these requirements, especially changes in regulatory standards, will
be a significant factor in our ability to remain competitive. There can be no
assurance that we will be able to comply in the future with new regulatory,
legislative and/or industrial standards that may be necessary for us to remain
competitive or that certain of our products will not, as a result, become
obsolete or less attractive to our customers.
Work stoppages or other labor issues at our facilities or at our customers'
facilities could adversely affect our operations.
As of June 30, 2004, approximately 45% of our workforce was represented by
unions. As a result, we are subject to the risk of work stoppages and other
labor relations matters. Any prolonged work stoppage or strike at any one of our
principal unionized facilities could have a material adverse effect on our
business, results of operations and financial condition. In addition, certain of
our facilities have separate agreements covering the workers at each such
facility and, as a result, we have collective bargaining agreements with several
different unions. These collective bargaining agreements expire at various times
over the next few years, with no contract expiring before April 2005. Any
failure by us to reach a new agreement upon expiration of such union contracts
may have a material adverse effect on our business, results of operations or
financial condition. See "Business--Employees and Labor Unions."
In addition, if any of our customers experiences a material work stoppage,
that customer may halt or limit the purchase of our products. This could cause
us to shut down production facilities relating to these products, which could
have a material adverse effect on our business, results of operations and
financial condition.
We are subject to a number of environmental rules and regulations that may
require us to make substantial expenditures.
Our operations, facilities and properties are subject to extensive and
evolving laws and regulations pertaining to air emissions, wastewater
discharges, the handling and disposal of solid and hazardous materials and
wastes, the investigation and remediation of contamination, and otherwise
relating to health, safety and the protection of the environment and natural
resources. As a result, we are involved from time to time in administrative or
legal proceedings relating to environmental, health and safety matters, and have
in the past and will continue to incur capital costs and other expenditures
relating to such matters. In addition to environmental laws that regulate our
subsidiaries' ongoing operations, our subsidiaries are also subject to
environmental remediation liability. Under the federal Comprehensive
Environmental Response, Compensation, and Liability Act, or CERCLA, and
analogous state laws, our subsidiaries may be liable as a result of the release
or threatened release of hazardous materials into the environment. Our
subsidiaries are currently involved in several matters relating to the
investigation and/or remediation of locations where they have arranged for the
disposal of foundry and other wastes. Such matters include situations in which
we have been named or are believed to be Potentially Responsible Parties, or
PRPs, under CERCLA or state laws in connection with the contamination of these
sites. Additionally, environmental remediation may be required to address soil
and groundwater contamination identified at certain facilities.
As of June 30, 2004, we had an environmental reserve of approximately $2.8
million, related primarily to our foundry operations. This reserve is based on
current cost estimates and does not reduce estimated expenditures to net present
value, but does take into account the benefit of a contractual indemnity given
to us by a prior owner of our wheel-end subsidiary. We cannot assure you,
however, that the indemnitor will fulfill its obligations, and the failure to do
so could result in future costs that may be material. Any cash expenditures
required by us or our subsidiaries to comply with applicable environmental laws
and/or to pay for any remediation efforts will not be reduced
-21-
or otherwise affected by the existence of the environmental reserve. Our
environmental reserve may not be adequate to cover our future costs related to
the sites associated with the environmental reserve, and any additional costs
may have a material adverse effect on our business, results of operations and
financial condition. The discovery of additional sites, the modification of
existing or the promulgation of new laws or regulations, more vigorous
enforcement by regulators, the imposition of joint and several liability under
CERCLA or other unanticipated events could also result in such a material
adverse effect.
The final Iron and Steel Foundry National Emission Standard for Hazardous
Air Pollutants, or NESHAP was developed pursuant to Section 112(d) of the
federal Clean Air Act and requires all major sources of hazardous air pollutants
to install controls representative of maximum achievable control technology. We
are evaluating the applicability of the NESHAP to our foundry operations. If
applicable, compliance with the NESHAP may result in future significant capital
costs, which we currently expect to be between $5.0 million and $10.0 million in
total during the period 2005 through 2007, which amount has been included in our
capital expenditure budgets for the relevant years. See "Business--Environmental
Matters."
We might fail to adequately protect our intellectual property, or third
parties might assert that our technologies infringe on their intellectual
property.
The protection of our intellectual property is important to our business.
We rely on a combination of trademarks, copyrights, patents and trade secrets to
provide protection in this regard, but this protection might be inadequate. For
example, our pending or future trademark, copyright and patent applications
might not be approved or, if allowed, they might not be of sufficient strength
or scope. Conversely, third parties might assert that our technologies or other
intellectual property infringe on their proprietary rights. In either case,
litigation, which could result in substantial costs and diversion of our
efforts, might be necessary, and whether or not we are ultimately successful,
the litigation could adversely affect our business, results of operations and
financial condition.
If we fail to retain our executive officers, our business could be harmed.
Our success largely depends on the efforts and abilities of our executive
officers. Their skills, experience and industry contacts significantly benefit
us. Each of our executive officers has been with TTI for several years: Mr.
Weller has been with us since 1994, Mr. Cirar since 1995, Mr. Mueller since 1998
and Mr. Tallering since 1995. We have entered into employment contracts with
each of our executive officers. See "Management--Employment Agreements." The
loss of any one of them could have a material adverse effect on our business,
results of operations or financial condition. Our future success will also
depend in part upon our continuing ability to attract and retain highly
qualified personnel.
The reliability of market and industry data included in this prospectus may
be uncertain.
This prospectus contains market and industry data, primarily from reports
published by America's Commercial Transportation Publications and from internal
company surveys, studies and research, related to the truck components industry
and its segments, as well as the truck industry in general. This data includes
estimates and forecasts regarding future growth in these industries,
specifically data related to Class 8 truck production, truck freight growth and
the historical average age of active U.S. heavy-duty trucks. Such data has been
published in industry publications that typically indicate that they have
derived the data from sources believed to be reasonable, but do not guarantee
the accuracy or completeness of the data. While we believe these industry
publications to be reliable, we have not independently verified the data or any
of the assumptions on which the estimates and forecasts are based. Similarly,
internal company surveys, studies and research, while believed by us to be
reliable, have not been verified by any independent sources. The failure of the
truck industry and/or the truck components industry to continue to grow as
forecasted may have a material adverse effect on our business, results of
operations and financial condition.
-22-
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. The exchange
offer is intended to satisfy certain of our obligations under the registration
rights agreement entered into for the benefit of the holders of outstanding
notes in connection with the initial private placement of the outstanding notes.
In consideration for issuing the exchange notes, we will receive outstanding
notes of like principal amount, the terms of which are substantially identical
in all material respects to the exchange notes. The issuance of exchange notes
in exchange for outstanding notes will not result in a repayment of our
outstanding indebtedness which is presently evidenced by the outstanding notes.
The outstanding notes surrendered in exchange for exchange notes will be retired
and canceled and cannot be reissued. Accordingly, issuance of the exchange notes
will not result in any increase or change in the amount of our indebtedness. We
have agreed to pay the expenses of the exchange offer.
We did not receive any proceeds from the offering of outstanding notes.
Prior to the consummation of the offering of outstanding notes, we issued the
senior subordinated outstanding notes to the selling securityholders in exchange
for our then existing senior subordinated notes issued to the selling
securityholders, the proceeds of which were used to finance the March 2000
transaction in which we were acquired in a going-private transaction by our
controlling stockholders (see "Prospectus Summary--Our History and Corporate
Information").
CAPITALIZATION
The following table sets forth our cash position and capitalization as of
June 30, 2004. This table should be read in conjunction with our consolidated
financial statements and the notes to the financial statements appearing
elsewhere in this prospectus. See "Selected Historical Consolidated Financial
and Other Data."
(Dollars in
thousands)
Long-term debt (including current maturities):
Revolving credit facility(a)............................... $ 8,000
Senior first lien term loan................................ 114,713
Senior second lien term loan............................... 100,000
Senior subordinated notes(b)............................... 100,000
Other debt................................................. 3,100
-----------
Total long-term debt (including current maturities)... $ 325,813
Shareholders' equity
Preferred stock (par value)................................ $ 2
Common stock (par value)................................... 19
Additional paid-in capital................................. 200,852
Accumulated deficit........................................ (171,553)
Accumulated other comprehensive loss....................... (12,725)
------------
Total shareholders' equity............................ 16,595
------------
Total capitalization.................................. $ 342,408
============
- --------------------------------------------------------------------------------
(a) Our revolving credit facility provides for borrowings of up to $50.0
million. As of June 30, 2004, we had $23.1 million available for borrowing
after giving effect to $18.9 million in outstanding letters of credit.
(b) Unregistered notes to be exchanged for the exchange notes.
-23-
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
The selected historical consolidated financial and other data set forth
below for the five years ended December 31, 2003 have been derived from our
consolidated financial statements. Our consolidated balance sheets as of
December 31, 2002 and 2003 and our statements of operations, cash flows and
stockholders' equity and other comprehensive loss for the three years in the
periods ended December 31, 2003 have been audited by Deloitte & Touche LLP,
independent registered public accounting firm, and our consolidated financial
statements for the two years ended December 31, 2000 have been audited by Arthur
Andersen LLP, independent auditors. The consolidated financial data reflect our
freight car operations, which we sold in June 1999, as a discontinued operation.
The data for the periods presented are not necessarily comparable due to
acquisitions made in 1999 and our recapitalization in March 2000 by way of a
going-private transaction.
The selected historical consolidated financial and other data set forth
below for the three and six months ended June 30, 2003 and 2004 have been
derived from our unaudited interim consolidated financial statements that are
included elsewhere in this prospectus. Such interim financial statements, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments that are necessary to present fairly our financial result
for such periods. The results of operations for the interim periods are not
necessarily indicative of the results that may be expected for the full year or
any other interim period.
You should read the following audited and unaudited selected historical
consolidated financial and other data together with the historical financial
statements and the notes thereto and other financial information included
elsewhere in this prospectus, including "Capitalization," and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
-24-
Selected Historical Consolidated Financial and Other Data
(Dollars in thousands)
Three Months Ended Six Months Ended
Year Ended December 31, June 30, June 30,
------------------------------------------------ ------------------------------------------
1999(a) 2000(b) 2001 2002 2003 2003 2004 2003 2004
------- ------- ---- ---- ---- --------- -------- -------- ----------
Statement of
Operations Data:
Net sales.....................$545,334 $522,577 $391,401 $411,598 $440,009 $112,550 $144,788 $217,306 $279,568
Cost of sales................. 434,385 438,876 330,873 340,103 368,931 93,560 121,855 181,347 235,338
-------- ------- ------- ------- ------- ------ ------- ------- -------
Gross profit.................. 110,949 83,701 60,528 71,495 71,078 18,990 22,933 35,959 44,230
Selling, general and
administrative
expenses.................... 54,013 52,496 43,701 36,673 38,896 9,947 10,456 19,786 21,148
Net (gain) loss on
disposition of
property, plant and
equipment (c)............... -- -- -- -- (2,600) -- 2,203 -- 2,203
Reduction in estimated
environmental
remediation
liability (d)............... -- -- -- -- (6,636) -- -- -- --
Restructuring
costs (e)................... -- 643 19,573 -- -- -- -- -- --
-------- ------- ------- ------- ------- ------ ------- ------- -------
Operating income
(loss)...................... 56,936 30,562 (2,746) 34,822 41,418 9,043 10,274 16,173 20,879
Interest expense.............. 26,610 42,582 45,640 42,306 40,362 9,805 8,093 20,368 16,182
Other (income)
expense, net................ 2,832 29,918 (3,209) (92) (8,693) (8) 4,107 (390) 10,655
Income tax expense
(benefit)................... 12,763 (11,597) (15,151) (1,679) 6,248 (246) (1,198) (1,399) (2,784)
-------- ------- ------- ------- ------- ------ ------- ------- -------
Net income (loss)
from continuing
operations before
cumulative effect
of accounting change........ 14,731 (30,341) (30,026) (5,713) 3,501 (508) (728) (2,406) (3,174)
Cumulative effect of
accounting change,
net of income
taxes (f)................... -- -- -- (3,794) -- -- -- -- --
-------- ------- ------- ------- ------- ------ ------- ------- -------
Net income (loss)
from continuing
operations.................. 14,731 (30,341) (30,026) (9,507) 3,501 (508) (728) (2,406) (3,174)
Discontinued
operations, net of
income taxes (g)............ 52,545 -- -- -- -- -- -- -- --
-------- ------- ------- ------- ------- ------ ------- ------- -------
Net income (loss)
before preferred
dividends................... 67,276 (30,341) (30,026) (9,507) 3,501 (508) (728) (2,406) (3,174)
Balance Sheet Data
(at period end):
Cash and cash
equivalents.................$ 8,799 $ 4,352 $16,279 $14,085 $ -- $ 6,827 $ -- $ 6,827 $ --
Total assets.................. 535,381 519,562 463,649 450,543 450,744 460,866 474,363 460,866 474,363
Total liabilities............. 352,706 505,066 467,977 475,918 430,975 488,124 457,768 488,124 457,768
Total debt (h)................ 204,366 367,929 350,303 347,836 309,129 345,062 325,813 345,062 325,813
Total shareholders'
equity...................... 182,675 14,496 (4,329) (25,375) 19,769 (27,258) 16,595 (27,258) 16,595
Other Financial and
Operating Data:
North American
Class 8 heavy-duty
truck production
(units)..................... 332,587 252,006 145,978 181,199 176,774 35,977 62,979 80,651 116,646
EBITDA (i)....................$ 79,168 $41,827 $25,716 $50,340 $66,964 $ 13,104 $ 13,572 $ 24,287 $27,879
Unusual items
(increasing)
decreasing EBITDA(j)........ -- 19,115 16,165 -- (18,826) -- 2,203 -- 2,483
Depreciation and
amortization................ 22,232 25,600 25,054 15,518 15,546 4,061 3,298 8,114 7,000
Capital expenditures.......... 16,447 18,773 5,450 10,242 15,044 3,379 1,884 8,828 2,960
Ratio of earnings to fixed
charges (k)................. 2.03x -- -- -- 1.24x -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
(a) Results for the year ended December 31, 1999 include the results of
acquisitions made in 1999 from their respective acquisition dates. These
include the results for Imperial Group L.P. from April 29, 1999, EMI
Company from May 17, 1999, Clark Engineering and Manufacturing, Inc. from
September 30, 1999 and BMC Virginia, Inc. from October 21, 1999. Net sales
and operating income in 1999 would have been higher by $68.5 million and
$6.4 million, respectively, if these acquisitions had occurred on January
1, 1999.
(b) In March 2000, our company was recapitalized in a transaction in which
approximately 88% of the fully diluted shares of our common stock were
converted into the right to receive $21.50 per share in cash. In connection
with this recapitalization, we entered into new debt financing
arrangements.
(c) In 2003, primarily represents a gain resulting from the sale of our
Emeryville, California plant. On October 30, 2003, we sold the real
property of our Emeryville, California plant for $6.5 million and moved the
operations into a leased facility in the area. The transaction resulted in
a net gain of $3.7 million and a mandatory prepayment of senior credit
facility term loans of $5.3 million. This $3.7 million gain was offset by
losses on dispositions of fixed assets of $1.1 million. In the quarter
ended June 30, 2004, the Company entered into negotiations with a buyer for
the sale of certain of its assets held for sale at its Erie, Pennsylvania
location at a price below carrying value. To comply with the requirements
of "SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets," the Company recorded an impairment loss of $2.2 million.
(d) In early 2003, we undertook a review, with assistance from third-party
specialists, of our environmental exposures. The review indicated that
there was a substantial reduction in our exposure at identified sites due
pri-
-25-
marily to the inactive status or closure of many of the sites and consent
decrees obtained at certain of the sites. Accordingly, we reduced our
reserves relating to the sites by $6.6 million.
(e) In 2000, we recorded $0.6 million of restructuring costs related to the
closure of our Fort Worth, Texas plating facility. In 2001, we recorded
$19.6 million of restructuring costs, which included $18.9 million of
non-cash fixed asset impairment charges and $0.7 million of employee
separation expenses. The costs related primarily to the closure of our
Erie, Pennsylvania iron casting and machining operation.
(f) During 2002, as a result of our adoption of Statement of Financial
Accounting Standards No. 142, or SFAS 142, we recorded a transitional
goodwill impairment charge net of tax of $3.8 million. See Note 6 to our
audited consolidated financial statements included elsewhere in this
prospectus.
(g) Represents income of $22.7 million, net of taxes, from our discontinued
freight car manufacturing operations, and a gain of $29.8 million, net of
taxes, from the sale of such operations.
(h) Includes current maturities of long-term debt.
(i) "EBITDA" is a non-GAAP financial measure and is defined as net income
(loss) before discontinued operations and cumulative effect of accounting
change plus (1) depreciation and amortization, (2) interest expense, net of
interest income, (3) loss on debt extinguishment and (4) income taxes. We
rely on EBITDA as the primary measure to review and assess the operating
performance of our company and our management teams. Management and
investors also review EBITDA to evaluate our overall performance and to
compare our current operating results with corresponding periods and with
other companies in the truck components industry. We believe that it is
important and useful to investors to provide disclosures of our operating
results on the same basis as that used by our management. We also believe
that it can assist investors in comparing our performance to that of other
companies on a consistent basis without regard to items that may not exist
or do not directly affect our operating performance. You should not
consider EBITDA in isolation or as a substitute for net income or cash flow
from operations or other cash flow statement data determined in accordance
with GAAP. In addition, because EBITDA is not a measure of financial
performance under GAAP and is susceptible to varying calculations, the
EBITDA measure presented herein may differ from and may not be comparable
to similarly titled measures used by other companies.
The following are the components of "EBITDA" for the five years ended
December 31, 2003, and for the three and six months ended June 30, 2003 and
2004:
Three Months Six Months
Ended Ended
Year Ended December 31, June 30, June 30,
-------------------------------------------- -------------- -------------------
1999 2000 2001 2002 2003 2003 2004 2003 2004
---- ---- ---- ---- ---- ---- ---- ---- ----
Net income (loss) $67,276 $(30,341 $(30,026) $(9,507) $3,501 $(508) $(728) $(2,406) $(3,174)
Discounted operations, net of (52,545) -- -- -- -- -- -- -- --
income taxe
Cumulative effect of accounting -- -- -- 3,794 -- -- -- -- --
change, net of income taxes
Depreciation and amortization 22,232 25,600 25,054 15,518 15,546 4,061 3,298 8,114 7,000
Interest expense, net of 25,251 42,137 45,043 42,214 39,866 9,797 8,093 19,978 16,182
interest income
Loss on debt extinguishment 4,191 16,028 796 -- 1,803 -- 4,107 -- 10,655
Income tax expense (benefit) 12,763 (11,597) (15,151) (1,679) 6,248 (246) (1,198) (1,399) (2,784)
------ ------- -------- ------- ------ ----- ------- ------- -------
EBITDA $79,168 $41,827 $25,716 $50,340 $66,964 $13,104 $13,572 $24,287 $27,879
====== ======= ======== ======= ====== ======= ======= ====== =======
Historical results for the year ended December 31, 1999 include the results
from acquisitions made in 1999 from their respective acquisition dates.
These include the results for Imperial Group L.P. from April 29, 1999, EMI
Company from May 17, 1999, Clark Engineering and Manufacturing, Inc. from
September 30, 1999 and BMC Virginia, Inc. from October 21, 1999. If these
acquisitions had occurred on January 1, 1999, EBITDA in 1999 would have
been higher by $9.0 million.
-26-
(j) Our net income (loss) was affected by the unusual items presented in the
following table:
Three Months Six Months
Year Ended December 31, Ended Ended
June 30, June 30,
------------------------------------------ -------------- ------------------
1999 2000 2001 2002 2003 2003 2004 2003 2004
---- ---- ---- ---- ---- ---- ---- ---- ----
Selling, general and
administrative
expense (1)........... -- 4,137 -- -- 410 -- -- -- 280
Transaction related
costs (2)............. -- 14,335 1,592 -- -- -- -- -- --
Gain on sale of
rail assets (3)....... -- -- (5,000) -- (10,000) -- -- -- --
Restructuring
costs (4)............. -- 643 19,573 -- -- -- -- -- --
Net (gain) loss on
disposition of
property, plant
and equipment (5)..... -- -- -- -- (2,600) -- 2,203 -- 2,203
Reduction in
estimated
environmental
remediation
liability (6)......... -- -- -- -- (6,636) -- -- -- --
-------- -------- ------- ------- -------- ------- ------ ------- -------
Unusual items
(increasing)
decreasing EBITDA.... $ -- $19,115 $16,165 $ -- $(18,826) $ -- $2,203 $ -- $2,483
======== ======== ======= ======= ======== ======= ====== ======= =======
- -----------------------------------------------------------------------------------------------------------------
(1) Selling, general and administrative expense includes $4.1 million of
non-cash compensation in 2000 relating to the recapitalization of our
company (by way of a going-private transaction) in March of that year, $0.3
million for management bonuses related to the December 2003 transactions
and $0.1 million and $0.3 million in 2003 and 2004, respectively, related
to fees for the 2001 audit performed in connection with the offering.
(2) Transaction related costs include $14.3 million related to underwriting
expenses in 2000, and $1.6 million of expense related to the issuance of
$10.0 million in common stock and modification of our borrowing agreements
in 2001.
(3) We recorded gains from the sale of our residual ownership interest of our
former rail car business of $5.0 million in 2001 and $10.0 million in 2003.
(4) In 2000, we recorded $0.6 million of restructuring costs related to the
closure of our Fort Worth, Texas plating facility. In 2001, we recorded
$19.6 million of restructuring costs, which included $18.9 million of
non-cash fixed asset impairment charges and $0.7 million of employee
separation expenses. The costs related primarily to the closure of our
Erie, Pennsylvania iron casting and machining operation.
(5) In 2003, primarily represents a gain resulting from the sale of our
Emeryville, California plant. On October 30, 2003, we sold the real
property of our Emeryville, California plant for $6.5 million and moved the
operations into a leased facility in the area. The transaction resulted in
a net gain of $3.7 million and a mandatory prepayment of senior credit
facility term loans of $5.3 million. This $3.7 million gain was offset by
losses on dispositions of fixed assets of $1.1 million. In the quarter
ended June 30, 2004, the Company entered into negotiations with a buyer for
the sale of certain of its assets held for sale at its Erie, Pennsylvania
location at a price below carrying value. To comply with the requirements
of "SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets," the Company recorded an impairment loss of $2.2 million.
(6) In early 2003, we undertook a review, with assistance from third-party
specialists, of our environmental exposures. The review indicated that
there was a substantial reduction in our exposure at identified sites due
primarily to the inactive status or closure of many of the sites and
consent decrees obtained at certain of the sites. Accordingly, we reduced
our reserves relating to the sites by $6.6 million.
(k) For the purpose of calculating the ratio of earnings to fixed charges,
earnings represent pre-tax earnings from continuing operations, plus fixed
charges, less preferred dividends. Fixed charges consist of interest
expense, amortization of discounts, premiums and capitalized expenses
related to indebtedness and preferred dividends. During certain periods
presented, earnings were not sufficient to cover our fixed charges. For the
years ended December 31, 2000, 2001, 2002 and 2003, the deficiency was
$41.9 million, $45.2 million, $7.4 million and $0.0 million, respectively.
During the three months and six months ended June 30, 2003 and 2004, the
deficiency was $0.7 million, $3.8 million, $1.9 million and $6.0 million,
respectively.
-27-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Historical Consolidated Financial and Other Data" and our consolidated financial
statements and the notes thereto, all included elsewhere in this prospectus.
This section contains forward-looking statements that involve risks and
uncertainties. See "Forward-Looking Statements." Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of various factors, including those discussed below and elsewhere in this
prospectus, particularly under the heading "Risk Factors."
General Overview
We are one of the largest North American manufacturers of truck components
for the heavy- and medium-duty truck industries, including the bus and specialty
vehicle markets. We primarily serve the North American Class 8 truck market,
and, to a lesser extent, the Class 5-7 truck market and other industrial
markets.
We design, manufacture and market one of the broadest portfolios of truck
components in the industry. Our products include wheel-end components and
assemblies, truck body and chassis parts, seating assemblies and other truck
components. We also manufacture products for various industrial end-markets,
including farm implements and other industrial components. Our products are
marketed under what we believe are some of the most recognized brand names in
the industry, including Gunite, Imperial, Bostrom, Fabco and Brillion. Our
product portfolio is supported by a centralized sales and marketing department
and is manufactured in twelve strategically located facilities across the United
States.
Our sales are affected to a significant degree by the Class 8 truck market,
which is subject to significant fluctuations due to economic conditions, changes
in the alternative methods of transportation and other factors. There can be no
assurance that fluctuations in such markets will not have a material adverse
effect on our business, results of operations or financial condition.
We have one reportable segment: the design, manufacture and distribution of
component parts for heavy- and medium-duty trucks. We sell our products
primarily within North America to OEMs and to the aftermarket.
Recent Developments and Business Outlook
On May 21, 2004, we exchanged our outstanding $100.0 million aggregate
principal amount of old 15.0% senior subordinated notes due June 30, 2009 for
$100.0 million aggregate principal amount of new 12.5% senior subordinated notes
due March 31, 2010.
The commercial vehicle market continues to gain strength. Freight growth,
improved fleet profitability, equipment age, equipment utilization and continued
economic strength are driving order rates for new vehicles to levels not seen in
years. Current industry forecasts by analysts, including America's Commercial
Transportation ("ACT") Publications, predict that the North American truck
industry will continue to gain momentum in 2004.
Our operating challenges are to meet these higher levels of production and
combat rising raw material costs. In order to help mitigate these rising raw
material costs, we began to pass a portion of these costs through to our
customers in the form of price surcharges late in the first quarter of 2004.
Financial Statement Presentation
Net sales. Our net sales are generated from the sale of truck components to
the Class 8 truck market and, to a lesser extent, the Class 5-7 truck market and
other industrial markets. We refer to the Class 5-7 market and the Class 8
market collectively as the OEM market. The Class 8 truck market and the related
aftermarket are the primary drivers of our sales. These markets are, in turn,
directly influenced by conditions in the North American truck industry generally
and by overall economic growth and consumer spending. We also service a number
of other markets, including industrial, construction, agriculture and lawn and
garden, which are tied to general economic
-28-
conditions except for the agriculture market, which is tied to those
environmental and other factors that affect agricultural production.
Cost of sales. Our cost of sales includes the cost of raw materials such as
steel scrap, pig iron, electricity, coke, natural gas, silicon sand, binders,
sand additives, coated sand, sheet and formed steel, aluminum, bearings,
purchased components, fasteners, foam, fabric and tube steel. In 2003, these
materials accounted for 44% of our cost of sales with steel scrap and pig iron
constituting 23% of our raw materials costs. The availability and price of steel
scrap and pig iron are subject to market forces, including North American and
international demand, freight costs, speculation and foreign exchange rates.
With respect to our industrial components business, we generally have passed the
changes in the cost of these raw materials on to our customers through a
surcharge. During the first quarter of 2004, we began to implement surcharges
for our wheel-end business on a portion of the increases in these raw materials
costs. Our cost of sales also includes labor, utilities, freight, manufacturing
depreciation and other manufacturing costs.
Operating income. Operating income represents net sales less cost of sales,
selling, general and administrative expenses and other operating charges
(credits) such as restructuring costs, net loss on disposition of property,
plant and equipment and reduction in estimated environmental remediation
liabilities.
Results of Operations
Year Ended December 31,
--------------------------------------------------------------------------
2001 2002 2003
--------- ----------------------------------- ----------------------
(Dollars in thousands)
Net sales................ $391,401 100.0% $ 411,598 100.0% $440,009 100.0%
Gross profit............. 60,528 15.5% 71,495 17.4% 71,078 16.2%
Selling, general and
administrative expense. 43,701 11.2% 36,673 8.9% 38,896 8.8%
Other operating charges
(credits), net......... 19,573 5.0% -- -- (9,236) (2.1)
Operating income (loss).. (2,746) (0.7)% 34,822 8.5% 41,418 9.4%
Interest expense......... 45,640 11.7% 42,306 10.3% 40,362 9.2%
Other (income) expense,
net.................... (3,209) (0.8)% (92) -- (8,693) (2.0)
Income tax expense
(benefit).............. (15,151) (3.9)% (1,679) (0.4)% 6,248 1.4%
---------- -------- --------- ------- --------- --------
Net income (loss) before
cumulative effect of
accounting change...... (30,026) (7.7)% (5,713) (1.4)% 3,501 0.8%
Cumulative effect of
accounting change...... -- -- (3,794) (0.9)% -- --
---------- -------- --------- ------- --------- --------
Net income (loss)........ $(30,026) (7.7)% $(9,507) (2.3)% $3,501 0.8%
========== ======== ========= ======= ========= ========
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------------------------- ------------------------------------------------
2003 2004 2003 2004
---------- ------------------------------------ ----------------------- ---------------------
(Dollars in thousands)
Net sales................ $112,550 100.0% $144,788 100.0% $217,306 100.0% $279,56 100.0%
Gross profit............. 18,990 16.9% 22,933 15.8% 35,959 16.5% 44,230 15.8%
Selling, general and
administrative expense. 9,947 8.8% 10,456 7.2% 19,786 9.1% 21,148 7.6%
Other operating charges
(credits), net......... -- -- 2,203 1.5% -- -- 2,203 0.8%
Operating income (loss).. 9,043 8.0% 10,274 7.1% 16,173 7.4% 20,879 7.5%
Interest expense......... 9,805 8.7% 8,093 5.6% 20,368 9.4% 16,182 5.8%
Other (income) expense,
net.................... (8) -- 4,107 2.8% (390) (0.2)% 10,655 3.8%
Income tax expense
(benefit).............. (246) (0.2)% (1,198) (0.8)% (1,399) (0.6)% (2,784) (1.0)%
--------- ------- -------- ------- --------- ------- --------
Net income (loss) before
cumulative effect of
accounting change...... (508) (0.5)% (728) (0.5)% (2,406) (1.1)% (3,174) (1.1)%
Cumulative effect of
accounting change...... -- -- -- -- -- -- -- --
--------- ------- -------- ------- --------- ------- --------
Net income (loss)........ $ (508) (0.5)% $ (728) (0.5)% $(2,406) (1.1)% $(3,174) (1.1)%
========= ======= ======== ======= ========= ======= ========
Three months ended June 30, 2004 compared to three months ended June 30, 2003
Net sales. Net sales increased by $32.2 million, or 28.6%, in 2004 to
$144.8 million, compared to $112.6 million in 2003. Our net sales to the
aftermarket increased by $1.9 million, or 5.7%, to $35.0 million. Approximately
$1.4 million of this increase resulted from surcharges assessed on our wheel end
and industrial component aftermarket net sales to cover a portion of the
increase in material costs for the related production. We believe the remaining
increase results from a combination of factors including increasing truck fleet
age, increasing truck fleet utilization rates, increasing freight ton miles and
increases in our market share. Our net sales to the OEM market and other markets
increased by $30.3 million, or 38.1%, to $109.8 million. Approximately $3.4
million of this increase resulted from surcharges assessed on our wheel end and
industrial component net sales to the OEM market to cover a portion of the
material cost increase for related production. The remaining increase is due
primarily to the increase in the North American Class 5-8 truck build, which
increased 30.9%, compared to 2003.
Gross Profit. Gross profit increased by $3.9 million, or 20.5%, to $22.9
million in 2004 from $19.0 million in 2003. The favorable impact of higher sales
volume in 2004 was partially offset by the unfavorable net impact of higher
prices of raw materials, principally steel scrap, pig iron and wheel-end
production outsourcing, of $1.6 million.
Selling, general and administrative expenses. Selling, general and
administrative expenses, or SG&A, increased by $0.5 million, or 5.1%, to $10.5
million in 2004, from $9.9 million in 2003. The increase in these expenses
included a $0.2 increase in director and monitoring fees. The remaining increase
is primarily due to expenses associated with the increased sales volume. SG&A
decreased as a percentage of sales to 7.2% in the second quarter of 2004 from
8.8% in the same quarter of 2003.
Other operating charges (credits), net. Other operating charges (credits),
net in 2004 consisted of a $2.2 million impairment loss of our assets held for
sale at our Erie, Pennsylvania location. In June 2004, we entered into
-29-
negotiations with a buyer of these assets and this loss reflects the difference
between the expected proceeds and the carrying value of those assets.
Interest expense. Interest expense decreased by $1.7 million, or 17.3%, to
$8.1 million in 2004 compared to $9.8 million in 2003, due primarily to reduced
average senior subordinated borrowings, lower index rates and a reduction in the
amount of amortization of deferred financing fees.
Other (income) expense, net. Other (income) expense, net in 2004
represented $4.1 million of debt extinguishment costs resulting from the
write-off of deferred financing costs and discounts related to the retirement of
our old senior subordinated notes repaid in connection with the issuance of our
new $100.0 million senior subordinated notes.
Income tax expense (benefit). Our income tax benefit in 2004 was $1.2
million, compared to an income tax benefit of $0.2 million in 2003. Income tax
as a percentage of pre-tax income was 62.2% as compared to a federal statutory
rate of 35.0%. The primarily difference between our effective tax rate and the
federal statutory rate of 35.0%. The primarily difference between our effective
tax rate and the federal statutory rate was state income taxes of 4.5% and an
additional income tax benefit of $0.4 million due to the reduction of tax
reserves after the settlement of our IRS tax audit covering years 1997-2001.
Six months ended June 30, 2004 compared to six months ended June 30, 2003
Net sales. Net sales increased by $62.3 million, or 28.7%, in 2004 to
$279.6 million, compared to $217.3 million in 2003. Our net sales to the
aftermarket increased by $8.0 million, or 12.7%, to $70.9 million. Approximately
$1.9 million of this increase resulted from surcharges assessed on our wheel end
and industrial component aftermarket net sales to cover a portion of the
increase in material costs for the related production. We believe the remaining
increase results from a combination of factors including increasing truck fleet
age, increasing truck fleet utilization rates, increasing freight ton miles and
increases in our market share. Our net sales to the OEM market and other markets
increased by $54.2 million, or 35.1%, to $208.6 million. Approximately $5.1
million of this increase resulted from surcharges assessed on our wheel end and
industrial component net sales to the OEM market to cover a portion of the
material cost increase for related production. The remaining increase is due
primarily to the increase in the North American Class 5-8 truck build, which
increased 32.7%, compared to 2003.
Gross profit. Gross profit increased by $8.2 million, or 22.8%, to $44.2
million in 2004 from $36.0 million in 2003. The favorable impact of higher sales
volume in 2004 was partially offset by the unfavorable net impact of higher
prices of raw materials, principally steel scrap, pig iron and wheel end
production outsourcing, of $5.8 million.
Selling, general and administrative expenses. Selling, general and
administrative expenses, or SG&A, increased by $1.4 million, or 6.9%, to $21.1
million in 2004, from $19.8 million in 2003. The increase in these expenses was
primarily due to $0.6 million of fees for the reaudit of 2001 and increased
director and monitoring fees. The remaining increase is primarily due to
expenses associated with the increased sales volume. SG&A decreased as a
percentage of sales to 7.6% in the first six months of 2004 from 9.1% in the
same period of 2003.
Interest expense. Interest expense decreased by $4.2 million, or 20.3%, to
$16.2 million in 2004 compared to $20.4 million in 2003, due primarily to
reduced average senior subordinated borrowings, a lower effective interest rate
on our old senior credit facility due to the expiration of fixed interest rate
swaps, lower index rates, and a reduction in the amount of amortization of
deferred financing fees.
Other (income) expenses, net. Other (income) expense, net in 2004
represented $10.7 million of debt extinguishment costs resulting from the
write-off of deferred financing costs and debt discount related to retirement of
our old senior subordinated notes repaid in connection with the issuance of our
new senior subordinated notes in May 2004 and costs associated from the
write-off of deferred financing costs related to our old senior credit facility
which was refinanced in March 2004. Other (income) expense, net for 2003
consisted of $0.4 million of interest income.
-30-
Income tax expense (benefit). Our income tax benefit in 2004 was $2.8
million, compared to an income tax benefit of $1.4 million in 2003. Income tax
as a percentage of pre-tax income was 46.7% as compared to a federal statutory
rate of 35.0%. The primary difference between our effective tax rate and the
federal statutory rate was state income taxes of 4.5% and an additional income
tax benefit of $0.4 million due to the reduction of tax reserves after the
settlement of our IRS tax audit covering years 1997-2001.
Year ended December 31, 2003 compared to year ended December 31, 2002
Net sales. Net sales increased by $28.4 million, or 6.9%, in 2003 to $440.0
million, compared to $411.6 million in 2002. Our net sales to the aftermarket
increased by $18.1 million, or 17.5%, to $121.9 million. We believe this
increase resulted from a combination of factors including increasing truck fleet
age, truck fleet utilization rate, and freight tonmiles and increases in our
market share.
The improving economy is driving the increase in freight tonmiles and fleet
utilization. Our net sales to the OEM market increased by $10.2 million, or
3.3%, to $318.1 million compared to a 0.1% increase in North American Class 5-8
truck build. We believe the increase in OEM sales was due to increased market
share created by demand for our products and strong customer relationships.
Gross profit. Gross profit decreased by $0.4 million, or 0.6%, to $71.1
million in 2003 from $71.5 million in 2002. Gross profit margins were
unfavorably impacted during 2003, due primarily to higher costs for raw
materials and utilities, including steel scrap and other metals, electricity and
natural gas.
Selling, general and administrative expenses. SG&A increased by $2.2
million, or 6.1%, to $38.9 million in 2003, from $36.7 million in 2002. The
increase was largely attributable to increased healthcare expense for retirees
of $1.5 million due both to inflation and increased claims.
Other operating charges (credits), net. Other operating charges (credits),
net in 2003 totaled $9.2 million and consisted of $2.6 million from asset
dispositions (principally a $3.6 million gain on the sale of our Emeryville,
California plant) and a $6.6 million credit from the reduction in our estimated
environmental remediation liability. See Note 15 to our audited consolidated
financial statements included elsewhere in this prospectus.
Interest expense. Interest expense decreased by $1.9 million, or 4.6%, to
$40.4 million for 2003 compared to $42.3 million for 2002, due primarily to the
realization of a lower effective interest rate on our old senior credit
facility, resulting from the expiration of fixed interest rate swaps and lower
index rates, and the effect of lower average borrowings under our old senior
credit facility. This impact was partially offset by a $1.8 million increase in
interest expense due to the effect of increased average senior subordinated
borrowings.
Other (income) expense, net. Other (income) expense, net for 2003 of $8.7
million consisted of a $10.0 million gain on the sale of our railcar interest in
2001 which had been deferred until the buyers' right to sell the interest back
to us expired (see Note 19 to our audited consolidated financial statements
included elsewhere in this prospectus), $1.8 million loss on the retirement of
$40 million of our existing senior subordinated notes and $0.5 million of
interest income.
Income tax expense (benefit). Income taxes for 2003 were $6.2 million,
compared to an income tax benefit of $1.7 million in 2002. Income tax as a
percentage of pre-tax income was 64.1% as compared to a federal statutory rate
of 35.0%. The rate differential resulted primarily from the December 19, 2003
purchase of our existing senior subordinated notes by a group of our common
equity holders. This transaction was deemed a taxable transaction to us due to
the fact that the purchasers collectively held a majority of our common stock.
Net income (loss). We had net income of $3.5 million in 2003 compared to a
net loss of $9.5 million in 2002. As described under "--Critical Accounting
Policies and Estimates--Accounting for Goodwill," we recorded a goodwill
impairment of $3.8 million, net of tax of $2.4 million, as a cumulative effect
of a change in accounting principle at January 1, 2002. Before the cumulative
effect recorded upon adoption of SFAS 142, our net loss in 2002 was $5.7
million.
-31-
Year ended December 31, 2002 compared to year ended December 31, 2001
Net sales. Net sales increased by $20.2 million, or 5.2%, in 2002 to $411.6
million compared to $391.4 million in 2001. Our net sales to the aftermarket
increased by $9.1 million, or 9.6%, to $103.8 million. We believe this increase
is due primarily to our increased market share. Our net sales to the OEM market
and other markets increased by $11.1 million, or 3.7%, to $307.8 million as
compared to a 12.5% increase in North American Class 5-8 truck build. Certain of
our customers lost market share to competitors where we had less standard
content. As such, our net sales to OEMs were unfavorably impacted. Furthermore,
our net sales of steerable drive axles and gearboxes decreased by $6.8 million,
primarily as a result of the loss of standard position with one of our
customers.
Gross profit. Gross profit increased by $11.0 million, or 18.1%, to $71.5
million in 2002 from $60.5 million in 2001. Gross profit as a percentage of net
sales improved to 17.4% compared to 15.5% for 2001. The principal causes for the
improvement in our gross profit were the reduction in fixed costs related to the
closure of our Erie, Pennsylvania facility in mid-2001, improved material
pricing and other cost reductions resulting in operational efficiencies.
Selling, general and administrative expenses. SG&A decreased by $7.0
million, or 16.1%, to $36.7 million for 2002 from $43.7 million for 2001. This
decrease was primarily related to the adoption of FAS 142 on January 1, 2002
that eliminated the amortization of goodwill and intangible assets with
indefinite lives, which totaled $7.5 million in 2001.
Other operating charges (credits), net. There were no other operating
charges (credits), net for 2002. Other operating charges (credits), net for 2001
consisted of a restructuring charge of $19.6 million related to the closure of
our Erie, Pennsylvania facility. This charge included $18.9 million of a
non-cash fixed asset impairment write-off and $0.7 million of employee
separation expenses.
Interest expense. Interest expense decreased by $3.3 million, or 7.3%, to
$42.3 million for 2002 compared to $45.6 million for 2001, due primarily to the
effect of lower average borrowings under our old senior credit facility. This
decrease was partially offset by a $1.5 million increase in interest expense due
to the effect of increased average senior subordinated borrowings.
Other (income) expense, net. Other (income) expense, net for 2002 was $0.1
million of income as compared to $3.2 million of other income in 2001 consisting
of a $5.0 million gain on the sale of our railcar interest in 2001, $0.6 million
of interest income and $1.6 million of expenses related to the issuance of $10.0
million of our common stock.
Income tax expense (benefit). Income tax benefit for 2002 was $1.7 million.
The income tax benefit as a percentage of pre-tax loss was 22.7% as compared to
a federal statutory rate of 35.0%. The rate differential resulted primarily from
the write-off of a deferred tax asset related to compensation expense for stock
options that were recorded for book purposes as a charge to selling, general and
administrative expense in 2000 but deferred for tax purposes by the formation of
a rabbi trust. In 2002, the rabbi trust was distributed and, as a result of the
reduction in the value of our common stock, there was no compensation expense
deduction available for tax purposes, requiring the write-off. Income tax
benefit for 2001 was $15.2 million. Income tax as a percentage of pre-tax loss
was 33.5% as compared to a federal statutory rate of 35.0%.
Net income (loss). We had a net loss of $9.5 million in 2002 compared to a
net loss of $30.0 million in 2001. As described under "--Critical Accounting
Policies and Estimates--Accounting for Goodwill," we recorded a goodwill
impairment of $3.8 million, net of tax of $2.4 million, as a cumulative effect
of a change in accounting principle at January 1, 2002. Before the cumulative
effect recorded upon adoption of SFAS 142, our net loss in 2002 was $5.7
million.
Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from operations and
borrowings under our revolving credit facility. Our primary uses of cash are
funding working capital, capital expenditures and servicing debt.
-32-
We believe that the remaining availability under our senior credit
facilities and cash provided by operating activities will be sufficient to meet
our operating and capital requirements for at least the next twelve months. Our
continuing liquidity, however, is contingent upon future operating performance,
cash flows and our ability to continue to meet financial covenants under our
senior credit facilities. We may, from time to time, be required to raise
additional funds through public or private financing, strategic relationships or
other arrangements. There can be no assurance that funding, if needed, will be
available on terms attractive to us, or at all. Furthermore, any additional debt
financing, if available, may involve restrictive covenants. Our failure to raise
capital if and when needed could have a material adverse effect on our business,
results of operations and financial condition.
Sources and Uses of Cash
Our primary sources and uses of cash result from the collection of our
trade receivables and payment of trade accounts payable, payroll and other
operating accruals. During the quarter and six months ended June 30, 2004 and
during the three years ended December 31, 2003, the aging and composition of our
receivables remained substantially consistent. As such, changes in cash
generated from operations were driven by our overall changes in sales for those
respective periods. During the quarter and six months ended June 30, 2004 and
during the three years ended December 31, 2003, the aging of our payables and
the timing of payments to settle payroll and other operating accruals remained
substantially consistent. As such, changes in cash used from operations to
settle these liabilities were driven by our overall changes in production and
staffing levels.
In 2004, we expect to contribute $4.8 million to our pension plans and $2.3
million to pay post-retirement welfare benefits.
There have not been, and we do not expect, any material changes to the
underlying drivers of our operating cash flows.
Six months ended June 30, 2004
Net cash used in operating activities during the six months ended June 30,
2004 was a use of $3.4 million. Cash was provided by net income adjusted for
non-cash items. Working capital uses of cash included increases in accounts
receivable and inventory, partially offset by higher current liabilities. These
working capital changes resulted primarily from higher levels of business
activity.
Net investing activities for the six months ended June 30, 2004 and 2003
consisted of capital expenditures of $3.0 million and $8.8 million,
respectively. Our 2003 capital expenditures included $6.4 million that was
invested in the installation of both improved and incremental wheel-end and
other industrial component manufacturing capacity.
Net financing activities for the six months ended June 30, 2004 were a $6.4
million source of funds, consisting of $215.0 million of proceeds from our
senior secured term loan facilities and $8.0 million in net borrowings from our
revolving credit facility, offset by $0.3 in payments on our senior term loan
facility, $187.6 million in repayments on our old senior credit facility, $20.9
million in payments of our old senior subordinated notes and $7.8 million in
financing costs.
Year ended December 31, 2003
Net cash from operating activities during the years ended December 31, 2003
and 2002 were $7.8 million and $23.2 million, respectively. Cash was provided by
net income adjusted for non-cash items. Working capital uses of cash included
increases in accounts receivable and inventory, partially offset by higher
current liabilities. These working capital changes resulted primarily from
higher levels of business activity.
Net investing activities during the year ended December 31, 2003 were $8.4
million compared to $10.2 million for the year ended December 31, 2002. Our 2003
investing activities included $15.0 million of capital expenditures, consisting
of $9.6 million invested to complete the installation of both incremental
wheel-end and other industrial component manufacturing capacity, $0.8 million of
enterprise system upgrades, $0.6 million for light-
-33-
weight wheel-end hub manufacturing capacity and $4.0 million of maintenance and
continuous improvement initiatives. Investing expenditures were partially funded
by $6.7 million of cash proceeds from the sale of our plant in Emeryville,
California, which was relocated to a leased facility, and of a closed facility
in Fort Worth, Texas. Our 2002 investing activities consisted of $10.2 million
of capital expenditures, which included $4.2 million for a casting manufacturing
project, $0.4 million for our enterprise system upgrade project and $0.2 million
for the lightweight iron hub project described above, as well as $5.4 million
for maintenance and continuous improvement initiatives.
We expect our capital expenditures to be approximately $10.5 million in
2004. We anticipate that these expenditures will fund (1) investments in new
product tooling of approximately $2.3 million for our new C-Series seat line and
lightweight wheel-ends, (2) equipment and facility maintenance of approximately
$4.5 million and (3) capacity expansion and continuous improvement initiatives
of approximately $3.7 million.
We are evaluating the applicability of the final Iron and Steel Foundry
National Emission Standard for Hazardous Air Pollutants, or NESHAP, to our
foundry operations. If applicable, compliance with the NESHAP may result in
future significant capital costs, which we currently expect to be between $5.0
million and $10.0 million during the period 2005 through 2007, which amount has
been included in our capital expenditure budgets for the relevant years. See
"Business--Environmental Matters."
Net financing activities for the year ended December 31, 2003 were $13.5
million, including $12.0 million of net revolver borrowings, $23.9 million of
repayments of our old senior credit facilities and $2.6 million of deferred
financing fees for debt agreement amendments and equity issuance costs. The
equity issuance costs were recorded in connection with the issuance of $41.5
million of our Series E Preferred Stock in exchange for the retirement of $40.0
million in face value of our existing senior subordinated notes, $0.5 million of
accrued interest and $1.0 million in cash.
Our Senior Credit Facilities
On March 16, 2004, we entered into senior credit facilities consisting of a
five-year $50.0 million first lien revolving credit facility, a five-year $115.0
million first lien term loan facility and a five-year $100.0 million second lien
term loan facility. The first lien term loan facility is to be repaid on a
quarterly basis with 1% of the principal amount being repaid in each of the
first four years, 1% of the principal amount being amortized in each of the
first three quarters of the fifth year and the remainder repaid upon maturity at
the end of the fifth year. The second lien term loan facility has no
amortization requirements. Subject to certain exceptions, we will be required to
make mandatory repayments of and corresponding reductions under the first lien
term loan facility (and, after the first lien facilities have been repaid in
full, the second lien term loan facility) with the proceeds from (1) asset
sales, (2) the issuance of debt securities, (3) equity issuances, (4) insurance
and condemnation awards and (5) annual excess cash flow.
Our senior credit facilities bear interest at a rate per annum equal to, at
our election, either (1) Credit Suisse First Boston's "base rate" plus a certain
margin or (2) LIBOR plus a certain margin. Our senior credit facilities impose
certain restrictions on us and our subsidiaries, including restrictions on our
ability to incur indebtedness, pay dividends, make investments, engage in
transactions with affiliates, sell assets and merge or consolidate. All
obligations under our senior credit facilities are jointly and severally
guaranteed by all of our direct and indirect domestic subsidiaries.
As of June 30, 2004, we had $23.1 million of availability under our
revolving credit facility, after consideration of outstanding letters of credit
and borrowings.
Contractual Obligations and Commercial Commitments
The following table summarizes our contractual obligations as of December
31, 2003, and the effect such obligations and commitments are expected to have
on our liquidity and cash flow in future periods:
-34-
Payments due by Period
------------------------------------------------------------
Less than More than
Total 1 year 1-3 years 3-5 years 5 years
--------- ---------- ---------- --------- ------------
(dollars in millions)
Long-term debt(a)................................. $311.6 $19.5 $136.3 $31.8 $124.0
Operating leases.................................. 24.8 4.2 6.3 3.5 10.8
Other long-term liabilities(b).................... 50.1 7.1 11.1 14.5 17.4
--------- ---------- ---------- ---------- ------------
Total obligations............................ $386.5 $30.8 $153.7 $49.8 $152.2
========= ========== ========== ========== ============
- ---------------------------------------------------------------------------------------------------------------------
(a) On March 16, 2004, we refinanced our old senior credit facility, changing
scheduled amortization of long-term debt to $0.9 million in 2004, $3.6
million for the two years ending December 31, 2006, $211.6 million for the
two years ending December 31, 2008 and $103.1 million thereafter. See
"--Our Senior Credit Facilities."
(b) Consists of post-retirement estimated future benefit payments and estimated
pension contributions.
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements include our operating leases and letters
of credit. Our operating leases are comprised of long-term real property and
equipment leases that expire at various dates through 2015. Our total future
minimum lease payments are $24.8 million. Items such as maintenance and
insurance costs are not included in this amount. See Note 14 to our audited
consolidated financial statements included elsewhere in this prospectus and
"--Contractual Obligations and Commercial Commitments." We had $15.9 million and
$18.9 million in outstanding letters of credit as of December 31, 2003 and June
30, 2004, respectively. Our letters of credit are used primarily to secure
workers' compensation liabilities and industrial revenue bonds. See "Description
of Certain Indebtedness--Industrial Revenue Bonds."
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. Our consolidated financial statements and accompanying notes have
been prepared in accordance with generally accepted accounting principles, or
GAAP, applied on a consistent basis. The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, net sales and expenses and
related disclosures of contingent assets and liabilities during the reporting
periods.
We continually evaluate our accounting policies and the estimates we use to
prepare our consolidated financial statements. In general, management's
estimates are based on historical experience and on various other assumptions
that are believed to be reasonable under the facts and circumstances. Actual
results could differ from those estimates made by management.
We believe our critical accounting policies and estimates include
accounting for goodwill, pensions and post-retirement benefits, taxes and
contingencies.
Accounting for Goodwill. Since the adoption of SFAS 142 on January 1, 2002,
we no longer amortize goodwill but instead test annually for impairment as
required by SFAS 142. If the carrying value of goodwill exceeds its fair value,
an impairment loss must be recognized. A present value technique is often the
best available technique with which to estimate the fair value of a group of
assets. The use of a present value technique requires the use of estimates of
future cash flows. These cash flow estimates incorporate assumptions that
marketplace participants would use in their estimates of fair value as well as
our own assumptions. These cash flow estimates are based on reasonable and
supportable assumptions and consider all available evidence. However, there is
inherent uncertainty in estimating future cash flows and termination values. As
a result, several different terminal values are used in our calculations and the
likelihood of possible outcomes is considered.
-35-
Pensions and Post-retirement Benefits. We provide pension and retiree
welfare benefits to certain salaried and hourly employees upon their retirement.
The most significant assumptions in determining our net periodic benefit costs
are the expected return on pension plan assets and the healthcare cost trend
rate for our post-retirement welfare obligations.
In 2003, we assumed that the expected long-term rate of return on pension
plan assets would be 9.0%. As permitted under paragraph 30 of SFAS 87, the
assumed long-term rate of return on assets is applied to a calculated value of
plan assets, which recognizes changes in the fair value of plan assets in a
systematic manner over five years. This produces the expected return on plan
assets that is included in our net periodic benefit cost. The difference between
this expected return and the actual return on plan assets is deferred. The net
deferral of past asset gains (losses) affects the calculated value of plan
assets and, ultimately, future net periodic benefit cost. The expected return on
plan assets is reviewed annually and, if conditions should warrant, would be
revised. A change of one percentage point in the expected long-term rate of
return on plan assets would have the following effect:
1% increase 1% decrease
----------- -----------
(Dollars in thousands)
Effect on net periodic benefit cost........ $(495) $489
For our post-retirement welfare plans, we assumed a 10.0% annual rate of
increase in healthcare costs for 2004, with the rate of increase declining
gradually to an ultimate rate of 5.0% by the year 2008 and remaining at that
level thereafter. The healthcare cost trend is reviewed annually and, if
conditions should warrant, would be revised. A change of one percentage point in
the expected healthcare trend would have the following effect:
1% increase 1% decrease
----------- -----------
(Dollars in thousands)
Effect on total of service and interest cost... $ 391 $ (353)
Effect on post-retirement benefit obligation... 3,938 (3,544)
At the end of each year, we determine the discount rate to be used to
calculate the present value of our pension and post-retirement welfare plan
liabilities. The discount rate is an estimate of the current interest rate at
which our pension liabilities could be effectively settled at the end of the
year. In estimating this rate, we look to rates of return on high-quality,
fixed-income investments that receive one of the two highest ratings given by a
recognized ratings agency. At December 31, 2003, we determined this rate to be
6.25%, a decrease of 0.5% from the 6.75% rate used at December 31, 2002.
For the years ended December 31, 2003 and 2002, we recognized consolidated
pre-tax pension cost of $0.6 million. We currently expect that the consolidated
pension cost for 2004 will be approximately $1.0 million. We currently expect to
contribute $4.8 million to our pension plans during 2004; however, we may elect
to adjust the level of contributions based on a number of factors, including
performance of pension investments, changes in interest rates and changes in
workforce compensation.
For the year ended December 31, 2003, we recognized a consolidated pre-tax
post-retirement welfare benefit cost of $3.5 million, up from $2.0 million in
2002. We currently expect that the consolidated post-retirement welfare benefit
cost for 2004 will be approximately $3.8 million. We expect to pay $2.3 million
during 2004 in post-retirement welfare benefits.
Taxes. Management judgment is required in developing our provision for
income taxes, including the determination of deferred tax assets, liabilities
and any valuation allowances recorded against the deferred tax assets. We
evaluate quarterly the realizability of our deferred tax assets by assessing the
valuation allowance and adjusting the amount of such allowance, if necessary.
The factors used to assess the likelihood of realization are our forecast of
future taxable income and the availability of tax planning strategies that can
be implemented to realize the deferred tax assets. Failure to achieve forecasted
taxable income might affect the ultimate realization of the deferred tax assets.
Factors that may affect our ability to achieve sufficient forecasted taxable
income include, but are not limited to, increased competition, a decline in
sales or margins and loss of market share.
-36-
At December 31, 2003, we had total deferred tax assets of $32.1 million.
Although realization of our deferred tax assets is not certain, management has
concluded that we will more likely than not realize the full benefit of the
deferred tax assets.
Contingencies. We are subject to the possibility of various loss
contingencies arising in the ordinary course of business resulting from a
variety of environmental and pollution control laws and regulations. We consider
the likelihood of loss or the incurrence of a liability, as well as our ability
to reasonably estimate the amounts of loss, in determination of loss
contingencies. We accrue an estimated loss contingency when it is probable that
a liability has been incurred and the amount of loss can be reasonably
estimated. We regularly evaluate current information available to us, resulting
from our ongoing monitoring activities and progress with the related regulatory
agencies, to determine whether the accruals should be adjusted. If the amount of
the actual loss is greater than the amount we have accrued, this would have an
adverse impact on our operating results in that period.
Recent Accounting Pronouncements
o Derivative Instruments and Hedging. On April 30, 2003, the Financial
Accounting Standards Board, or FASB, issued SFAS 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities." The
statement amends and clarifies derivative instruments embedded in other
contracts, and for hedging activities under Statement 133. SFAS 149 was
effective for us on a prospective basis for contracts entered into or
modified and for hedging relationships designated for fiscal periods
beginning after June 30, 2003. This statement had, and is expected to have,
no effect on our consolidated financial statements.
o Classification of Financial Instruments. On May 15, 2003, the FASB issued
SFAS 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity." This statement establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its
scope as a liability, even though it might previously have been classified
as equity. SFAS 150 was effective for financial instruments entered into or
modified after May 31, 2003, and applies to all financial instruments in
the first interim period beginning after June 15, 2003. This statement had,
and is expected to have, no effect on our consolidated financial
statements.
o Variable Interest Entities. On December 24, 2003, the FASB issued a
revision to Interpretation 46 (FIN 46R) to clarify some of the provisions
of FASB Interpretation 46, "Consolidation of Variable Interest Entities."
The term "variable interest" is defined in FIN 46 as "contractual,
ownership or other pecuniary interest in an entity that change with changes
in the entity's net asset value." Variable interests are investments or
other interests that will absorb a portion of an entity's expected losses
if they occur or receive portions of the entity's expected residual returns
if they occur. FIN 46R defers the effective date of FIN 46 for certain
entities and makes several other changes to FIN 46. We do not expect the
recognition provisions of FIN 46 or FIN 46R to have an impact on our
business, results of operations or financial position. This statement had,
and is expected to have, no effect on our consolidated financial
statements.
o Post-retirement Benefits. On December 8, 2003, the Medicare Prescription
Drug Improvement and Modernization Act became effective, which introduced a
prescription drug benefit under Medicare (Medicare Part D) as well as a
federal subsidy to sponsors of retiree healthcare benefit plans that
provide a benefit that is at least actuarially equivalent to Medicare Part
D. SFAS 106, "Employers' Accounting for Post-retirement Benefits Other Than
Pensions," requires presently enacted changes in relevant laws to be
considered in current period measurements of post-retirement benefit costs
and the post-retirement benefit obligation. However, specific authoritative
guidance on the accounting for the federal subsidy is currently pending,
and we have elected to defer accounting for the effects of this
pronouncement as allowed by this staff position. It is not certain at this
time what effects this law and pronouncement will have on our business,
results of operations or financial position.
-37-
Quantitative and Qualitative Disclosures About Market Risk
Our market sensitive instruments do not subject us to material market risk
exposures except as such risks relate to interest rate fluctuations. As of
December 31, 2003, we had debt outstanding with a carrying value of $309.1
million. The estimated fair value of this debt was $311.6 million. Fixed
interest rate debt outstanding as of December 31, 2003 represented 38.3% of
total debt, carried an average interest rate of 15.0% and would have matured in
2009. Variable interest rate debt outstanding as of December 31, 2003 had an
average interest rate at that date of 5.7% and would have matured as follows:
$19.5 million in 2004, $35.0 million in 2005, $101.3 million in 2006, $31.8
million in 2007 and $3.1 million thereafter.
On June 30, 2004, we had debt outstanding with a carrying value of $325.8
million. The estimated fair value of this debt was $328.3 million. Fixed
interest rate debt outstanding as of June 30, 2004 represented 30.7% of total
debt, carried an average interest rate of 12.5% and matures in 2010. Variable
interest rate debt outstanding as of June 30, 2004 had an average interest rate
at 6.6% and matures as follows: $0.6 million in 2004, $1.2 million in 2005, $1.2
million in 2006, $1.2 million in 2007, $3.7 million in 2008 and $214.7 million
thereafter. A change in interest rates of 1.0% would result in a $2.3 million
increase or $1.3 million decrease in interest expense on an annual basis.
In April 2004, we entered into an interest rate cap on $59.0 million of our
senior secured credit facility term loans at a fixed LIBOR rate of 3% from
October 16, 2004 through March 16, 2005 to fix a portion of our variable rate
senior credit facilities.
Hedging
We are not a party to any hedging agreements or arrangements other than the
interest rate cap described above.
-38-
INDUSTRY
We compete in the North American truck components industry and primarily
serve the Class 8 truck market and, to a lesser extent, the Class 5-7 truck
market and other industrial markets. We sell our products primarily to truck
OEMs (51% of 2003 net sales) and the related aftermarket (28% of 2003 net
sales), with the remainder of sales made to customers in industrial markets. Our
net sales as a percentage of total sales to the Class 8 OEM, Class 5-7 OEM and
other industrial markets were 36%, 15% and 21%, respectively, in 2003. Foreign
competition is relatively limited in the markets in which we compete due to
factors including high shipping costs, customer concerns about quality given the
safety aspects of many of our products, the need to be responsive to order
changes on short notice and the small labor component to most products. The
following is an overview of the truck components industry and each of the
markets that we serve. Whenever we refer to trucks, truck production and the
truck and truck components industries and markets we mean North American trucks,
truck production and truck and truck components industries and markets.
Truck Components Industry
The truck components industry is comprised of heavy- and medium-duty truck
components suppliers. The truck components industry is highly fragmented and
comprised of several large companies and many smaller companies. In addition,
the heavy-duty truck components industry is characterized by relatively low
production volumes as well as considerable barriers to entry, including the
following: (1) significant capital investment requirements, (2) stringent OEM
technical and manufacturing requirements, (3) high switching costs to shift
production to new suppliers, (4) just-in-time, or JIT, delivery requirements to
meet OEM volume demand and (5) strong name-brand recognition.
The relationship between supplier and OEM generally tends to be close,
cooperative and long-term in nature, requiring a substantial investment of time
and resources by both parties. In many cases, a supplier's components are made
standard equipment on an OEM's product line, further solidifying the
relationship. Once a component is chosen as standard on a line of trucks, any
truck ordered in that line will come with the standard component unless the end
user specifically requests a different product, which generally results in the
payment of an additional charge by the end user to the OEM. As a result, the
selection of a product as standard on a line of trucks will generally create a
steady demand for that product, both in the OEM market and in the aftermarket,
since end users are more likely to use the standard component for replacement.
Commercial Truck Market Overview
Commercial trucks are segmented into four major classes numbered 5 through
8. Medium-duty trucks, segmented into classes 5, 6 and 7, include buses and
smaller transport vehicles, and are primarily used for regional package
delivery, utility or construction. Heavy-duty trucks, or the Class 8 category,
are used for the large majority of all truck tonmiles (the number of miles
driven multiplied by the number of tons transported). While the majority of
these tonmiles are long haul, Class 8 trucks also fill a niche as a regional
delivery alternative.
Class 5 Class 6 Class 7 Class 8
------- ------- ------- -------
Weight (lbs.)........................ 16,001-19,500 19,501-26,000 26,001-33,000 Over 33,000
Example.............................. Delivery Trucks Beverage Trucks Garbage Trucks Tractor-trailers
Units................................ 38,748 68,293 88,982 176,774
- ----------------------------------------------------------------------------------------------------------------------
Note: Units represent 2003 production levels as reported in ACT Research (August
2004).
Class 8 Truck Market
The global Class 8 truck manufacturing market is concentrated in three
primary regions: North America, Asia-Pacific and Europe. We believe that North
America has the largest truck market of these three regions. The global Class 8
truck market is localized in nature due to the following factors: (1) the
prohibitive costs of shipping components from one region to another, (2) the
high degree of customization of Class 8 trucks to meet the region-specific
demands of end users, (3) the localized nature of regulation of the truck and
truck components industries and (4) the ability to meet JIT delivery.
-39-
According to ACT, four companies represented approximately 99% of North
American Class 8 truck production in 2003. The percentages of Class 8 production
represented by Freightliner, PACCAR, Volvo/ Mack and International were 39%,
25%, 19% and 16%, respectively.
The following chart illustrates historical North American Class 8 truck
production as well as forecasts from ACT:
North American Class 8 Truck Production
[Chart displaying North American Class 8 truck production actual totals for each
year from 1996 to 2003 and estimated totals for each year from 2004 to 2008.
Production numbers for each year are displayed in thousands and are as follows:
1996 - 194
1997 - 224
1998 - 267
1999 - 333
2000 - 252
2001 - 146
2002 - 181
2003 - 177
2004 - 263
2005 - 322
2006 - 343
2007 - 283
2008 - 351]
"E"--Estimated
Source: ACT Research (February, April and August 2004).
Historical and Projected Class 8 Truck Results
The North American Class 8 truck industry experienced substantial growth
during the 1990s, reaching a peak in 1999 with 332,587 production units. From
mid-2000 through 2001, the industry experienced a significant cyclical decline
caused by a number of events:
(1) the recessionary economic environment;
(2) the large number of new trucks introduced into the truck fleet
from 1998 to early 2000, due in part to specific marketing programs such as
buyback guarantees offered by the major truck manufacturers; and
(3) the large number of quality used trucks available at relatively
low prices.
These factors resulted in 2001 unit production declining approximately 56%
from peak unit production in 1999.
Following the substantial decline from 1999 to 2001, truck unit production
increased modestly to 181,199 units in 2002 from 145,978 units produced in 2001,
due primarily to the pre-buying of trucks that occurred prior to the October
2002 mandate for more stringent engine emissions requirements. Subsequent to the
pre-buy, truck
-40-
production continued to remain at historically low levels due to the continuing
economic recession and the reluctance of many trucking companies to invest in
the more expensive and newly compliant equipment.
North American Class 8 truck production of 176,774 units in 2003 remained
substantially similar to 2002 production. During the first half of 2003, the
economy remained in its recessionary mode as the United States commenced war in
Iraq. New truck purchases remained subdued, and the age of the average truck on
the road continued to increase. In mid-2003, evidence of renewed growth emerged
and truck tonmiles began to increase. Accompanying the increase in truck
tonmiles, new truck sales also began to increase. In the second half of 2003,
new truck dealer inventories declined and, consequently, OEM truck order
backlogs began to increase. According to ACT, monthly truck order rates began
increasing significantly in December 2003 and have continued to do so since.
Class 8 net truck orders for the first seven months of 2004 were 222,885 units,
up 98.9% from 112,070 units in the same period in 2003. Since 2003, all of the
major OEMs have increased their truck build rates to meet the increased demand.
The following chart illustrates North American Class 8 truck orders, truck
build and backlog for the first six months of 2004 compared to the same period
in 2003:
North American Class 8 Truck Orders, Truck Build and Backlog
[Chart comparing year to date 2004 North American Class 8 Truck Orders and Truck
Build figures against the same period from 2003 and July 2004 North American
Class 8 Backlog figures against July 2003 figures.
For year to date 2004, the chart indicates that Truck Orders increased 99% to
222,900 units compared to 112,100 for the same period in 2003.
For year to date 2004, the chart indicates that Truck Build increased 43% to
136,900 units compared to 95,700 units for the same period in 2003.
For July 2004, the chart indicates that Backlog increased 156% to 148,600 units
compared to 58,100 units for the same period in 2003.]
Source: "ACT Research-- State of the Industry Series: #1--N.A. Classes 5-8
Vehicles--July and Year to Date 2004" (August 2004).
According to ACT, unit production for 2004 is estimated to increase
approximately 48.7% over 2003 levels to 262,887 units. According to the same
source, truck unit production is expected to continue increasing in 2005 and
2006, with projected unit production of 321,544 units and 343,407 units,
respectively. We believe that this projected increase is due to factors
including (1) improvement in the general economy in North America, which is
ex-
-41-
pected to lead to growth in the industrial sector, (2) corresponding growth in
the movement of goods, which is expected to lead to demand for new trucks and
(3) the growing need to replace aging truck fleets.
ACT forecasts that production in 2007 will be 283,384 units, a decline of
approximately 17% from 2006 levels, due to new environmental standards that are
expected to be introduced by the U.S. Environmental Protection Agency in 2007.
This decline would be similar in nature to what occurred after October 2002
following the introduction of the new EPA standards. ACT projects that 2008
production will reach 350,914 units, an increase of approximately 24% from 2007
levels. We believe that this increase in volume is consistent with a sustained
improvement in economic conditions and ACT's projected growth in Class 8
tonmiles.
Industry Drivers
Economic Conditions
The North American truck industry is directly influenced by overall
economic growth and consumer spending. Since truck OEMs supply the fleet lines
of North America, their production levels generally match the demand for
freight. The freight carried by these trucks includes consumer goods, machinery,
food and beverages, construction equipment and supplies, electronic equipment
and a wide variety of other materials. Since most of these items are driven by
macroeconomic conditions, the truck industry tends to follow trends of gross
domestic product, or GDP. Generally, given the dependence of North American
shippers on trucking as a freight alternative, general economic conditions have
been a primary indicator of future truck builds.
Truck Freight Growth
ACT projects that total domestic truck freight will continue to increase
over the next five years, driven by growth in GDP. ACT forecasts that total
heavy-duty truck tonmiles are projected to increase from 2,529 billion in 2003
to 3,083 billion in 2008, as summarized in the following graph:
[Chart displaying U.S. Class 8 tonmiles totals for each year from 1994 to 2003
and estimated totals for each year from 2004 to 2008. Tonmiles for each year are
displayed in billions and are as follows:
1994 - 2,276
1995 - 2,276
1996 - 2,346
1997 - 2,432
1998 - 2,537
1999 - 2,581
2000 - 2,612
2001 - 2,565
2002 - 2,499
2003 - 2,529
2004 - 2,626
2005 - 2,735
2006 - 2,827
2007 - 2,976
2008 - 3,083]
"E"--Estimated
Source: Freight Transportation Research Associates (April 2004);
"ACT-Publications--Commercial Truck, Bus, and Trailer Industry Outlook"
(August 2004).
National suppliers and distribution centers, burdened by the pricing
pressure of large manufacturing and retail customers, have continued to reduce
on-site inventory levels. This reduction requires freight handlers to provide
"to-the-hour" delivery options in order to maintain operating efficiency. As a
result, Class 8 heavy-duty trucks have replaced manufacturing warehouses as the
preferred temporary storage facility for inventory. Since trucks are typically
viewed as the most reliable and flexible shipping alternative, truck tonmiles,
as well as truck platform improvements, should continue to increase in order to
meet the increasing need for flexibility under the JIT system.
-42-
Truck Replacement Cycle and Fleet Aging
In 2002, the average age of Class 8 trucks passed the ten-year average of
5.5 years. In 2003, the average age increased further to 5.9 years. The average
fleet age tends to run in cycles as freight companies permit their truck fleets
to age during periods of lagging demand and then replenish those fleets during
periods of increasing demand. Additionally, as truck fleets age, their
maintenance costs increase. Freight companies must therefore continually
evaluate the economics between repair and replacement. Other factors such as
inventory management and the growth in less-than-truckload, or LTL, freight
shipping also tend to increase fleet mileage and, as a result, the truck
replacement cycle. The chart below illustrates the average age of active U.S.
heavy-duty trucks:
Average Age of Active U.S. Heavy-Duty Trucks
[Chart displaying the average age of U.S. heavy-duty trucks for each year from
1994 to 2003. The average age figures are displayed in numbers of years and are
as follows:
1994 - 5.6
1995 - 5.4
1996 - 5.4
1997 - 5.5
1998 - 5.5
1999 - 5.3
2000 - 5.3
2001 - 5.5
2002 - 5.7
2003 - 5.9]
Source: ACT Research (2004).
Suppliers' Relationships with OEMs
Supplier relationships with OEMs are long-term, close and cooperative in
nature. OEMs must expend both time and resources to work with suppliers to form
an efficient and trusted operating relationship. Following this investment, and
in some cases, the designation of a supplier as standard, OEMs are typically
hesitant to change suppliers given the potential for disruptions in production.
Growth in the Aftermarket for Components
Aftermarket sales are tied to the age and number of vehicles in service,
the need for replacement parts and total tonmiles. The aftermarket is a growing
market as the overall size of the North American fleet of Class 8 trucks has
continued to increase and is attractive because of the recurring nature of the
sales. Additionally, aftermarket sales tend to be at a higher margin, as truck
component suppliers are able to leverage their already established fixed cost
base and exert moderate pricing power with their replacement parts. The
recurring nature of aftermarket revenue provides some insulation to the overall
cyclical nature of the industry, as it tends to provide a more stable stream of
earnings.
Class 5-7 Truck Market
Class 5-7 trucks, which include buses and specialty vehicles, are smaller,
less expensive vehicles that are generally used for short haul and more
commodity-like hauling, which fluctuate less with changes in the economy. The
Class 5-7 truck market produced an estimated 268,109 units in 1999 and 185,242
units in 2001, and has grown since 2001 to an estimated 196,023 units in 2003.
This market is forecasted by ACT to continue to grow over the next four years,
reaching an estimated 287,226 units in 2008.
-43-
Various Industrial Markets
We also service a number of other markets, including industrial,
construction, agriculture and lawn and garden. With the exception of the
agriculture market, these markets are tied to general economic conditions. The
agriculture market is tied to those environmental and other factors which impact
agricultural production.
-44-
BUSINESS
The Company
We are one of the largest North American manufacturers of truck components
for the heavy- and medium-duty truck industries, including the bus and specialty
vehicle markets. We primarily serve the North American Class 8 truck market,
and, to a lesser extent, the Class 5-7 truck market and other industrial
markets. We sell our products to substantially all of the Class 8 OEMs, which
include (1) PACCAR, with its Peterbilt and Kenworth brand trucks, (2)
Freightliner, with its Freightliner, Sterling and Western Star brand trucks, (3)
International, with its International brand trucks, and (4) Volvo/Mack, with its
Volvo and Mack brand trucks. We believe that our reputation for design, quality,
customer service, timely delivery and advanced manufacturing capabilities has
helped us to develop strong, longstanding relationships with the leading OEMs in
the industry, and we remain committed to continuing to build and grow these
relationships.
Our strategy of focusing on the truck components industry has enabled us to
grow into one of the leading truck components manufacturers in North America and
to develop TTI as a trusted name for quality and service. We design, manufacture
and market one of the broadest portfolios of truck components in the industry.
Our products include wheel-end components and assemblies, truck body and chassis
parts, seating assemblies and other truck components. We also manufacture
products for various industrial end-markets, including industrial components and
farm implements. Our products are marketed under what we believe are some of the
most recognized brand names in the industry, including Gunite, Imperial,
Bostrom, Fabco and Brillion. Our product portfolio is supported by a centralized
sales and marketing department and is manufactured in twelve strategically
located facilities across the United States.
We were founded as Johnstown America Industries, Inc. in 1991 with the
purchase of Bethlehem Steel Corporation's freight car manufacturing operations.
After an initial public offering in July 1993, we made a series of acquisitions
in the truck components industry--including the acquisitions of our Gunite,
Imperial, Bostrom, Fabco and Brillion product lines--which we completed between
1995 and 1999. In June 1999, we sold our freight car operations and thereafter
changed our name to Transportation Technologies Industries, Inc. In March 2000,
we were acquired in a going-private transaction by an investor group led by our
management (which management was comprised of the same executive officers as our
current management team) and Trimaran Capital Partners, L.L.C.
Competitive Strengths
By capitalizing on our strengths, we have grown into one of North America's
largest manufacturers of components to the heavy- and medium-duty truck
industries, including the bus and specialty vehicle markets. These strengths
include:
o Leading and Sustainable Market Positions. We believe that substantially all
Class 8 truck models manufactured in North America contain one or more TTI
components. We believe that we have a number one or number two market
position in North America for many of our product lines, which include some
of the most recognized brand names in the industry for quality and
performance. These product lines represented approximately two-thirds of
our net sales to the Class 5-8 truck OEM markets in 2003. We are also often
the sole-source supplier to our major customers. We believe that our
leading supplier position across a number of product lines and our strong
reputation for product design, product quality, on-time delivery and
competitive pricing provide us with a competitive advantage. Our North
American number one or number two market positions in 2003 are as follows:
-45-
Market
Product Brand Position
- ------- ----- --------
Brake drums......................... Gunite #1
Disc wheel hubs..................... Gunite #1
Spoke wheels........................ Gunite #1
Metal grill and crown assemblies.... Imperial #1
Chrome plating and polishing........ Imperial #1
Metal bumpers....................... Imperial #2
Fuel tanks.......................... Imperial #2
Seating assemblies.................. Bostrom #2
We currently face limited foreign competition in our industry, and we do
not expect this to change due to factors including (1) the high cost of shipping
due to the considerable weight and size of many of our products, (2) the concern
about inferior quality in foreign-manufactured truck components by our customers
and end users of our products, particularly given the safety aspect of many of
those products, (3) the need for truck component suppliers to be responsive to
order changes on short notice, (4) the low production volume and high number of
SKUs that we produce and (5) the small labor component to our products.
o Diverse Product Mix. We offer a broad array of products and services to the
heavy- and medium-duty truck industries, resulting in a diverse product
mix. In 2003, we produced more than 19,000 SKUs. We believe that our
substantial product breadth provides us with a competitive advantage
because it allows us to meet more of our customers' demands as they
increasingly seek to outsource and streamline their supplier base. Our
diverse product mix enables us to access various end-markets, including
heavy- and medium-duty truck (including bus and specialty vehicle), as well
as truck aftermarket, agriculture, construction and lawn and garden.
o Strong Customer Relationships. Our focus on providing high-quality products
across our broad platform has enabled us to develop longstanding
relationships with our customer base. Our centralized sales and marketing
department enables us to provide our customers with the valued convenience
of "one-stop shopping" for our entire product portfolio. Our reputation for
design, quality, customer service, timely delivery and advanced
manufacturing capabilities has positioned us well with leading truck OEMs
such as PACCAR, Freightliner, International and Volvo/Mack. We and our
predecessors have relationships with each of these manufacturers going back
at least 45 years. We provide standard content to a majority of truck
platforms at each of our major customers, providing us with a recurring
revenue base. The strength of our reputation is further evidenced by
numerous customer awards, including PACCAR Preferred Supplier and
Freightliner Masters of Quality. These awards place us among a select group
of suppliers and enhance our ability to continue to win business and serve
our customers as a preferred supplier.
o Favorable Cost Structure; Improvements in Efficiency and Capacity. We
believe that we have a highly competitive cost structure compared with our
competitors. Over the past several years, we have reduced our fixed costs
and increased our operating efficiencies, resulting in a low fixed-cost
structure. We have streamlined operations through reduced headcount, the
addition of more efficient manufacturing capabilities and the consolidation
and integration of some of our manufacturing plants. As a result, we have
maintained our gross profit margin over the past three years despite a
reduction in Class 8 truck builds of 30% from 252,006 units in 2000 to
176,774 units in 2003. We believe that we are well positioned to maximize
our profitability through the projected growth in truck demand through
2008, with minimal incremental capital investment and incremental fixed
overhead. Improvements in efficiencies have increased our manufacturing
capacity, positioning us more favorably than in the past to meet the
projected growth in North American demand for trucks. We have also begun to
implement surcharges on a portion of the increase in some of the raw
materials costs in our wheel-end business with a goal of reducing our
exposure to future increases.
o Significant and Growing Aftermarket Presence. Our aftermarket business
represented approximately 28% of our net sales in 2003. The aftermarket
represents a stable, recurring and higher margin por-
-46-
tion of our business. Our aftermarket sales grew from $87.0 million in 1999
to $122.3 million in 2003, a compound annual growth rate of 8.9%. This
compares favorably to the decrease in tonmiles in the Class 8 truck market
over the same period from 2,581 billion to 2,536 billion, a decline of
1.4%, which we believe is the best indicator of overall performance in the
aftermarket. We believe that our increased penetration is a direct result
of our focus on the aftermarket, including a dedicated field sales force
and the growing number of our products that have achieved standard status
at our major OEM customers, which together have led to the increased use of
our replacement parts. In addition, we have leadership positions in
products that need to be replaced frequently, such as brake drums and seats
that continually wear with use. Major aftermarket customers include OEM
dealer networks, wholesale distributors and aftermarket buying groups.
o Experienced Management Team. Our senior management team is highly
experienced, having spent an average of more than 25 years in heavy
manufacturing, including the Class 8 truck market. This team was
instrumental in founding and building our company through sourcing and
integrating key acquisitions. Additionally, our management team has had
success in growing the business, improving operations and strengthening
customer relationships under various economic conditions.
Strategy
We believe that our strong competitive position, in combination with the
cost reduction initiatives that we have implemented since 1999, will enable us
to benefit significantly from the anticipated growth in the North American Class
8 truck market through increased sales and profitability. Despite a 47% decrease
in Class 8 trucks built in 2003 compared to 1999, we estimate that we generated
$889 of Class 8 OEM net sales per Class 8 truck built in 2003 as compared to
$759 in the last truck production peak in 1999, a 17% increase. Specifically,
key investments in our operations and increased capacity in addition to reduced
headcount, improvement in manufacturing efficiencies and consolidation of
manufacturing facilities, have strengthened our business platform. Accordingly,
we believe that as truck build rates increase, we are well positioned to
generate profits and margins that will compare favorably to those achieved at
similar build rates during the last industry growth period. We are committed to
executing this strategy and continuing our efforts to build a sustainable
business platform in our industry through the following initiatives:
o Enhance Market Position through Cross-Selling. We believe that by
cross-selling the products offered under each of our brand names as part of
our "one-stop shopping" strategy, we have an opportunity to increase our
market position in the heavy- and medium-duty truck components industries.
The majority of truck components suppliers have not capitalized on the sale
of multiple products to OEMs, due to either a narrow product offering or a
decentralized marketing effort. As a result of our broad product offering
and our centralized sales and marketing department, OEMs are able to
purchase all of our products through one primary company contact, allowing
us to build even stronger relationships with our customers. We believe that
this strategy has contributed to the increase in our overall OEM market
share since 1999. By continuing to focus on our cross-selling efforts, we
believe that we can maximize our penetration and gain additional market
share in the heavy- and medium-duty truck components industries, including
the aftermarket.
o Increase Products under Standard Supplier Arrangements. We provide standard
content to a majority of truck platforms at each of PACCAR, Freightliner,
International and Volvo/Mack, and generated more than half of our 2003 net
sales to Class 5-8 OEMs as a result of our standard supplier arrangements.
We continue to focus on these relationships in order to become the standard
supplier for additional truck platforms, thereby allowing us to generate
incremental business with each of the major OEMs. Recently, we have begun
focusing on the end user truck fleets in order to generate pull-through
demand to increase our standard content. Once our products are selected as
standard equipment for a given product platform, we enjoy a competitive
advantage as a result of the steady demand for our products, both in the
OEM market and in the aftermarket. Due to increased OEM outsourcing and the
current fragmentation of the truck components industry, we believe that we
have significant opportunities to increase the number of platforms on which
we are the standard supplier as well as the number of products for which we
are the sole-source supplier. We also expect that an increase in our
standard supplier positions will contribute to the continued growth of our
aftermarket business.
-47-
o Enhance Profitability through Operating Efficiencies. We intend to build on
the success of our past cost improvement initiatives. We continue to
identify opportunities to enhance our operating performance and improve
profitability. These opportunities include a continued focus on
manufacturing efficiencies and the implementation of lean Six Sigma
manufacturing principles, as well as various sourcing initiatives to
control material costs.
o Focus on Product Innovation. We have a track record of developing product
innovations that have translated into increased sales and market share for
our company. We recently developed a number of new generation products,
such as our Ductilite lightweight iron hub under the Gunite brand and our
C-Series seat under the Bostrom brand. Our close relationships with Class 8
OEMs provide us with the opportunity to work closely with them in their
design and engineering processes, enabling us to secure additional business
by responding to OEM requests and initiating product improvements and
design. We currently employ an engineering staff of more than 40 people who
are dedicated to both internal product innovation as well as assisting in
the design of our OEM customers' products. We believe that by continuing to
focus on these areas, we will continue to see market share gains. Our new
product development is currently focused on the introduction of newly
designed wheel-end components that are lighter without compromising product
strength or durability, as well as the addition of new features to our
C-Series seats.
o Expand Truck Aftermarket Penetration. We have increased our net sales to
the aftermarket over the past four years, from $87.0 million in 1999 to
$122.3 million in 2003, a compound annual growth rate of 8.9%. We believe
that we have been able to grow our aftermarket business substantially as a
result of the strength of our brands, our focus on building relationships
with the major aftermarket buying groups, wholesale distributors and OEM
dealer networks, our attention to aftermarket-specific requirements, such
as packaging, availability and shipping, and the increasing number of our
products achieving standard status as the sole source at the major OEM
customers. These efforts have led to a large installed base for our
products and the increased use of our replacement parts. We intend to
continue our focus on increasing aftermarket penetration. We believe that
our aftermarket opportunities will be somewhat insulated from any
fluctuation in new truck production due to the record number of trucks
produced in the past decade and our leading OEM market share.
o Disciplined Growth through Acquisitions. We intend to continue to expand
our portfolio of products through select strategic acquisitions in the
industry. We believe that we are well positioned to pursue and integrate
acquisitions in the truck components industry. We believe that our improved
capital structure, our ability to issue securities for acquisitions and
strong financial performance will enable us to take advantage of select
opportunities in our fragmented industry. Increasing our size and scale,
together with continuing to strengthen our product portfolio, should enable
us to further penetrate existing customers and enhance our position as a
"one-stop" supplier to OEMs.
Product Overview
We design, produce and market one of the broadest portfolios of truck
components in the industry. We classify our products under several categories,
which include wheel-end components and assemblies, truck body and chassis parts,
seating assemblies, other truck components, farm implements and other industrial
components. The following describes our major product lines and brands.
Wheel-End Components and Assemblies (approximately 45% of 2003 net sales)
We are the leading North American supplier of wheel-end components and
assemblies to the heavy- and medium-duty truck markets and related aftermarket.
Our wheel-end components and assemblies are marketed under the Gunite brand. We
produce four basic wheel-end assemblies: (1) disc wheel hub/brake drum, (2)
spoke wheel/brake drum, (3) spoke wheel/brake rotor and (4) disc wheel hub/brake
rotor. We also manufacture a full line of wheel-end components for the Class 5-8
truck market, such as brake drums, disc wheel hubs, spoke wheels, rotors and
automatic slack adjusters. The majority of these components are critical to the
safe operation of the vehicle. A description of each of our major wheel-end
components is summarized below.
-48-
o Brake Drums. We offer a variety of heavy- and medium-duty brake drums for
truck, trailer, bus and off-highway applications. A brake drum is a braking
device utilized in a "drum brake" which is typically made of iron and has a
machined surface on the inside. When the brake is applied, air or brake
fluid is forced, under pressure, into a wheel cylinder which, in turn,
pushes a brake shoe into contact with the machined surface on the inside of
the drum and stops the vehicle. Our brake drums are custom-engineered to
the exact requirements for a broad range of applications, including
logging, mining and more traditional over-the-road vehicles. To ensure
product quality, we continually work with brake and lining manufacturers to
optimize brake drum and brake system performance. Brake drums are our
primary aftermarket product. The aftermarket opportunities in this product
line are substantial as brake drums continually wear with use and
eventually need to be replaced, although the timing of such replacement
depends on the severity of service.
o Disc Wheel Hubs. We manufacture a complete line of traditional ferrous disc
wheel hubs for Class 5-8 trucks and trailers. A disc wheel hub is the
connecting piece between the brake system and the axle upon which the wheel
and tire are mounted. In addition, we offer a line of lightweight cast iron
hubs that provide users with improved operating efficiency. Our lightweight
hubs utilize advanced metallurgy and unique structural designs to offer
both significant weight savings and lower costs due to fewer maintenance
requirements. Our product line also includes finely machined hubs for
anti-lock braking systems, or ABS, which enhance vehicle safety. These hubs
have been mandated for all new trucks with air brakes since March 1997 and
all new trailers with air brakes since March 1998.
o Spoke Wheels. Due to their greater strength and reduced downtime, we
manufacture a full line of spoke wheels for Class 5-8 trucks and trailers.
While disc wheel hubs have begun to displace spoke wheels, they are still
popular for severe-duty applications such as off-highway vehicles, refuse
vehicles and school buses. Our product line also includes finely machined
wheels for ABS systems, similar to our disc wheel hubs.
o Disc Brake Rotors. We have become one of the leaders in the development of
durable, lightweight disc brake rotors for a variety of heavy-duty truck
applications. A disc rotor is a braking device that is typically made of
iron with highly machined surfaces. Once a disc brake is applied, brake
fluid from the master cylinder is forced into a caliper where it presses
against a piston, which then squeezes two brake pads against the disc rotor
and stops the vehicle. Disc brakes are generally viewed as more efficient,
although more expensive, than drum brakes and are often found in the front
of a vehicle with drum brakes often located in the rear. We were the first
manufacturer to introduce ventilated disc brake rotors that significantly
improved heat dissipation as required for applications on Class 7 and 8
vehicles. We offer one of the most complete lines of heavy-duty and
medium-duty disc brake rotors in the industry.
o Automatic Slack Adjusters. Automatic slack adjusters react to, and adjust
for, variations in brake shoe-to-drum clearance and maintain the proper
amount of space between the shoe and drum. Our automatic slack adjusters
automatically adjust the brake shoe-to-brake drum clearance, ensuring that
this clearance is always constant at the time of braking. The use of
automatic slack adjusters reduces maintenance costs, improves braking
performance and minimizes side-to-pull and stopping distance. Automatic
slack adjusters were mandated for all new trucks in the United States
beginning in 1994 and in Mexico since January 1, 2004.
Truck Body and Chassis Parts (approximately 20% of net sales)
We are a leading supplier of truck body and chassis parts to heavy- and
medium-duty truck manufacturers, including bus manufacturers. We fabricate a
broad line of truck body and chassis parts under the Imperial brand name,
including bumpers, battery and toolboxes, crown assemblies, bus component and
chassis assemblies, fuel tanks, roofs, fenders and crossmembers. We also provide
a variety of value-added services, such as chrome plating and polishing and the
kitting and assembly of exhaust systems.
We specialize in the fabrication of components requiring a significant
amount of tooling or customization. Due to the intricate nature of these parts,
our truck body and chassis parts manufacturing operations are character-
-49-
ized by low-volume production runs. Additionally, because each truck is uniquely
customized to end user specifications, we have developed flexible production
systems that are capable of accommodating multiple variations for each product
design. A description of each of our major truck body and chassis parts is
summarized below.
o Bumpers. We manufacture a wide variety of steel and aluminum bumpers, as
well as polish and chrome these products with pre-plate and decorative
polishing to meet specific OEM requirements.
o Fuel Tanks. We manufacture and assemble aluminum and steel fuel tanks, fuel
tank ends and fuel tank straps, as well as polish fuel tanks.
o Bus Components and Chassis Assembly. We manufacture stainless steel chassis
frames, body parts and fuel tanks for buses. We have developed a particular
competency in the manufacture and assembly of low-floor bus chassis.
o Battery Boxes and Toolboxes. We manufacture, as well as polish, steel and
aluminum battery and toolboxes for our heavy-duty truck OEM customers.
o Front-End Crossmembers. We fabricate and assemble front-end crossmembers
for Class 8 trucks. A crossmember is a structural component of a chassis.
These products are manufactured from heavy steel and assembled to customer
line-set schedules.
o Muffler Assemblies. We fabricate, assemble, chrome-plate and polish muffler
assemblies consisting of large diameter exhaust tubing assembled with a
muffler manufactured by a third party.
o Crown Assemblies and Components. We manufacture multiple styles of crown
assemblies and components. A crown assembly is the highly visible front
grill and nameplate of the truck. These products are fabricated from both
steel and aluminum and are chrome-plated and polished.
o Other Products. We fabricate a wide variety of assemblies and chrome-plate
and polish numerous other components for truck manufacturers, bus
manufacturers and OEM suppliers. These products include fenders, exhaust
components, sun visors, windshield masts, step assemblies, quarter fender
brackets, underbelly brackets, fuel tank supports, hood inner panels, door
assemblies, dash panel assemblies, outrigger assemblies and various other
components.
Seating Assemblies (approximately 10% of 2003 net sales)
Under the Bostrom brand name, we design, engineer and manufacture air
suspension and static seating assemblies for heavy- and medium-duty trucks, the
related aftermarket and school and transit buses. All major North American
heavy-duty truck manufacturers offer our seats as standard or as an option.
Seating assemblies are primarily differentiated on comfort, price and
quality, with driver comfort being especially important given the substantial
amount of time that truck drivers spend on the road. Our seating assemblies
typically utilize a "scissor-type" suspension, which we believe offers superior
cushioning for the driver.
We have invested significantly to maintain our position as one of the
leaders in the development of innovative seating assemblies. Our new "C-Series"
product line is scheduled for production in the third quarter of 2004. This
next-generation seat features many new benefits, including modular assembly,
seat pan extension and a wider, more stable suspension. In 1999, we introduced a
new "Wide Ride" seat concept in response to customer demand for a wider, more
comfortable product, and in 2001 we introduced the "Liberty Series" focused on
the aftermarket.
Our current line of seats is the "T-Series," which offers a number of
different styles based on back height, weight, number of armrests, color,
ability to adjust height and tilt and suspension system. In addition to the
T-Series, we have also developed a mechanical seat under the Viking name,
designed for construction equipment and rugged applications, as well as a seat
designed for short runs on quick deliveries under the "Baja" name.
-50-
Other Truck Components (approximately 7% of 2003 net sales)
We produce other truck components, including steerable drive axles and
gearboxes as well as engine and transmission components.
o Steerable Drive Axles and Gear Boxes. We are a leading supplier of
steerable drive axles, gearboxes and related parts for heavy- and
medium-duty on/off highway trucks and utility vehicles under the Fabco and
Sisu brand names. Our axles and gearboxes are utilized by most major North
American heavy- and medium-duty truck manufacturers and modification
centers. We also supply replacement parts for all of our products to OEMs
and, in some cases, directly to end users. Our quick turnaround of parts
minimizes the need for our customers to maintain their own parts inventory.
o Transmission and Engine-Related Components. We are a leading manufacturer
of transmission and engine-related components to the Class 5-8 truck
markets under the Brillion brand name, including flywheels, transmission
and engine-related housings and chassis brackets.
Industrial Components and Farm Implements (approximately 18% of 2003 net sales)
We produce components for a wide variety of applications to the industrial
machinery and construction equipment markets under the Brillion brand name,
including flywheels, pump housings, small engine components and other industrial
components. Our industrial components are made to specific customer requirements
and, as a result, our product designs are typically proprietary to our
customers. We also design, manufacture and market a leading line of farm
equipment and lawn and garden products for the "behind-the-tractor" market,
including pulverizers, seeders, mulchers, deep tillers, grass feeders and
cultivators under the Brillion brand name.
Customers
We market our components to more than 1,000 customers, including most of
the major North American heavy- and medium-duty truck and trailer OEMs, as well
as to the major aftermarket suppliers, including OEM dealer networks, wholesale
distributors and aftermarket buying groups. Our largest customers are PACCAR,
Freightliner, International and Volvo/Mack, which combined accounted for 59% of
our net sales in 2003. We have long-term relationships with our larger
customers, many of whom have purchased components from us or our predecessors
for more than 45 years. We garner repeat business through our reputation for
quality and position as a standard supplier for a variety of truck lines. We
believe that we will continue to be able to effectively compete for our
customers' business due to the high quality of our products, the breadth of our
product portfolio and our continued innovation.
Sales and Marketing
We have an integrated, corporate-wide sales and marketing group. We have
dedicated salespeople who reside near the headquarters of each of the four major
truck OEMs and who spend substantially all of their professional time
coordinating new sales opportunities and developing our relationship with the
OEMs. These sales professionals function as a single point of contact with the
OEMs, providing "one-stop shopping" for all of our products. Each brand has
sales and marketing personnel who, together with sales engineers, have in-depth
product knowledge and provide support to the designated OEM salespeople.
We also have fleet sales coverage focused on our wheel-end and seating
assembly markets who seek to develop relationships directly with fleets to
create "pull-through" demand for our products. This effort is intended to help
convince the truck OEMs to make our products standard and to create sales by
encouraging fleets to specify our products on the trucks that they purchase,
even if our product is not standard.
In addition, we have aftermarket sales coverage for our various products,
particularly wheel-ends and seating assemblies. These salespeople promote and
sell our products to the aftermarket, including OEM dealers, warehouse
distributors and aftermarket buying groups. The size and effectiveness of this
sales coverage has increased in recent years and has contributed to our growth
in aftermarket sales.
-51-
Manufacturing
We operate twelve manufacturing facilities, which are characterized by
advanced manufacturing capabilities and six just-in-time sequencing facilities
in the U.S. Our manufacturing operations are located in Alabama, California,
Illinois, Indiana, Tennessee, Texas, Virginia, Washington and Wisconsin. These
facilities are strategically located to meet our manufacturing needs and the
demands of our customers. In particular, in our wheel-end and assembly market,
we believe that our highly-integrated manufacturing operations provide us with a
competitive advantage, as we are able to combine our high quality castings from
our facilities in Brillion, Wisconsin and Rockford, Illinois with our machining,
assembly, welding and painting operations in Elkhart, Indiana.
All of our significant operations are QS-9000 certified, which means that
they comply with certain quality assurance standards for truck components
suppliers. Our manufacturing operations are highly regarded by our customers,
and we have received numerous quality awards from our customers including PACCAR
Preferred Supplier and Freightliner Masters of Quality.
Properties
The table below sets forth certain information regarding each of our owned
and leased properties. These properties are suitable and adequate for our
business.
Size
Brands Owned/ (sq.
Location Business Function Manufactured Leased feet)
- -------- ----------------- ------------ ------ -----
Chicago, IL.......................... Corporate Headquarters TTI Leased 10,000
Rockford, IL......................... Wheel-end Foundry, Warehouse, Gunite Owned 619,000
Administrative Office
Elkhart, IN.......................... Machining and Assembling--Hub, Gunite Owned 258,000
Drums and Rotors
Elkhart, IN.......................... Machining and Assembling-- Gunite Leased 37,000
Automatic Slack Adjusters
Bristol, IN.......................... Warehouse Gunite Leased 108,000
Erie, PA............................. Inactive Gunite Owned 376,000
Brillion, WI......................... Molding, Finishing, Farm Brillion Owned 593,200
Equipment, Administrative Office
Portland, TN......................... Metal Fabricating, Stamping, Imperial Leased 200,000
Assembly, Administrative Office
Portland, TN......................... Plating and Polishing Imperial Owned 86,000
Decatur, TX.......................... Metal Fabricating, Stamping, Imperial Owned 122,000
Assembly, Machining and
Polishing Shop
Dublin, VA........................... Tube Bending, Assembly and Line Imperial Owned/Leased 116,000
Sequencing
Chehalis, WA......................... Metal Fabricating, Stamping, Imperial Owned 90,000
Assembly
Gainesville, TX...................... Assembly and Line Sequencing, Imperial Leased 21,000
Painting
Piedmont, AL......................... Manufacturing, Administrative Bostrom Owned(1) 200,000
Office
Piedmont, AL......................... Warehouse Bostrom Leased 19,000
Piedmont, AL......................... Warehouse Bostrom Leased 10,000
Livermore, CA........................ Manufacturing, Warehouse, Fabco Leased 56,800
Administrative Office
- ---------------------------------------------------------------------------------------------------------------------
(1) This property is a leased facility for which we have an option to buy at
any time for a nominal price.
Competition
We operate in highly competitive markets. However, no single manufacturer
competes with all of the products manufactured and sold by us in the heavy-duty
truck market, and the degree of competition varies among
-52-
the different products that we sell. In each of our markets, we compete on the
basis of price, manufacturing and distribution capabilities, product quality,
product design, delivery and service.
The competitive landscape for each of our brands is unique. Our primary
competitors in the wheel-ends and assemblies markets for heavy-duty trucks and
trailers are ArvinMeritor, Con Met, Hayes Lemmerz and Webb Wheel Products. The
truck body and chassis parts markets are fragmented and characterized by many
small private companies. The seating assemblies market has a very limited number
of competitors, with National Seating as our main competitor. Our major
competitors in the industrial components market include ten to twelve foundries
operating in the Midwest and Southern regions of the United States.
Raw Materials and Suppliers
Major raw materials for our wheel-end and industrial component products are
steel scrap and pig iron. We do not have any long-term contractual commitments
with any steel scrap or pig iron suppliers, and do not anticipate having any
difficulty in obtaining steel scrap or pig iron due to the large number of
potential suppliers and our position as a major purchaser in the industry. A
portion of increases in steel scrap prices for our wheel-ends and industrial
components is passed through to most of our customers by way of a fluctuating
surcharge, which is calculated and adjusted on a monthly or quarterly basis.
Other major raw materials include silicon sand, binders, sand additives and
coated sand, which are generally available from multiple sources. Coke and
natural gas, the primary energy sources for our melting operations, have
historically been generally available from multiple sources, and electricity,
another of these energy sources, has historically been generally available.
The main raw materials for our truck body and chassis parts are sheet and
formed steel and aluminum. Price increases for these raw materials are passed
through to our largest customers for those parts on a contractual basis. We
purchase major fabricating and seating materials, such as fasteners, steel,
foam, fabric and tube steel, from multiple sources, and these materials have
historically been generally available.
We do not have any hedging agreements or arrangements in connection with
the supply of our raw materials.
Employees and Labor Unions
As of June 30, 2004, we had 2,924 employees, of which 528 were salaried
employees with the remainder paid hourly, 1,328 employees, or 45% of the total,
are represented by unions. We have collective bargaining agreements with several
unions, including (1) the United Autoworkers, (2) the International Brotherhood
of Teamsters, (3) the Paper, Allied-Industrial, Chemical & Energy Workers
International Union and (4) the International Association of Machinists and
Aerospace Workers.
We have historically maintained good relationships with our unionized
employees. Each of our unionized facilities has a separate contract with the
union that represents the workers employed at such facility. The union contracts
expire at various times over the next few years, with no contract expiring
before April 2005, at which time our union contract with the United Autoworkers
covering hourly employees at our Rockford, Illinois facility will expire. We
consider our relations with our employees to be good at each of our facilities.
Intellectual Property
We believe that our trademarks, patents, copyrights and other proprietary
rights are important to our business. We have numerous trademarks, patents and
copyrights in the United States and in certain foreign countries. We are not
aware of any current or pending suits in connection with any of our trademarks,
patents or copyrights.
Environmental Matters
Our operations, facilities and properties are subject to extensive and
evolving laws and regulations pertaining to air emissions, wastewater
discharges, the handling and disposal of solid and hazardous materials and
wastes, the investigation and remediation of contamination, and otherwise
relating to health, safety and the protection of the
-53-
environment and natural resources. As a result, we are involved from time to
time in administrative or legal proceedings relating to environmental, health
and safety matters, and have in the past and will continue to incur capital
costs and other expenditures relating to such matters. In addition to
environmental laws that regulate our subsidiaries' ongoing operations, our
subsidiaries are also subject to environmental remediation liability. Under the
federal Comprehensive Environmental Response, Compensation, and Liability Act,
or CERCLA, and analogous state laws, our subsidiaries may be liable as a result
of the release or threatened release of hazardous materials into the
environment. Our subsidiaries are currently involved in several matters relating
to the investigation and/or remediation of locations where they have arranged
for the disposal of foundry and other wastes. Such matters include situations in
which we have been named or are believed to be Potentially Responsible Parties,
or PRPs, under CERCLA or state laws in connection with the contamination of
these sites. Additionally, environmental remediation may be required to address
soil and groundwater contamination identified at certain facilities.
As of June 30, 2004, we had an environmental reserve of approximately $2.8
million, related primarily to our foundry operations. This reserve is based on
current cost estimates and does not reduce estimated expenditures to net present
value, but does take into account the benefit of a contractual indemnity given
to us by a prior owner of our wheel-end subsidiary. We cannot assure you,
however, that the indemnitor will fulfill its obligations, and the failure to do
so could result in future costs that may be material. Any cash expenditures
required by us or our subsidiaries to comply with applicable environmental laws
and/or to pay for any remediation efforts will not be reduced or otherwise
affected by the existence of the environmental reserve. Our environmental
reserve may not be adequate to cover our future costs related to the sites
associated with the environmental reserve, and any additional costs may have a
material adverse effect on our business, results of operations and financial
condition. The discovery of additional sites, the modification of existing or
the promulgation of new laws or regulations, more vigorous enforcement by
regulators, the imposition of joint and several liability under CERCLA or other
unanticipated events could also result in such a material adverse effect.
As part of an initiative regarding compliance in the foundry industry, the
U.S. Environmental Protection Agency, or EPA, conducted an environmental
multimedia inspection at Gunite's Rockford, Illinois plant in September and
October 2003. To date, Gunite has not received any written report or notice from
the EPA regarding the multimedia inspection.
The final Iron and Steel Foundry National Emission Standard for Hazardous
Air Pollutants, or NESHAP, was developed pursuant to Section 112(d) of the Clean
Air Act and requires all major sources of hazardous air pollutants to install
controls representative of maximum achievable control technology. We are
evaluating the applicability of the NESHAP to our foundry operations. If
applicable, compliance with the NESHAP may result in future significant capital
costs which we currently expect to be between $5.0 million and $10.0 million
during the period 2005 through 2007, which amount has been included in our
capital expenditure budgets for the relevant years.
Legal Proceedings
We are involved in a variety of legal proceedings, including worker's
compensation claims, employment disputes, customer and supplier disputes and
product liability claims arising out of the conduct of our businesses. In our
opinion, the ultimate outcome of these legal proceedings will not have a
material adverse effect on our financial position, results of operations or cash
flows.
Our Sponsors
In March 2000, we were acquired in a going-private transaction by an
investor group led by our management and our sponsors, Trimaran Capital
Partners, L.L.C. and Albion Alliance. Trimaran Capital Partners is a private
asset management firm headquartered in New York, with assets under management in
excess of $3.4 billion, including Trimaran Fund II, a $1.0 billion private
equity fund dedicated to leveraged buyouts, recapitalizations and growth capital
investments in middle-market companies throughout the United States and Western
Europe. Albion Alliance, formed in 1996, is an affiliate of Alliance Capital, a
leading global investment management firm, and currently manages over $1.2
billion of committed capital.
Since the acquisition in March 2000, our sponsors have provided us with
general monitoring and management services, including (1) analyzing
acquisitions, dispositions and large-scale capital expenditures, (2) monitoring
-54-
of finance functions, including assistance in the preparation of financial
projections, the structuring of and compliance with financing agreements and the
evaluation of capital markets alternatives, (3) monitoring of marketing
functions, including marketing plans and strategies and (4) monitoring of human
resource functions, including searching for, identifying and hiring (in the case
of executives) executives and directors.
To date, Trimaran Capital Partners and its affiliated entities, Caravelle
Investment Fund and Albion Alliance, have invested approximately $108.2 million
in our capital stock through three separate investments, and they currently
beneficially own approximately 67.9% of our fully-diluted common stock, 100.0%
of our Series A Preferred Stock, 94.0% of our Series D Preferred Stock and 90.5%
of our Series E Preferred Stock. They do not currently own any of our Series C
Preferred Stock.
-55-
MANAGEMENT
Set forth below is information concerning our current directors and
executive officers, including their ages as of June 30, 2004.
Name Age Position(s)
- ---- --- -----------
Thomas M. Begel*............................... 61 Chairman of the Board
Andrew M. Weller............................... 57 President, Chief Executive Officer and Director
James D. Cirar................................. 57 Executive Vice President and Director
Donald C. Mueller.............................. 40 Vice President, Treasurer and Chief Financial Officer
Kenneth M. Tallering........................... 42 Vice President, General Counsel and Secretary
Jay R. Bloom................................... 48 Director
Mark D. Dalton................................. 42 Director
Steven A. Flyer................................ 38 Director
Jay R. Levine.................................. 47 Director
Camillo M. Santomero III....................... 46 Director
Steven Shulman................................. 63 Director
* We currently expect that Mr. Begel will resign as Chairman of the Board no
later than December 31, 2004.
Thomas M. Begel, has served as Chairman of the Board since May 1993, served
as Chief Executive Officer from May 1993 through August 2004 and as President
from October 1991 through January 2000. He is also Chairman of, and a partner
in, TMB Industries, or TMB, an investment firm that is a partnership between
himself and Mr. Weller. Mr. Begel is also a director of Fuel Systems Holdings
LLC, Phillips and Temro Holdings LLC and NutraMax, Inc., private companies
associated with TMB.
Andrew M. Weller has served as Chief Executive Officer since August 2004,
President since January 2000, and as a director since September 1994. He also
served as Chief Operating Officer from January 2000 to August 2004. He formerly
served as Executive Vice President and Chief Financial Officer from September
1994 to January 2000 and as Secretary from March 1995 to November 1995. He has
also been Senior Managing Director of, and a partner in, TMB since September
1994. Mr. Weller is also a director of Phillips and Temro Holdings LLC, a
private company associated with TMB.
James D. Cirar has been the Executive Vice President and a director with
oversight over our Gunite and Brillion brands since January 2001. He has also
been president of Gunite since January 2000. Mr. Cirar was Chairman of Johnstown
America Corporation and Freight Car Services, Inc. from September 1998 to June
1999 and Senior Vice President from July 1997 to June 1999. From September 1995
to August 1998, he was President and Chief Executive Officer of Johnstown
America Corporation and from March 1998 to August 1998 he was President and
Chief Executive Officer of Freight Car Services, Inc. Mr. Cirar is also a
director of JAC Holdings International, Inc.
Donald C. Mueller has served as Chief Financial Officer and Treasurer since
January 2000 and was Treasurer from July 1998 to January 2000.
Kenneth M. Tallering has served as Vice President, General Counsel and
Secretary since November 1995. From September 1987 to October 1995, Mr.
Tallering was an attorney with the law firm of Skadden, Arps, Slate, Meagher &
Flom LLP. Mr. Tallering is also a director of Fuel Systems Holdings LLC,
Phillips and Temro Holdings LLC and NutraMax, Inc., private companies associated
with TMB.
Jay R. Bloom has been a director since March 2000 and currently serves on
the audit committee of the board of directors. Mr. Bloom is a founder, and for
the last five years has been a Managing Partner of Trimaran Fund Management,
L.L.C. Mr. Bloom is also a vice chairman of CIBC World Markets Corp., which he
joined in 1995, and is a co-head of the CIBC Argosy Merchant Banking Funds.
Prior to joining CIBC, Mr. Bloom was a founder and Managing Director of The
Argosy Group L.P. Before Argosy, Mr. Bloom was a Managing Director at
-56-
Drexel Burnham Lambert Incorporated, and prior to that, he worked at Lehman
Brothers Kuhn Loeb Incorporated and practiced law with Paul Weiss Rifkind
Wharton & Garrison. Mr. Bloom is also a director of IASIS Healthcare
Corporation, JAC Holdings International, Inc., Norcraft Companies, L.P., PrimeCo
Wireless Communications LLC and NSP Holdings, LLC. Mr. Bloom currently serves as
a member of the Cornell University Council and is a member of Cornell
University's private equity committee.
Mark D. Dalton has been a director since March 2000 and currently serves on
the audit committee of the board of directors. Mr. Dalton is currently a
Managing Director of Trimaran Fund Management, L.L.C. Immediately prior to
joining Trimaran, Mr. Dalton was a Managing Director in the Leveraged Finance
Group of CIBC World Markets, where he was employed for more than five years, and
also worked with Trimaran's Principals at The Argosy Group. Mr. Dalton is also a
director of JAC Holdings International, Inc.
Steven A. Flyer has been a director since February 2001. Mr. Flyer is
currently a Managing Director of Trimaran Fund Management, L.L.C. Immediately
prior to joining Trimaran, Mr. Flyer was an Executive Director in the Leveraged
Finance Group of CIBC World Markets, where he was employed for more than five
years, and was responsible for the CIBC Argosy Merchant Banking Funds. Prior to
joining CIBC World Markets, Mr. Flyer practiced law at Dewey Ballantine LLP.
Jay R. Levine has been a director since February 2001. Mr. Levine is
currently a Managing Director of Trimaran Fund Management, L.L.C. Immediately
prior to joining Trimaran, Mr. Levine was a Managing Director in the Leveraged
Finance Group of CIBC World Markets, where he was employed for more than five
years, and was responsible for merchant banking investments. Prior to CIBC World
Markets, Mr. Levine was a senior executive in the Morningside and Springfield
Group, the private investment company owned by the Chan family of Hong Kong.
Camillo M. Santomero III has been a director since 1991 and currently
serves on the audit committee of the board of directors. Mr. Santomero has been
a private investor and a Senior Consultant to JP Morgan Partners (formerly Chase
Capital Partners and Chemical Venture Partners) since January 1992. Mr.
Santomero is also a director of Fuel Systems Holdings LLC, S.R. Smith LLC,
Alliance Services LLC, JAC Holdings International, Inc., Quality Components LLC,
Red Head Brass LLC and Heathkit Corp.
Steven Shulman has been a director since February 2001. Mr. Shulman has
been the President of The Hampton Group for more than five years, and has also
been an advisor to Trimaran Fund II, L.L.C. during that time. Mr. Shulman most
recently served as the Chairman and Chief Executive Officer of Terrace Food
Group, Inc. Prior to his employment at Terrace, Mr. Shulman served as the
Chairman of Wilshire Restaurant Group, Inc., which he and an investor group
purchased in 1989. Mr. Shulman is also a director of Ark Restaurants Corp.,
Beacon Capital Partners, Inc., C3i Inc., PlasmaSol Corp., TNP Enterprises, Inc.,
Paragon Technologies, Inc. and Terrace Food Group, Inc.
Committees of the Board of Directors
Our board of directors currently has an audit committee. Our board of
directors may also establish from time to time one or more additional committees
that it deems necessary or advisable.
Audit Committee
The audit committee of our board of directors recommends the appointment of
our independent auditors, reviews our internal accounting procedures, risk
assessment procedures and financial statements and consults with and reviews the
services provided by our independent auditors, including the results and scope
of their audit. The audit committee currently consists of Messrs. Bloom, Dalton
and Santomero.
Director Compensation
Directors currently receive no compensation from us for their services on
the board of directors or committees. We reimburse directors for expenses
incurred in connection with attendance at board or committee meetings.
-57-
Executive Compensation
The following table sets forth the cash and non-cash compensation for
services in all capacities to us for 2003 of (1) our Chief Executive Officer and
(2) our four most highly compensated executive officers other than the Chief
Executive Officer who were serving as executive officers as of December 31,
2003. We refer to these officers as the "named executive officers."
Summary Compensation Table
Annual Compensation
-------------------------------------------
Other Annual All Other
Name and Principal Position Salary Bonus(1) Compensation (2)(3) Compensation (4)
- --------------------------- ------ -------- ------------------- ----------------
Thomas M. Begel(5)............................ $ 750,000 $ - $102,835 $72,617
Chairman of the Board and
Chief Executive Officer
Andrew M. Weller(5)........................... 500,000 158,000 45,975 53,340
President, Chief Operating Officer
and Director
James D. Cirar................................ 300,000 169,610 25,561 15,497
Executive Vice President and Director
Donald C. Mueller............................. 200,000 120,000 20,085 26,338
Vice President, Treasurer and
Chief Financial Officer
Kenneth M. Tallering.......................... 200,000 120,000 13,326 20,571
Vice President, General Counsel and
Secretary
- ----------------------------------------------------------------------------------------------------------------------
(1) Includes amounts paid in connection with our December 2003 senior preferred
stock issuance and related transactions as follows: $120,000 of Mr.
Weller's bonus, $90,000 of Mr. Mueller's bonus and $90,000 of Mr.
Tallering's bonus.
(2) The named executive officers may receive other perquisites and personal
benefits, the dollar amounts of which are below current Securities and
Exchange Commission thresholds for reporting requirements.
(3) Includes reimbursement of tax payments as follows: for Mr. Begel, $65,271;
for Mr. Weller, $35,235; for Mr. Cirar, $12,252; for Mr. Mueller, $11,393;
and for Mr. Tallering, $8,949.
(4) Represents (i) life insurance premiums as follows: for Mr. Begel, $59,017;
for Mr. Weller, $38,662; for Mr. Cirar, $2,322; for Mr. Mueller, $7,164;
and for Mr. Tallering, $6,446, (ii) other insurance premiums as follows:
for Mr. Begel, $3,600; for Mr. Weller, $4,678; for Mr. Cirar, $3,175; for
Mr. Mueller, $3,174; and for Mr. Tallering, $4,125 and (iii) our
contributions under our 401(k) profit sharing plan as follows: for Mr.
Begel, $10,000; for Mr. Weller, $10,000; for Mr. Cirar, $10,000; for Mr.
Mueller, $10,000; and for Mr. Tallering, $10,000. In addition, as to Mr.
Mueller, includes interest forgiveness of $6,000. See "Certain
Relationships and Related Party Transactions--Loan to Named Executive
Officer."
(5) Mr. Begel was succeeded by Mr. Weller as Chief Executive Officer in August
2004. This event resulted in the termination of his employment agreement
and entitled him to a payment of $2.7 million in addition to certain
continuing benefits, including retiree medical coverage.
Options/Option Exercises/SARs/Restricted Stock
We did not issue any stock options, SARs or restricted shares during 2003.
Mr. Cirar, the only named executive officer who held options as of December 31,
2003, held 10,000 unexercisable options as of that date.
-58-
TTII Nonrepresented Salaried Pension Plan
Pension benefits for executives under the TTII Nonrepresented Salaried
Pension Plan were frozen as of December 31, 2000. An executive officer's service
and pay up to December 31, 2000 are used to determine his pension benefits based
on the following benefits formula:
An executive's monthly benefit is the larger of (1) and (2):
(1) 1.05 multiplied by average monthly earnings multiplied by 1.10%
multiplied by service up to 30 years plus 1.20% multiplied by service after
30 years; or
(2) 1.05 multiplied by:
(a) 1.50% of average monthly earnings multiplied by service minus
(b) 0.475% of Social Security covered compensation multiplied by
service (maximum 35 years).
Each named executive officer's "average monthly earnings" are the highest
60 consecutive months of earnings out of the last 120 months, divided by 60
calculated as of December 31, 2000.
Annual Plan Benefits
The annual plan benefits payable at normal retirement age for executive
officers are as follows:
Thomas M. Begel........................................... $16,310
Andrew M. Weller.......................................... 13,866
James D. Cirar............................................ 9,789
Donald C. Mueller......................................... 4,736
Kenneth M. Tallering...................................... 9,365
The plan defines normal retirement age as completion of five years of
continuous service and attainment of the age of 65 years.
Savings and Profit Sharing Plans
Each of the named executive officers participates in a 401(k) savings plan
and a profit sharing plan at our Gunite subsidiary. The profit sharing plan
provides for contribution by us equal to 5% of each named executive officer's
compensation, up to a statutorily mandated amount for 2003 of $200,000 of
compensation.
Employment Agreements
We are a party to substantially identical employment agreements with each
of the named executive officers. These agreements have a three year initial term
and continue for rolling two-year periods unless terminated as provided in each
contract. Pursuant to their respective contracts, each named executive officer
receives annual base salaries, plus bonuses as determined by our board of
directors in accordance with the bonus plan for such year. Each of these
contracts contains customary employment terms and provide that upon termination
of employment by us other than for "cause" or by the named executive officer for
"Good Reason" (each as defined in the agreements) during the term, we will pay a
severance/non-compete payment to the named executive officer, in addition to
other benefits, equal to three times the sum of (1) the named executive
officer's base salary as of his date of termination and (2) the greatest of (w)
the named executive officer's guaranteed bonus, if any, for the year during
which the termination occurs, (x) the named executive officer's target bonus, if
any, for the year during which the termination occurs, (y) the named executive
officer's bonuses received during and/or with respect to the year immediately
preceding the date of termination and (z) the named executive officer's average
bonuses received during and/or with respect to the three years immediately
preceding the date of termination, plus certain additional amounts.
-59-
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Amended and Restated Monitoring Services Agreement
We are a party to an amended and restated monitoring agreement with
Transportation Investment Partners, L.L.C., Caravelle Investment Fund, L.L.C.,
Albion Alliance Mezzanine Fund, L.P., Albion Alliance Mezzanine Fund II, L.P.,
Trimaran Fund Management, L.L.C. and Albion Alliance, LLC, whom we refer to as
the Monitors, under which the Monitors have agreed to provide us and our
subsidiaries with monitoring and management services with respect to financial
and operating matters in exchange for an annual aggregate monitoring fee payable
to certain of the Monitors of up to $1.25 million (the "original monitoring
fee"). The monitoring and management services provided by the Monitors include,
among other things, (1) analyzing acquisitions, dispositions and large-scale
capital expenditures, (2) monitoring of finance functions, including assistance
in the preparation of financial projections, the structuring of and compliance
with financing agreements and the evaluation of capital markets alternatives,
(3) monitoring of marketing functions, including marketing plans and strategies
and (4) monitoring of human resource functions, including searching for,
identifying and hiring (in the case of executives) executives and directors. We
have also agreed to pay the Monitors annual aggregate director and observer fees
of up to $250,000 in consideration for the Monitors (and certain of their
affiliates) providing their nominee and/or observers to our board of directors
and have further agreed to pay Trimaran Fund Management, L.L.C. and Albion
Alliance, LLC an additional aggregate annual monitoring fee of $300,000 (the
"additional monitoring fee"). The actual amount of the original monitoring fee
and the director and observer fees owed under the monitoring agreement is tied
to our achieving agreed upon operating performance levels. However, our debt
instruments contain covenants that currently restrict us from paying the full
amount of the original monitoring fee and the director and observer fees. For
2003, for example, we are required to pay $380,000 of monitoring fees. As of
June 30, 2004, there were $204,000 of accrued but unpaid fees owed under the
monitoring agreement.
The fees under the monitoring agreement are permitted to be paid only to
the extent permitted under our senior credit facilities and any other financing
agreement we have entered into. Notwithstanding the foregoing, the monitoring
and director fees described above will accrue and be earned on a daily basis and
will be payable (including all missed payments) on the first date that such a
payment is permitted under our senior credit facilities or applicable financing
agreement. The monitoring agreement provides that, upon the consummation of an
initial public offering of our common stock, the monitoring agreement will
terminate provided that we pay to the Monitors a $3.5 million cash termination
fee. Our ability to pay such cash termination fee is subject to the prior
approval of the lenders under our senior credit facilities.
Stockholders' Agreement
We, the holders of our Series A Preferred Stock, Series C Preferred Stock
and Series E Preferred Stock (each as defined in "Description of the Exchange
Notes") and our common stockholders are parties to a stockholders' agreement.
The stockholders' agreement contains provisions relating to (1) the composition
of our board of directors and matters which must be approved by specified
stockholders, (2) restrictions on the transfer of shares of our capital stock,
including right of first offer provisions, tag-along provisions and drag-along
provisions and (3) demand and piggy-back registration rights. Our stockholders'
agreement also contains a provision, requiring us to use no less than 75% of our
excess cash flow to repay our outstanding debt until such time as our funded
debt to EBIDTA ratio is less than 3.0 to 1, at which time we are required to use
no less than 50% of our excess cash flow to repay our outstanding senior debt.
TMB Relationship
Through TMB, members of management, including the executive officers, hold
ownership interests in, and in certain instances are directors of, privately
held companies. These privately held companies pay management fees to TMB, a
portion of which are distributed to certain executive officers. We provide
certain administrative services and corporate facilities to TMB and such
companies and bill them for reimbursement of the related costs, which we record
as offsets to selling, general and administrative expense. We received
reimbursements totaling approximately $0.3 million for 2003. Given that certain
of such companies have similar customers, we also provide certain selling and
marketing services through our OEM sales coverage personnel and get reimbursed
for their alloc-
-60-
able share of the related costs. There exists a limited amount of intercompany
supply of product on an arm's-length basis.
Preferred Stock
In connection with the issuance of our Series E Preferred Stock in December
2003, Transportation Investment Partners, L.L.C. and Albion Alliance each
purchased shares of Series E Preferred Stock through a limited liability company
in which certain members of our management, including the named executive
officers (other than Mr. Begel), have an interest. Upon redemption, an amount
equal to 7.5% of the returns in excess of the purchase price paid by such
holders will be paid to 11 members of our management, including each of the
named executive officers (other than Mr. Begel).
Loan to Named Executive Officer
On June 10, 1999, pursuant to a restated promissory note, we lent Mr.
Mueller $100,000 to be used towards the purchase of his residence. Interest of
$6,000 relating to this loan is forgiven each year and is included in Mr.
Mueller's compensation.
We believe that each of the transactions described above was entered into
on terms no less favorable to us than could have been obtained with
non-affiliated parties. If any conflicts of interest with any such entities
arise in the future, we anticipate that the disinterested members of our board
of directors will pass on the appropriateness of any particular matter.
-61-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the date of this prospectus, we had approximately 20 holders of
record of our common stock. Unless otherwise indicated in a footnote, the
persons named in the tables below have sole voting and investment power with
respect to all shares of common stock shown as being beneficially owned by them.
The following table sets forth certain information regarding the beneficial
ownership of our issued and outstanding common stock.
Percent
Beneficial Owner(1) Number of Shares of Class
- ------------------- ---------------- --------
Transportation Investment Partners, L.L.C. (2)... 1,503,015 62.5%
Caravelle Investment Fund, L.L.C. (3)............ 248,688 12.9%
Albion Alliance LLC (4)(5)....................... 72,757 3.9%
CIBC Inc. (5)(6)(7).............................. 115,116 5.8%
Thomas M. Begel (8).............................. 229,694 12.2%
Jay R. Bloom (2)(5)(15).......................... 11,356 *
James D. Cirar (9)............................... 65,281 3.5%
Mark D. Dalton (2)(5)(15)........................ - -
Steven A. Flyer (2)(5)(15)....................... - -
Jay R. Levine (2)(5)(15)......................... - -
Donald C. Mueller (10)........................... 24,221 1.3%
Camillo M. Santomero III (11).................... 130,390 6.9%
Steven Shulman/Hesed Foundation (12)(15)......... 1,570 *
Kenneth M. Tallering (13)........................ 35,633 1.9%
Andrew M. Weller (14)............................ 62,361 3.3%
All current directors and officers as a
group (11 persons)............................. 549,150 27.8%
- --------------------------------------------------------------------------------
o Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. Under these rules, a
person is deemed to beneficially own a share of our common stock if that
person has or shares voting power or investment power with respect to that
share, or has the right to acquire beneficial ownership of that share
within 60 days, including through the exercise of any option, warrant or
other right or the conversion of any other security. More than one person
may be considered to beneficially own the same shares. Percentage of
beneficial ownership is based on 2,774,417 shares and share equivalents of
our common stock outstanding as of June 30, 2004.
(2) Messrs. Bloom, Dalton, Flyer and Levine are all associated with
Transportation Investment Partners, L.L.C.. Messrs. Dalton, Flyer and
Levine disclaim any beneficial ownership of the 62.5% of our common stock
owned by Transportation Investment Partners L.L.C. Mr. Bloom is a managing
member of Trimaran Investments II, L.L.C, the managing member of Trimaran
Fund II, L.L.C., Trimaran Parallel Fund II L.P., Trimaran Capital, L.L.C.,
CIBC Employee Private Equity Fund II, L.P., Trimaran Capital, L.L.C., CIBC
Employee Private Equity Fund (Trimaran) Partners and CIBC MB Inc., which
comprise all of the limited liability company members of Transportation
Investment Partners, L.L.C. As a result, Mr. Bloom may be deemed to
beneficially own all of the shares of common stock held directly or
indirectly by Transportation Investment Partners, L.L.C. Mr. Bloom has
investment and voting power with respect to shares owned by Transportation
Investment Partners, L.L.C. but disclaims beneficial ownership of such
shares. The number of shares of common stock beneficially owned by Trimaran
Investment Partners, L.L.C. includes warrants to acquire 546,205 shares of
our
-62-
common stock exercisable within 60 days. The address of Transportation
Investment Partners, LLC is c/o Trimaran Capital Partners, 425 Lexington
Avenue, New York, NY 10017.
(3) Caravelle Investment Fund, L.L.C. is an investment fund managed by Trimaran
Advisors, L.L.C. As a managing member of Trimaran Advisors, L.L.C., Mr.
Bloom may be deemed to beneficially own all of the shares of common stock
held directly or indirectly by Caravelle Investment Fund, L.L.C. Mr. Bloom
has investment and voting power with respect to the shares owned by
Caravelle Investment Fund, L.L.C. but disclaims beneficial ownership of
such shares except with respect to 11,356 of the shares owned by Trimaran
Capital, L.L.C. The managing member and investment advisor of Caravelle
Investment Fund, L.L.C. is an affiliate of Transportation Investment
Partners, L.L.C. The number of shares of common stock beneficially owned by
Caravelle Investment Fund, L.L.C. includes warrants to acquire 68,621
shares of our common stock exercisable within 60 days. The address of
Caravelle Investment Fund, L.L.C. is 425 Lexington Avenue, New York, NY
10017.
(4) Albion Alliance LLC has investment control over Albion Alliance Mezzanine
Fund, L.P. and Albion Alliance Mezzanine Fund II, L.P. Albion Alliance
Mezzanine Fund, L.P. beneficially owns 72,757 shares of our common stock
(3.9%), including warrants to acquire 5,233 shares of common stock
exercisable within 60 days. Albion Alliance Mezzanine Fund II, L.P.
beneficially owns 76,993 shares of our common stock (4.1%), including
warrants to acquire 20,930 shares of common stock exercisable within 60
days. The address of Albion Alliance LLC is 1345 Avenue of the Americas -
37th Floor, New York, NY 10105.
(5) CIBC Inc. is a limited partner in Albion Alliance Mezzanine Fund II, L.P.
(6) Messrs. Bloom, Dalton, Flyer and Levine are employees of an affiliate of
CIBC Inc. The address of CIBC Inc. is 425 Lexington Avenue, New York, NY
10017.
(7) CIBC MB, Inc. and CIBC Employee Private Equity Fund (Trimaran) Partners,
limited liability company members of Transportation Investment Partners,
L.L.C., are affiliates of CIBC Inc. CIBC Inc. is a lender to and an
investor in Caravelle Investment Fund, L.L.C. The number of shares of
common stock beneficially owned by CIBC Inc. includes warrants to acquire
115,116 shares of our common stock exercisable within 60 days.
(8) Includes warrants to acquire 29,695 shares of our common stock exercisable
within 60 days.
(9) Includes warrants to acquire 17,302 shares of our common stock exercisable
within 60 days.
(10) Includes warrants to acquire 12,219 shares of our common stock exercisable
within 60 days.
(11) Includes warrants to acquire 17,402 shares of our common stock exercisable
within 60 days. Mr. Santomero's address is Rabbit Hill, Sarles Street, Mt.
Kisco, NY 10549.
(12) Mr. Shulman is on the management board of Trimaran Fund II, L.L.C. The
number of shares of common stock shown as beneficially owned by Mr. Shulman
includes warrants to acquire 785 shares of our common stock exercisable
within 60 days. The Hesed Foundation is a family foundation managed by the
children of Mr. Shulman. The number of shares of common stock shown as
beneficially owned by the Hesed Foundation includes warrants to acquire 785
shares of our common stock exercisable within 60 days.
(13) Includes warrants to acquire 13,632 shares of our common stock exercisable
within 60 days.
(14) Includes warrants to acquire 23,344 shares of our common stock exercisable
within 60 days.
(15) The address of each of Messrs. Bloom, Dalton, Flyer, Levine and Shulman is
c/o Trimaran Capital Partners, 425 Lexington Avenue, New York, NY 10017.
-63-
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summary of our indebtedness does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, the
provisions of each debt instrument summarized below.
Senior Credit Facilities
Our senior credit facilities consist of the following:
(1) a five-year $50.0 million revolving credit facility (the
"Revolving Credit Facility") and a five-year $115.0 million term loan
facility (the "First Lien Term Loan Facility" and, together with the
Revolving Credit Facility, the "First Lien Facilities"); and
(2) a five-year $100.0 million term loan facility (the "Second Lien
Term Loan Facility" and, together with the First Lien Term Loan Facility,
the "Term Loans").
The First Lien Term Loan Facility is to be repaid on a quarterly basis with
1% of the principal amount being repaid in each of the first four years, 1% of
the principal amount being repaid in each of the first three quarters of the
fifth year and the remainder repaid upon maturity at the end of the fifth year.
The Second Lien Term Loan Facility has no amortization until maturity. To the
extent repaid, Term Loans may not be reborrowed.
Credit Suisse First Boston is the Administrative Agent and Collateral Agent
for each of our senior credit facilities. Lehman Commercial Paper Inc. and
Wachovia Capital Markets, LLC are the Co- Syndication Agents, and the lenders
for each facility are a syndicate of banks, financial institutions and other
entities.
Subject to certain exceptions, we will be required to make mandatory
repayments of and corresponding reductions under the First Lien Term Loan
Facility (and, after the First Lien Term Loan Facility has been repaid in full,
the Second Lien Term Loan Facility) with the proceeds from (1) asset sales, (2)
the issuance of debt securities (subject to certain exceptions for high-yield
debt issuances), (3) proceeds of equity issuances, (4) insurance and
condemnation awards and (5) annual excess cash flow. Voluntary prepayments of
the First Lien Facilities (and, after the First Lien Facilities have been repaid
in full or cash collateralized, the Second Lien Term Loan Facility) will be
permitted at any time, subject to certain notice requirements and breakage
costs, and in the case of the Second Lien Term Loan Facility, the payment of a
prepayment penalty if such optional redemption occurs on or prior to March 16,
2006.
Our senior credit facilities will bear interest at a rate per annum equal
to either (a) Credit Suisse First Boston's "base rate" plus a certain margin or
(b) LIBOR plus a certain margin, at our election. The margins applicable to our
senior credit facilities are (1) on the Revolving Credit Facility, either the
applicable LIBOR rate, plus a margin of 3.00%, or the base rate, plus a margin
of 2.00%, (2) on the First Lien Term Loan Facility, either the applicable LIBOR
rate, plus a margin of 3.75%, or the base rate, plus a margin of 2.75% and (3)
on the Second Lien Term Loan Facility, either the applicable LIBOR rate, plus a
margin of 7.00%, or the base rate, plus a margin of 6.00%. In the case of the
Second Lien Term Loan Facility, LIBOR will be no less than 1.75% per annum. We
have capped our interest rate exposure on $59.0 million of the Term Loans for a
period from October 16, 2004 through March 16, 2005, at a fixed LIBOR rate of
3%. We will also pay a commitment fee on the unused portion of the Revolving
Credit Facility in an amount equal to 0.50% per annum.
The First Lien Facilities contain covenants, including restrictions on:
o our business activities;
o debt and liens;
o the sale of assets;
o mergers, acquisitions and other business combinations;
-64-
o voluntary prepayment of certain debt (including the notes);
o transactions with affiliates;
o capital expenditures;
o loans and investments;
o prohibitions on the payment of cash dividends or the repurchase or
redemption of stock; and
o various financial covenants, including maintenance of a maximum ratio of
funded debt to EBITDA, a minimum ratio of consolidated EBITDA less capital
expenditures to consolidated fixed charges and a minimum ratio of
consolidated EBITDA to consolidated interest expense.
The Second Lien Term Loan Facility contains covenants similar to, but in
many instances less restrictive than, the covenants under the First Lien
Facilities.
Our senior credit facilities contain customary events of default, including
payment defaults, breaches of representations and warranties, covenant defaults,
cross-default and cross-acceleration to certain other debt, certain events of
bankruptcy and insolvency, certain events under the Employee Retirement Income
Security Act of 1974, as amended, material judgments, actual or asserted failure
of any guarantee or security document supporting our senior credit facilities to
be in full force and effect and change of control. If such a default occurs, the
lenders under our senior credit facilities will be entitled to take various
actions, including all actions permitted to be taken by a secured creditor, the
acceleration of amounts due under our senior credit facilities and requiring
that all such amounts be immediately paid in full. However, under the terms of
an intercreditor agreement governing the relationship between the First Lien
Facilities and the Second Lien Term Loan Facility, prior to the repayment in
full of all obligations under the First Lien Facilities, certain of the remedies
may be exercised only by the Administrative Agent under the First Lien
Facilities.
All obligations under our senior credit facilities are jointly and
severally guaranteed by all of our direct and indirect domestic subsidiaries.
The debt under our senior credit facilities is secured by (a) a first priority
perfected security interest (in the case of the First Lien Facilities) and (b) a
second priority perfected security interest (in the case of the Second Lien Term
Loan Facility), in each case subject to permitted liens, in substantially all of
our and our subsidiaries' personal property and owned real property and a pledge
of 100% of the capital stock of each guarantor subsidiary and 65% of the capital
stock of each of our and the guarantors' direct foreign subsidiaries. Our future
domestic subsidiaries will be required to guarantee the senior credit facilities
and to secure such guarantee with substantially all of their personal property
and owned real property.
Our senior credit facilities, including the terms and conditions described
above, are subject to modification, amendment and waiver by the parties thereto.
We were in compliance with the financial covenants under our senior credit
facilities as of June 30, 2004, the last date on which such financial covenants
applied.
Industrial Revenue Bonds
On April 1, 1999, we, through our Bostrom subsidiary, issued Industrial
Revenue Bonds for $3.1 million which bear interest at a variable rate (1.31% as
of June 30, 2004) and can be redeemed by us at any time. The bonds are secured
by a letter of credit. The bonds have no amortization and mature in 2014. The
bonds are also subject to a weekly "put" provision by the holders of the bonds.
In the event that any or all of the bonds are put to us under this provision, we
would either refinance such bonds with additional borrowings under our revolving
credit facility or use available cash on hand.
-65-
DESCRIPTION OF CAPITAL STOCK
The following is a description of the material terms of our certificate of
incorporation and bylaws as presently in effect and does not purport to be
complete and is subject to all the provisions of our certificate of
incorporation and bylaws.
Our authorized capital stock presently consists of 20,000,000 shares of
common stock, par value $0.01 per share, and 400,000 shares of preferred stock,
par value $0.01 per share. As of June 30, 2004, there were:
(1) 1,860,464 shares of our common stock issued and outstanding;
(2) 46,141 shares of our Series E Preferred Stock issued and outstanding;
(3) 128,531 shares of our Series A Preferred Stock issued and outstanding;
(4) 14,000 shares of our Series C Preferred Stock issued and outstanding;
(5) 42,000 shares of our Series D Preferred Stock issued and outstanding;
and
(6) no shares of our capital stock in our treasury.
Preferred Stock
We presently have four series of outstanding preferred stock. Set forth
below are descriptions of each such series in order of seniority within our
capital structure.
Series E 25% Senior Redeemable Preferred Stock
Our Series E Preferred Stock was issued in December 2003 to affiliates of
Trimaran Capital Partners and Albion Alliance, as well as to several members of
our management, with dividends that accrete at 25% per annum, in a private
placement in exchange for the retirement of $40.0 million aggregate principal
amount of our old 15.0% senior subordinated notes, $0.5 million of accrued
interest and the payment to us of $1.0 million in cash. Upon issuance, there
were 41,475 shares of Series E Preferred Stock, representing $41.475 million in
aggregate liquidation preference. The Series E Preferred Stock ranks senior to
the common stock and to all other series of our preferred stock with respect to
dividend rights and rights on liquidation, winding up and dissolution, and each
share of Series E Preferred Stock has a liquidation preference of $1,000.
Dividends on the Series E Preferred Stock accumulate at the rate of 25% per
annum. The Series E Preferred Stock does not have a fixed maturity date. At June
30, 2004, because dividends on the Series E Preferred Stock have been paid in
additional shares rather than cash, an additional 4,666 shares of Series E
Preferred Stock have been issued representing a total of $47.1 million in
aggregate liquidation preference which includes 961,260 of accrued but unpaid
dividends. We may optionally redeem the Series E Preferred Stock, presently at a
premium equal to 18.75% of both the liquidation preference and the accrued but
unpaid dividends thereon. The premium declines periodically from January 1, 2005
until January 1, 2011, at which time we may redeem the Series E Preferred Stock
without premium.
Series A 14.5% Senior Redeemable Preferred Stock
Our Series A Preferred Stock was issued to affiliates of Trimaran Capital
Partners, Albion Alliance and Caravelle Investment Fund in March 2000 upon
completion of the acquisition of our company by our current stockholders. Upon
issuance, there were 70,000 shares of Series A Preferred Stock, representing
$70.0 million in aggregate liquidation preference. At June 30, 2004, because
dividends on the Series A Preferred Stock have been paid in additional shares
rather than in cash, an additional 59,307 shares of Series A Preferred Stock
have been issued representing a total of $129.3 million in aggregate liquidation
preference which includes $776,540 of accrued but unpaid dividends. The Series A
Preferred Stock ranks junior to the Series E Preferred Stock, on parity with the
Series C Preferred Stock and senior to the common stock and to all other series
of our preferred stock (including the Series D Preferred Stock described below)
with respect to dividend rights and rights on liquidation, winding up and
dissolu-
-66-
tion, and each share of Series A Preferred Stock has a maximum liquidation
preference of $1,000. The terms of the Series A Preferred Stock entitle the
holders to receive $70.0 million before the holders of the Series C Preferred
Stock are entitled to receive any payments. We are required to redeem the Series
A Preferred Stock on June 30, 2010. Prior to that time, we may optionally redeem
the Series A Preferred Stock, presently at a premium equal to 9.67% of the
liquidation preference thereof, declining ratably on each March 15 until March
15, 2008 at which time we may redeem the Series A Preferred Stock without
premium.
The Series A Preferred Stock has the benefit of certain protective
covenants which limit our ability (and the ability of our restricted
subsidiaries) to incur indebtedness, pay dividends on junior equity securities,
redeem junior equity securities, make certain investments, enter into
transactions with affiliates, sell assets, enter into sale-leaseback
transactions, incur liens, issue preferred stock of subsidiaries and create
subsidiaries. Upon the occurrence of a change of control of our company, we are
required to offer to repurchase the Series A Preferred Stock at a price equal to
101% of the liquidation preference thereof, plus unpaid dividends.
The Series A Preferred Stock provides that if any dividend payable on any
dividend payment date subsequent to March 15, 2005 is not paid in full in cash,
or if, at any time, any of the events described in clauses (1) through (5) of
the definition of the "Voting Rights Triggering Event" below has occurred, the
per annum dividend rate on the Series A Preferred Stock will be increased by 2%
from such dividend payment date or during the continuance of any such Voting
Rights Triggering Event, as the case may be.
The Series A Preferred Stock provides that if (1) after March 15, 2005
dividends on the Series A Preferred Stock required to be paid in cash are in
arrears and unpaid for three or more quarterly dividend periods (whether or not
consecutive), or (2) we fail to redeem the Series A Preferred Stock on or before
March 15, 2010 or otherwise fail to discharge any redemption obligation with
respect to the Series A Preferred Stock, or (3) we fail to make a change of
control offer if such an offer is required by the terms of the Series A
Preferred Stock or fail to purchase shares of Series A Preferred Stock from
holders who elect to have such shares purchased pursuant to the change of
control offer, or (4) a breach or violation of any of the protective covenants
set forth in the Series A Preferred Stock occurs and the breach or violation
continues for a period of 60 days or more after we receive notice thereof
specifying the default from the holders of at least 25% of the shares of Series
A Preferred Stock then outstanding, or (5) we fail to pay when due (giving
effect to any applicable grace periods and any waiver or extension thereof) the
principal, interest or premium with respect to any of our indebtedness or of any
restricted subsidiary, or any such indebtedness is accelerated, if the aggregate
principal amount of such indebtedness, together with the aggregate principal
amount of any other such indebtedness in default for failure to pay principal,
interest or premium or which has been accelerated, aggregates $10 million or
more at any time; then the holders of a majority of the then outstanding shares
of Series A Preferred Stock, voting separately and as a class, will have the
right to elect the lesser of two directors and that number of directors
constituting 20% of the members of our board of directors. Such voting rights
will continue until such time as, in the case of a dividend default, all
accumulated and unpaid dividends on the Series A Preferred Stock are paid in
full in cash and, in all other cases, any failure, breach or default giving rise
to such voting rights is remedied, cured or waived by the holders of at least a
majority of the shares of Series A Preferred Stock then outstanding, at which
time the term of any directors elected pursuant to the provisions of this
paragraph shall terminate. Each such event described in clauses (1) through (5)
above is referred to herein as a "Voting Rights Triggering Event."
Series C Preferred Stock
Our Series C Preferred Stock was issued in December 2003 simultaneously
with the issuance of the Series E Preferred Stock and Series D Preferred Stock
and was issued in a private placement to members of our management and certain
other holders of our common stock for the payment of $0.10 per share (or an
aggregate of $140) in order to offset the adverse effects on the value of
options and underlying common stock held by our management resulting from the
issuance of our existing senior subordinated notes as part of the exchange of
such notes for the Series E Preferred Stock. The members of our management and
the other holders agreed, as a condition to receiving the Series C Preferred
Stock, to transfer an aggregate of 80,233 shares of common stock (0.8 shares
after giving effect to the 100,000-for-one reverse split of our common stock) to
the holders of our Series A Preferred Stock as consideration for their
consenting to permit the Series C Preferred Stock to rank pari passu with the
Series A Preferred Stock. There are 14,000 shares of Series C Preferred Stock
issued, representing a maximum $16.5 million in liquidation preference. The
Series C Preferred Stock ranks junior to the Series E Preferred Stock, on parity
with the Se-
-67-
ries A Preferred Stock and senior to the common stock and to all other series of
our preferred stock (including the Series D Preferred Stock described below)
with respect to dividend rights and rights on liquidation, winding up and
dissolution, and each share of Series C Preferred Stock will have a maximum
liquidation preference of $1,178.57. Although the Series C Preferred Stock ranks
on parity with the Series A Preferred Stock, it is not entitled to any payment
until the Series A Preferred Stock has received at least $70.0 million.
Series D Preferred Stock
Our Series D Preferred Stock was issued in December 2003 in a private
placement to the holders of our Series A Preferred Stock and an institutional
warrantholder simultaneously with the issuance of the Series E Preferred Stock
and Series C Preferred Stock for the payment of $0.10 per share. There are
42,000 shares of Series D Preferred Stock issued, representing a maximum of
$49.5 million in liquidation preference. The Series D Preferred Stock ranks
junior to the Series E Preferred Stock, the Series A Preferred Stock and the
Series C Preferred Stock and senior to the common stock with respect to dividend
rights and rights on liquidation, winding up and dissolution, and each share of
Series D Preferred Stock will have a maximum liquidation preference of
$1,178.57.
Common Stock
The holders of our common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of our stockholders and do not
have cumulative voting rights in the election of directors. Holders of our
common stock are entitled to receive ratably such dividends as may be from time
to time declared by our board out of funds legally available therefor. In the
event of a liquidation, dissolution or winding up of our company, holders of our
common stock would be entitled to share ratably in all of our assets available
for distribution to holders of our common stock remaining after payment of
liabilities and liquidation preference for any of our outstanding preferred
stock.
Certain holders of our common stock are parties to a stockholders'
agreement that provides for certain rights and restrictions with respect to
transfers and voting of their shares. See "Certain Relationships and Related
Party Transactions--Stockholders' Agreement."
See "Security Ownership of Certain Beneficial Owners and Management"
regarding ownership of our common stock.
-68-
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
The following is a summary of the registration rights agreement. It does
not purport to be complete and it does not contain all of the information you
might find useful. For further information you should read the registration
rights agreement, a copy of which has been filed as an exhibit to the
registration statement of which this prospectus is a part. The exchange offer is
intended to satisfy certain of our obligations under the registration rights
agreement.
Exchange Offer Registration Statement. We issued the outstanding notes and
the guarantors issued their guarantees of the outstanding notes on May 21, 2004.
The selling shareholders have advised us that they subsequently resold the
outstanding notes to "qualified institutional buyers" in reliance on Rule 144A
under the Securities Act and to certain persons in offshore transactions in
reliance on Regulation S under the Securities Act. As a condition to the
offering of the outstanding notes, we entered into a registration rights
agreement dated May 21, 2004, pursuant to which we agreed, subject to certain
circumstances, for the benefit of all holders of the outstanding notes, at our
own expense, to do the following, unless the exchange offer would not be
permitted by applicable law or SEC policy:
(1) to file the registration statement of which this prospectus is a
part with the SEC on or prior to 120 days after the issue date of the
outstanding notes,
(2) to use our reasonable best efforts to cause the registration
statement to be declared effective by the SEC on or prior to 200 days after
the issue date of the outstanding notes,
(3) to use our reasonable best efforts to keep the exchange offer open
not less than 20 business days, or longer, if required by the federal
securities laws, after the date on which the exchange offer prospectus was
first mailed to investors and consummate the exchange offer on or prior to
the 30th day following the date on which the exchange registration
statement is declared effective, and
(4) if obligated to file a shelf registration statement, to use
reasonable best efforts to file the shelf registration statement with the
SEC on or prior to 60 days after such filing obligation arises and to cause
the shelf registration statement to be declared effective by the SEC on or
prior to 60 days after such obligation arises.
Further, we agreed to keep the exchange offer open for acceptance for not
less than the minimum period required under applicable Federal and state
securities laws. For each outstanding note validly tendered pursuant to the
exchange offer and not withdrawn, the holder of the outstanding note will
receive an exchange note having a principal amount equal to that of the tendered
outstanding note. Interest on each exchange note will accrue from the last date
on which interest was paid on the tendered outstanding note in exchange therefor
or, if no interest was paid on such outstanding note, from the issue date of the
outstanding notes.
Transferability. We issued the outstanding notes in a transaction exempt
from the registration requirements of the Securities Act and applicable state
securities laws. Accordingly, the outstanding notes may not be offered or sold
in the United States unless registered or pursuant to an applicable exemption
under the Securities Act and applicable state securities laws. Based on
no-action letters issued by the staff of the SEC with respect to similar
transactions with third parties, we believe that the exchange notes issued
pursuant to the exchange offer in exchange for outstanding notes may be offered
for resale, resold and otherwise transferred by holders of notes who are not our
affiliates without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that:
(1) any exchange notes to be received by the holder were acquired in
the ordinary course of the holder's business;
-69-
(2) at the time of the commencement of the exchange offer the holder
has no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the exchange
notes; and
(3) the holder is not an "affiliate" of ours, 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.
However, we have not sought a no-action letter with respect to the exchange
offer and we cannot assure you that the staff of the SEC would make a similar
determination with respect to the exchange offer. Any holder who tenders his
outstanding notes in the exchange offer with any intention of participating in a
distribution of exchange notes or is an affiliate of ours (1) cannot rely on the
interpretation by the staff of the SEC, (2) will not be able to validly tender
outstanding notes in the exchange offer and (3) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transactions.
In addition, each broker-dealer that receives exchange notes for its own
account pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. The letter of
transmittal accompanying this prospectus states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
acting in the capacity of an "underwriter" within the meaning of Section 2(11)
of the Securities Act. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection with resales of
exchange notes received in exchange for outstanding notes where the outstanding
notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. Pursuant to the registration rights
agreement, we agreed to make this prospectus available to any such broker-dealer
for use in connection with any such resale.
Shelf Registration Statement. We will, at our cost, (a) file with the SEC a
shelf registration statement covering resales of the outstanding notes on or
prior to 60 days after the date we become obligated to file the shelf
registration statement, (b) use all reasonable best efforts to cause the shelf
registration statement to be declared effective under the Securities Act on or
prior to 60 days after the obligation to file such shelf registration statement
arises and (c) use all reasonable best efforts to keep the shelf registration
statement continually effective to ensure that it is available for resales of
notes by the holders of transfer restricted notes for a period ending on the
earlier of the second anniversary of the closing date of the initial private
offering of the outstanding notes (or such lesser restrictive period as is then
permitted by the applicable federal securities laws) or such shorter period
ending when:
(1) all registrable notes covered by the shelf registration statement
have been sold in the manner set forth and as contemplated in the shelf
registration statement; or
(2) a subsequent shelf registration statement covering all of the
registrable notes has been declared effective under the Securities Act.
We will, in the event of the filing of the shelf registration statement,
provide to each holder of the outstanding notes copies of the prospectus which
is a part of the shelf registration statement, notify each such holder when the
shelf registration statement for the outstanding notes has become effective and
take certain other action as is required to permit unrestricted resales of the
outstanding notes. A holder of outstanding notes who sells such outstanding
notes pursuant to the shelf registration statement generally will (1) be
required to be named as a selling security holder in the related prospectus, (2)
be required to deliver the prospectus to purchasers, (3) be subject to certain
of the civil liability provisions under the Securities Act in connection with
such sales and (4) be bound by the provisions of the registration rights
agreement which are applicable to the holder (including certain indemnification
obligations). In addition, each holder of the outstanding notes will be required
to deliver information to be used in connection with the shelf registration
statement and to provide comments on the shelf registration statement as set
forth in the registration rights agreement in order to have their outstanding
notes included in the shelf registration statement and to benefit from the
provisions regarding additional interest.
Additional Interest. We will pay additional interest in respect of the
outstanding notes (for each outstanding note which has not been exchanged in the
exchange offer) as described below:
-70-
(1) If
(a) the exchange offer registration statement or shelf registration
statement is not filed within 120 days after the issue date of the
outstanding notes or
(b) notwithstanding that we have completed or will complete an
exchange offer, we are required to file a shelf registration statement and
such shelf registration statement is not filed on or prior to the date
required by the registration rights agreement;
(2) If
(a) an exchange offer registration statement or shelf registration
statement is not declared effective within 200 days after the issue date of
the outstanding notes or
(b) notwithstanding that we have completed or will complete an
exchange offer, we are required to file a shelf registration statement and
such shelf registration statement is not declared effective by the
Securities Exchange Commission on or prior to the 60th day following the
date such shelf registration statement was filed; or
(3) If either
(a) we have not exchanged the exchange notes for all notes validly
tendered in accordance with the terms of the exchange offer on or prior to
the 230th day after the issue date of the outstanding notes or
(b) the exchange offer registration statement ceases to be effective
at any time prior to the time that the exchange offer is completed or
(c) if applicable, the shelf registration statement ceases to be
effective at any time prior to the second anniversary of the issue date of
the notes
(each such event referred to in clauses (1) through (3) above is a "registration
default"), the sole remedy available to holders of the notes will be the
immediate assessment of additional interest ("additional interest") as follows:
the per annum interest rate on the notes will increase by 0.50%, and the per
annum interest rate will increase by an additional 0.25% for each subsequent
90-day period during which the registration default remains uncured, up to a
maximum additional interest rate of 2.00% per annum in excess of the interest
rate on the cover of this prospectus. All additional interest will be payable to
holders of the notes in cash on each interest payment date, commencing with the
first such date occurring after any such additional interest commences to
accrue, until such registration default is cured. After the date on which such
registration default is cured, that interest rate on the notes will revert to
the interest rate originally borne by the notes (as shown on the cover of this
prospectus).
Terms of the Exchange Offer
Upon satisfaction or waiver of all the conditions of the exchange offer, we
will accept any and all outstanding notes properly tendered and not withdrawn
prior to the expiration date and will issue the exchange notes promptly after
acceptance of the outstanding notes. See "--Conditions to the Exchange Offer"
and "--Procedures for Tendering Outstanding Notes." We will issue $1,000
principal amount of exchange notes in exchange for each $1,000 principal amount
of outstanding notes accepted in the exchange offer. As of the date of this
prospectus, $100,000,000 aggregate principal amount of the 12 1/2% senior
subordinated notes due 2010 are outstanding. Holders may tender some or all of
their outstanding notes pursuant to the exchange offer. However, outstanding
notes may be tendered only in integral multiples of $1,000.
The exchange notes are substantially identical to the outstanding notes
except that the exchange notes will not contain certain transfer restrictions,
registration rights and additional interest provisions. The issuance of exchange
notes in exchange for outstanding notes pursuant to the exchange offer will not
result in a repayment of our
-71-
indebtedness which is presently evidenced by the outstanding notes. The exchange
notes will evidence the same debt as the outstanding notes and will be issued
pursuant to, and entitled to the benefits of, the indenture pursuant to which
the outstanding notes were issued and will be deemed one issue of notes,
together with any outstanding notes which remain outstanding after the exchange
offer.
This prospectus, together with the letter of transmittal, is being sent to
all registered holders and to others believed to have beneficial interests in
the outstanding notes. Holders of outstanding notes do not have any appraisal or
dissenters' rights under the indenture in connection with the exchange offer. We
intend to conduct the exchange offer in accordance with the applicable
requirements of the Securities Act, the Exchange Act and the rules and
regulations of the SEC promulgated thereunder.
For purposes of the exchange offer, we will be deemed to have accepted
validly tendered outstanding notes when, and as if, we have given oral or
written notice thereof to the exchange agent. The exchange agent will act as our
agent for the purpose of distributing the exchange notes from us to the
tendering holders. If we do not accept any tendered outstanding notes because of
an invalid tender, the occurrence of certain other events set forth in this
prospectus or otherwise, we will return the unaccepted outstanding notes,
without expense, to the tendering holder thereof as promptly as practicable
after the expiration date.
Holders who tender outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees or, except as set forth below
under "--Transfer Taxes," transfer taxes with respect to the exchange of
outstanding notes pursuant to the exchange offer. We will pay all charges and
expenses, other than certain applicable taxes, in connection with the exchange
offer. See "--Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "expiration date" shall mean 5:00 p.m., New York City time, on ,
2004, unless we, in our sole discretion, extend the exchange offer, in which
case the term "expiration date" shall mean the latest date and time to which the
exchange offer is extended. In order to extend the exchange offer, we will
notify the exchange agent by oral or written notice and each registered holder
by means of press release or other public announcement of any extension, in each
case, prior to 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date. We reserve the right, in our sole
discretion, (1) to delay accepting any outstanding notes, (2) to extend the
exchange offer, (3) to terminate the exchange offer if the conditions set forth
below under "--Conditions to the Exchange Offer" shall not have been satisfied,
or (4) to amend the terms of the exchange offer in any manner. We will notify
the exchange agent of any delay, extension, termination or amendment by oral or
written notice. We will additionally notify each registered holder of any
amendment by means of press release or other public announcement. We will give
to the exchange agent written confirmation of any oral notice.
Exchange Date
As soon as practicable after the close of the exchange offer we will accept
for exchange all outstanding notes properly tendered and not validly withdrawn
prior to 5:00 p.m., New York City time, on the expiration date in accordance
with the terms of this prospectus and the letters of transmittal.
Conditions to the Exchange Offer
Notwithstanding any other provisions of the exchange offer, and subject to
our obligations under the registration rights agreement, we (i) shall not be
required to accept any outstanding notes for exchange, (ii) shall not be
required to issue exchange notes in exchange for any outstanding notes and (iii)
may terminate or amend the exchange offer unless, at any time before the
acceptance of such exchange notes for exchange:
(1) the exchange offer or the making of any exchange by a holder, does
not violate applicable law or any applicable interpretation of the staff of
the SEC,
(2) the due tendering of outstanding notes is in accordance with the
exchange offer,
-72-
(3) each holder of outstanding notes exchanged in the exchange offer
shall have represented that (a) any exchange notes acquired in exchange for
outstanding notes tendered are being acquired in the ordinary course of
business of the person receiving such exchange notes, whether or not such
recipient is such holder itself, (b) neither such holder nor, to the actual
knowledge of such holder, any other person receiving exchange notes from
such holder is engaging in or intends to engage in a distribution of the
exchange notes, (c) if such holder is not a broker-dealer, at the time of
the consummation of the exchange offer neither such holder nor, to the
actual knowledge of such holder, any other person receiving exchange notes
from such holder has an arrangement or understanding with any person to
participate in the distribution of the exchange notes in violation of the
federal securities laws, (d) neither such holder nor, to the actual
knowledge of such holder, any other person is an affiliate (as defined by
the federal securities laws) of ours or, if it is an affiliate of ours, it
will comply with the registration and prospectus delivery requirements of
the federal securities laws to the extent applicable and will provide
certain information to be included in any shelf registration statement
filed pursuant to the registration rights agreement dated May 21, 2004
entered into by us for the benefit of all holders of the outstanding notes,
in order to have such holder's outstanding notes included in such shelf
registration statement and benefit from the additional interest provisions
of the registration rights agreement, and (e) if such holder is a
broker-dealer, such holder has acquired the outstanding notes as a result
of market-making activities or other trading activities and that it will
comply with the applicable provisions of the federal securities laws,
including the prospectus deliver requirements,
(4) no action or proceeding shall have been instituted or threatened
in any court or by any governmental agency with respect to the exchange
offer which might materially impair the ability of us to proceed with the
exchange offer, and no material adverse development shall have occurred in
any existing action or proceeding with respect to us
(5) we have obtained all governmental approvals which we deem
necessary for the consummation of the exchange offer, and
(6) each holder of outstanding notes shall not have delivered notice
to us prior to 90 days after the issue date of the outstanding notes with
respect to the exchange registration statement that it is a restricted
holder.
The foregoing conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any such condition or may be
waived by us in whole or in part at any time and from time to time in our sole
discretion. Our failure at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any such right and such right shall be deemed an
ongoing right which may be asserted at any time and from time to time.
In addition, we will not accept for exchange any outstanding notes
tendered, and no exchange notes will be issued in exchange for any such
outstanding notes if at such time any stop order shall be threatened by the SEC
or be in effect with respect to the registration statement of which this
prospectus is a part or the qualification of the indenture under the Trust
Indenture Act of 1939, as amended.
The exchange offer is not conditioned on any minimum aggregate principal
amount of outstanding notes being tendered for exchange.
Consequences of Failure to Exchange
Any outstanding notes not tendered pursuant to the exchange offer will
remain outstanding and continue to accrue interest. The outstanding notes will
remain "restricted securities" within the meaning of the Securities Act.
Accordingly, prior to the date that is two years after the later of the issue
date of the outstanding notes and the last date on which we or any of our
affiliates was the owner of the outstanding notes, the outstanding notes may be
resold only (1) to us, (2) to a person who the seller reasonably believes is a
"qualified institutional buyer" purchasing for its own account or for the
account of another "qualified institutional buyer" in compliance with the resale
limitations of Rule 144A, (3) to an "institutional accredited investor" that,
prior to the transfer, furnishes to the trustee a written certification
containing certain representations and agreements relating to the restrictions
on transfer of the notes (the form of this letter can be obtained from the
trustee), (4) pursuant to the limitations on resale provided by
-73-
Rule 144 under the Securities Act, (5) pursuant to the resale provisions of Rule
904 of Regulation S under the Securities Act, (6) pursuant to an effective
registration statement under the Securities Act, or (7) pursuant to any other
available exemption from the registration requirements of the Securities Act,
subject in each of the foregoing cases to compliance with applicable state
securities laws. As a result, the liquidity of the market for non-tendered
outstanding notes could be adversely affected upon completion of the exchange
offer. The foregoing restrictions on resale will no longer apply after the
second anniversary of the issue date of the outstanding notes or the purchase of
the outstanding notes from us or our affiliate.
Fees and Expenses
We will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. The principal solicitation is being made by
mail; however, additional solicitations may be made in person or by telephone by
our officers and employees.
Expenses incurred in connection with the exchange offer will be paid by us.
Such expenses include, among others, the fees and expenses of the trustee and
the exchange agent, accounting and legal fees, printing costs and other
miscellaneous fees and expenses.
Accounting Treatment
We will not recognize any gain or loss for accounting purposes upon the
consummation of the exchange offer. We will amortize the expenses of the
exchange offer as additional interest expense over the term of the exchange
notes.
Procedures for Tendering Outstanding Notes
The tender of outstanding notes pursuant to any of the procedures set forth
in this prospectus and in the letter of transmittal will constitute a binding
agreement between the tendering holder and us in accordance with the terms and
subject to the conditions set forth in this prospectus and in the letter of
transmittal. The tender of outstanding notes will constitute an agreement to
deliver good and marketable title to all tendered outstanding notes prior to the
expiration date free and clear of all liens, charges, claims, encumbrances,
interests and restrictions of any kind.
Except as provided in "--Guaranteed Delivery Procedures," unless the
outstanding notes being tendered are deposited by you with the exchange agent
prior to the expiration date and are accompanied by a properly completed and
duly executed letter of transmittal, we may, at our option, reject the tender.
Issuance of exchange notes will be made only against deposit of tendered
outstanding notes and delivery of all other required documents. Notwithstanding
the foregoing, DTC participants tendering through its Automated Tender Offer
Program ("ATOP") will be deemed to have made valid delivery where the exchange
agent receives an agent's message prior to the expiration date.
Accordingly, to properly tender outstanding notes, the following procedures
must be followed:
Notes held through a custodian. Each beneficial owner holding outstanding
notes through a DTC participant must instruct the DTC participant to cause its
outstanding notes to be tendered in accordance with the procedures set forth in
this prospectus.
Notes held through DTC. Pursuant to an authorization given by DTC to the
DTC participants, each DTC participant holding outstanding notes through DTC
must (1) electronically transmit its acceptance through ATOP, and DTC will then
edit and verify the acceptance, execute a book-entry delivery to the exchange
agent's account at DTC and send an agent's message to the exchange agent for its
acceptance, or (2) comply with the guaranteed delivery procedures set forth
below and in a notice of guaranteed delivery. See "--Guaranteed Delivery
Procedures--Notes held through DTC."
-74-
The exchange agent will (promptly after the date of this prospectus)
establish accounts at DTC for purposes of the exchange offer with respect to
outstanding notes held through DTC. Any financial institution that is a DTC
participant may make book-entry delivery of interests in outstanding notes into
the exchange agent's account through ATOP. However, although delivery of
interests in the outstanding notes may be effected through book-entry transfer
into the exchange agent's account through ATOP, an agent's message in connection
with such book-entry transfer, and any other required documents, must be, in any
case, transmitted to and received by the exchange agent at its address set forth
under "--Exchange Agent," or the guaranteed delivery procedures set forth below
must be complied with, in each case, prior to the expiration date. Delivery of
documents to DTC does not constitute delivery to the exchange agent. The
confirmation of a book-entry transfer into the exchange agent's account at DTC
as described above is referred to herein as a "Book-Entry Confirmation."
The term "agent's message" means a message transmitted by DTC to, and
received by, the exchange agent and forming a part of the book-entry
confirmation, which states that DTC has received an express acknowledgment from
each DTC participant tendering through ATOP that such DTC participants have
received a letter of transmittal and agree to be bound by the terms of the
letter of transmittal and that we may enforce such agreement against such DTC
participants.
Cede & Co., as the holder of the global note, will tender a portion of each
global note equal to the aggregate principal amount due at the stated maturity
for which instructions to tender are given by DTC participants.
By tendering, each holder and each DTC participant will represent to us
that, among other things, (1) it is not our affiliate, (2) it is not a
broker-dealer tendering outstanding notes acquired directly from us for its own
account, (3) it is acquiring the exchange notes in its ordinary course of
business and (4) it is not engaged in, and does not intend to engage in, and has
no arrangement or understanding with any person to participate in, a
distribution of the exchange notes.
In addition, each broker-dealer that is to receive exchange notes for its
own account in exchange for outstanding notes must represent that such
outstanding notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, and must acknowledge that
it will deliver a prospectus that meets the requirements of the Securities Act
in connection with any resale of the exchange notes. The letter of transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
Section 2(11) of the Securities Act. See "Plan of Distribution."
We will not accept any alternative, conditional, irregular or contingent
tenders (unless waived by us). By executing a letter of transmittal or
transmitting an acceptance through ATOP, as the case may be, each tendering
holder waives any right to receive any notice of the acceptance for purchase of
its outstanding notes.
We will resolve all questions as to the validity, form, eligibility
(including time of receipt) and acceptance of tendered outstanding notes, and
such determination will be final and binding. We reserve the absolute right to
reject any or all tenders that are not in proper form or the acceptance of which
may, in the opinion of our counsel, be unlawful. We also reserve the absolute
right to waive any condition to the exchange offer and any irregularities or
conditions of tender as to particular outstanding notes. Our interpretation of
the terms and conditions of the exchange offer (including the instructions in
the letter of transmittal) will be final and binding. Unless waived, any
irregularities in connection with tenders must be cured within such time as we
shall determine. We, along with the exchange agent, shall be under no duty to
give notification of defects in such tenders and shall not incur liabilities for
failure to give such notification. Tenders of outstanding notes will not be
deemed to have been made until such irregularities have been cured or waived.
Any outstanding notes received by the exchange agent that are not properly
tendered and as to which the irregularities have not been cured or waived will
be returned by the exchange agent to the tendering holder, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration date.
LETTERS OF TRANSMITTAL AND OUTSTANDING NOTES MUST BE SENT ONLY TO THE
EXCHANGE AGENT. DO NOT SEND LETTERS OF TRANSMITTAL OR OUTSTANDING NOTES TO US OR
DTC.
-75-
The method of delivery of outstanding notes, letters of transmittal, any
required signature guaranties and all other required documents, including
delivery through DTC and any acceptance through ATOP, is at the election and
risk of the persons tendering and delivering acceptances or letters of
transmittal and, except as otherwise provided in the applicable letter of
transmittal, delivery will be deemed made only when actually received by the
exchange agent. If delivery is by mail, it is suggested that the holder use
properly insured, registered mail with return receipt requested, and that the
mailing be made sufficiently in advance of the expiration date to permit
delivery to the exchange agent prior to the expiration date.
Guaranteed Delivery Procedures
Notes held through DTC. DTC participants holding outstanding notes through
DTC who wish to cause their outstanding notes to be tendered, but who cannot
transmit their acceptances through ATOP prior to the expiration date, may cause
a tender to be effected if:
(1) guaranteed delivery is made by or through a firm or other entity
identified in Rule 17Ad-15 under the Exchange Act, including:
o a bank;
o a broker, dealer, municipal securities dealer, municipal securities
broker, government securities dealer or government securities broker;
o a credit union;
o a national securities exchange, registered securities association or
clearing agency; or
o a savings institution that is a participant in a Securities Transfer
Association recognized program;
(2) prior to the expiration date, the exchange agent receives from any
of the above institutions a properly completed and duly executed notice of
guaranteed delivery (by mail, hand delivery, facsimile transmission or
overnight courier) substantially in the form provided with this prospectus;
and
(3) book-entry confirmation and an agent's message in connection
therewith are received by the exchange agent within three Business Days
after the expiration date.
Notes held by holders. Holders who wish to tender their outstanding notes
but (1) whose outstanding notes are not immediately available and will not be
available for tendering prior to the expiration date, or (2) who cannot deliver
their outstanding notes, the letter of transmittal, or any other required
documents to the exchange agent prior to the expiration date, may effect a
tender if:
o the tender is made by or through any of the above-listed institutions;
o prior to the expiration date, the exchange agent receives from any
above-listed institution a properly completed and duly executed notice of
guaranteed delivery, whether by mail, hand delivery, facsimile transmission
or overnight courier, substantially in the form provided with this
prospectus; and
o a properly completed and executed letter of transmittal, as well as the
certificate(s) representing all tendered outstanding notes in proper form
for transfer, and all other documents required by the letter of
transmittal, are received by the exchange agent within three Business Days
after the expiration date.
-76-
Withdrawal Rights
You may withdraw tenders of outstanding notes, or any portion of your
outstanding notes, in integral multiples of $1,000 principal amount due at the
stated maturity, at any time prior to 5:00 p.m., New York City time, on the
expiration date. Any outstanding notes properly withdrawn will be deemed to be
not validly tendered for purposes of the exchange offer.
Notes held through DTC. DTC participants holding outstanding notes who have
transmitted their acceptances through ATOP may, prior to 5:00 p.m., New York
City time, on the expiration date, withdraw the instruction given thereby by
delivering to the exchange agent, at its address set forth under "--Exchange
Agent," a written, telegraphic or facsimile notice of withdrawal of such
instruction. Such notice of withdrawal must contain the name and number of the
DTC participant, the principal amount due at the stated maturity of outstanding
notes to which such withdrawal relates and the signature of the DTC participant.
Receipt of such written notice of withdrawal by the exchange agent effectuates a
withdrawal.
Notes held by holders. Holders may withdraw their tender of outstanding
notes, prior to 5:00 p.m., New York City time, on the expiration date, by
delivering to the exchange agent, at its address set forth under "--Exchange
Agent," a written, telegraphic or facsimile notice of withdrawal. Any such
notice of withdrawal must (1) specify the name of the person who tendered the
outstanding notes to be withdrawn, (2) contain a description of the outstanding
notes to be withdrawn and identify the certificate number or numbers shown on
the particular certificates evidencing such outstanding notes and the aggregate
principal amount due at the stated maturity represented by such outstanding
notes and (3) be signed by the holder of such outstanding notes in the same
manner as the original signature on the letter of transmittal by which such
outstanding notes were tendered (including any required signature guaranties),
or be accompanied by (x) documents of transfer in a form acceptable to us, in
our sole discretion, and (y) a properly completed irrevocable proxy that
authorized such person to effect such revocation on behalf of such holder. If
the outstanding notes to be withdrawn have been delivered or otherwise
identified to the exchange agent, a signed notice of withdrawal is effective
immediately upon written, telegraphic or facsimile notice of withdrawal even if
physical release is not yet effected.
All signatures on a notice of withdrawal must be guaranteed by a recognized
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program or the Stock Exchange Medallion
Program; provided, however, that signatures on the notice of withdrawal need not
be guaranteed if the outstanding notes being withdrawn are held for the account
of any of the institutions listed above under "--Guaranteed Delivery
Procedures."
A withdrawal of an instruction or a withdrawal of a tender must be executed
by a DTC participant or a holder of outstanding notes, as the case may be, in
the same manner as the person's name appears on its transmission through ATOP or
letter of transmittal, as the case may be, to which such withdrawal relates. If
a notice of withdrawal is signed by a trustee, partner, executor, administrator,
guardian, attorney-in-fact, agent, officer of a corporation or other person
acting in a fiduciary or representative capacity, such person must so indicate
when signing and must submit with the revocation appropriate evidence of
authority to execute the notice of withdrawal. A DTC participant or a holder may
withdraw an instruction or a tender, as the case may be, only if such withdrawal
complies with the provisions of this prospectus.
A withdrawal of a tender of outstanding notes by a DTC participant or a
holder, as the case may be, may be rescinded only by a new transmission of an
acceptance through ATOP or execution and delivery of a new letter of
transmittal, as the case may be, in accordance with the procedures described
herein.
Exchange Agent
U.S. Bank National Association has been appointed as exchange agent for the
exchange offer. 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 addressed as follows:
-77-
By Registered or Certified Mail:
U.S. Bank National Association,
as Exchange Agent
60 Livingston Avenue
St. Paul, Minnesota 55107
Attention: Frank Leslie
By Hand before 4:30 p.m.:
U.S. Bank National Association,
as Exchange Agent
60 Livingston Avenue
St. Paul, Minnesota 55107
Attention: Frank Leslie
By Hand after 4:30 p.m. or by Overnight Courier:
U.S. Bank National Association,
as Exchange Agent
60 Livingston Avenue
St. Paul, Minnesota 55107
Attention: Frank Leslie
Facsimile: (651) 495-8097
Telephone: (651) 495-3913
The exchange agent also acts as trustee under the Indenture.
Transfer Taxes
Holders of outstanding notes who tender their outstanding notes for
exchange notes will not be obligated to pay any transfer taxes in connection
therewith, except that holders who instruct us to register exchange notes in the
name of, or request that outstanding notes not tendered or not accepted in the
exchange offer be returned to, a person other than the registered tendering
holder will be responsible for the payment of any applicable transfer tax
thereon.
-78-
DESCRIPTION OF THE EXCHANGE NOTES
You can find the definitions of certain terms used in this description
under the subheading "--Certain Definitions." In this description, the term
"notes" refers to the outstanding notes and the exchange notes.
Transportation Technologies Industries, Inc. (the "Company") issued the
outstanding notes under an Indenture (the "Indenture") among itself, the
Guarantors and U.S. Bank National Association, as trustee (the "Trustee"). The
terms of the notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"TIA"). For purposes of this "Description of the Exchange Notes," references to
the "Company" are references to Transportation Technologies Industries, Inc. and
not to any of its subsidiaries.
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. We will provide you with a copy of the Indenture if you
request one.
Brief Description of the Exchange Notes and the Guarantees
The notes
The notes:
o are general unsecured obligations of the Company;
o are subordinated in right of payment to all existing and future Senior
Indebtedness of the Company;
o are senior in right of payment to any future subordinated Indebtedness of
the Company; and
o are unconditionally Guaranteed by the Guarantors.
The Guarantees
The notes are Guaranteed by the following Subsidiaries of the Company:
o Truck Components, Inc.
o Gunite Corporation
o Gunite EMI Corporation
o Brillion Iron Works, Inc.
o Fabco Automotive Corporation
o Bostrom Holdings, Inc.
o Bostrom Seating, Inc.
o Bostrom Specialty Seating, Inc.
o Imperial Group Holding Corp.--1
o Imperial Group Holding Corp.--2
-79-
o Imperial Group, L.P.
o JAII Management Company
The Guarantees of the notes:
o are general unsecured obligations of each Guarantor;
o are subordinated in right of payment to all existing and future Senior
Indebtedness of each Guarantor; and
o are senior in right of payment to any future subordinated Indebtedness of
each Guarantor.
As of the date of the Indenture, all of our Subsidiaries became "Restricted
Subsidiaries." However, under the circumstances described below in the
definition of "Unrestricted Subsidiary," we are permitted to designate certain
of our Subsidiaries as "Unrestricted Subsidiaries." Unrestricted Subsidiaries
are not subject to many of the restrictive covenants in the Indenture.
Unrestricted Subsidiaries do not Guarantee the notes. In addition, any
Restricted Subsidiary with neither assets nor shareholders' equity in excess of
$1 million and all Foreign Restricted Subsidiaries do not Guarantee the notes.
In the event of a bankruptcy, liquidation or reorganization of any of these
non-Guarantor Subsidiaries, these non-Guarantor Subsidiaries will pay the
holders of their debt and their trade creditors and satisfy all of their other
obligations before they will be able to distribute any of their assets to us.
Principal, Maturity and Interest
The Company issued notes with a maximum aggregate principal amount of
$100,000,000. The Company issued notes in denominations of $1,000 and integral
multiples of $1,000. The notes will mature on March 31, 2010.
Interest on the notes will accrue at the rate of 12.5% per annum and will
be payable semi-annually in arrears on each March 31 and September 30,
commencing on September 30, 2004, provided that the Company may at its option
pay up to one-half of the September 30, 2004 interest payment through the
issuance of additional notes and, if the Company so elects, the Company shall
give notice to Holders on or prior to (but no earlier than 20 days before) such
interest payment date stating such election and the amount of the interest
payment to be satisfied through the issuance of the additional notes. The
Company will make each interest payment to the Holders of record of the notes on
the immediately preceding March 15 and September 15. The interest rate on the
notes is subject to increase under the circumstances described below under the
heading "Exchange Offer; Registration Rights."
Interest on the 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.
Optional Redemption
From and after the Issue Date, the Company may redeem the notes, at its
option, in whole at any time or in part from time to time, at the following
redemption prices (expressed as percentages of the principal amount thereof), if
redeemed during the twelve-month period commencing on March 31 of each year set
forth below plus, in each case, accrued and unpaid interest thereon, if any, to
the date of redemption:
Year Percentage
- ---- ----------
2004.................................................... 103.000%
2005.................................................... 103.000%
2006.................................................... 102.000%
2007.................................................... 101.000%
2008 and thereafter..................................... 100.000%
-80-
In the event of a redemption of less than all of the notes, the Trustee
will select the notes to be redeemed as follows:
(1) if the notes are listed, in compliance with the requirements of
the principal national securities exchange on which such notes are listed;
or
(2) if the notes are not then listed, on a pro rata basis, by lot or
in such other manner as the Trustee deems fair and equitable.
The notes will be redeemable upon not less than 30 nor more than 60 days'
prior written notice, mailed by first class mail to a Holder's 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 will 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 any redemption date, interest will cease
to accrue on the notes or portions thereof called for redemption unless the
Company has failed to redeem any such note.
Subordination
The indebtedness represented by the notes is, to the extent and in the
manner provided in the Indenture, subordinated in right of payment to the prior
payment in full of all Senior Indebtedness of the Company. The holders of Senior
Indebtedness of the Company will be entitled to receive payment in full in cash
of all amounts due on or in respect of all Senior Indebtedness of the Company
before the Holders are entitled to receive or retain any payment of any kind on
the notes (other than a payment in the form of Permitted Junior Securities or
from the trust described under the subheading "--Legal Defeasance and Covenant
Defeasance") in the event of any distribution to creditors of the Company in:
(1) any insolvency or bankruptcy case or proceeding or any
receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its
creditors, as such, or to its assets whether voluntary or involuntary; or
(2) any liquidation, dissolution or other winding-up of the Company
whether voluntary or involuntary and whether or not involving insolvency or
bankruptcy; or
(3) general assignment for the benefit of creditors; or
(4) any other marshalling of assets or liabilities of the Company.
The Company also may not make any payment in respect of the notes (other
than a payment in the form of Permitted Junior Securities or from the trust
described under the subheading "--Legal Defeasance and Covenant Defeasance") if:
(1) a Payment Default on Designated Senior Indebtedness occurs and is
continuing and the Trustee receives a notice of such Payment Default from
the representative of the holders of Designated Senior Indebtedness; or
(2) any Non-Payment Default occurs and is continuing on Designated
Senior Indebtedness and the Trustee receives a notice of such Non-Payment
Default (a "Payment Blockage Notice") from the representative of the
holders of such Designated Senior Indebtedness.
-81-
Payments on the notes must be resumed:
(1) in the case of a Payment Default, upon the date on which such
Payment Default is cured, waived in writing or otherwise ceases to exist;
and
(2) in case of a Non-Payment Default, the earlier of the date on which
such Non-Payment Default is cured, waived in writing or otherwise ceases to
exist or 179 days after the date on which the applicable Payment Blockage
Notice is received, unless the maturity of any Designated Senior
Indebtedness has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the effectiveness of the immediately preceding Payment
Blockage Notice.
No Non-Payment Default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee may be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default has been
cured or waived for a period of not less than 90 days.
When the payment blockages described above are no longer in effect, the
Company must resume making any and all required payments on the notes, including
any missed payments. If the Company fails to make any payment on the notes when
due or within any applicable grace period, whether or not on account of the
payment blockage provisions, such failure would constitute an Event of Default
under the Indenture and, subject to the other provisions of the Indenture, would
enable the Holders to accelerate the maturity thereof. See "--Events of
Default."
Each Guarantee will, to the extent set forth in the Indenture, be
subordinated in right of payment to the prior payment of all Senior Indebtedness
of the respective Guarantor and will be subject to the rights of holders of
Designated Senior Indebtedness of such Guarantor to initiate payment blockage
periods, upon terms substantially similar to the subordination provisions of the
notes described above.
A Holder by its acceptance of notes agrees to be bound by such provisions
and authorizes and expressly directs the Trustee, on its behalf, to take such
action as may be necessary or appropriate to effectuate the subordination
provided for in the Indenture and appoints the Trustee its attorney-in-fact for
such purpose.
As a result of the subordination provisions described above, in the event
of a bankruptcy, liquidation or reorganization of the Company, Holders may
recover less ratably than creditors of the Company who are holders of Senior
Indebtedness and trade creditors. See "Risk Factors--Your right to receive
payments on these notes will be junior to our senior credit facilities and the
guarantees of these notes will be junior to our guarantors' guarantees of our
senior credit facilities."
Holders of Senior Indebtedness are third party beneficiaries of the
subordination provisions of the Indenture and the Senior Credit Facility
provides that no amendment of these provisions may be effected without the prior
written consent of the holders of a majority of the principal amount of Senior
Indebtedness outstanding under the Senior Credit Facility.
Certain Covenants
The Indenture will contain, among others, the following covenants:
Limitation on Additional Indebtedness
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, incur (as defined) any Indebtedness
(including Acquired Indebtedness); provided that, the Company or any of its
Restricted Subsidiaries may incur Indebtedness (including Acquired Indebtedness)
if after giving effect to the incurrence of such Indebtedness and the receipt
and application of the proceeds thereof, the Company's Consolidated Fixed Charge
Coverage Ratio is at least 2:00 to 1.
-82-
Notwithstanding the foregoing, the Company and the Restricted Subsidiaries
may incur Permitted Indebtedness; provided that the Company may not incur any
Permitted Indebtedness that ranks junior in right of payment to the notes that
has a maturity or mandatory sinking fund payment prior to the maturity of the
notes.
Notwithstanding any other provision of this "--Limitation on Additional
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the categories of Permitted Indebtedness or is
otherwise entitled to be incurred pursuant to this covenant, the Company may, in
its sole discretion, classify (or reclassify) such item of Indebtedness in any
manner that complies with this covenant and such items of Indebtedness will be
treated as having been incurred pursuant to only one of the categories of
Permitted Indebtedness or pursuant to the first paragraph hereof. Accrual of
interest or accretion of accreted value will not be deemed to be an incurrence
of Indebtedness for purposes of this covenant.
Limitation on Other Senior Subordinated Indebtedness
The Company will not, and will not permit any Guarantor to, directly or
indirectly, incur, contingently or otherwise, any Indebtedness (other than the
notes and the Guarantees, as the case may be) that is both
(1) subordinate in right of payment to any Senior Indebtedness of the
Company or such Guarantor, as the case may be; and
(2) senior in right of payment to the notes or the Guarantee of such
Guarantor, as the case may be. For purposes of this covenant, Indebtedness
is deemed to be senior in right of payment to the notes or a Guarantee, as
the case may be, if it is not explicitly subordinated in right of payment
to Senior Indebtedness of the Company or such Guarantor, as the case may
be, at least to the same extent as the notes and the Guarantee of such
Guarantor, as the case may be, are subordinated to such Senior
Indebtedness.
Limitation on Restricted Payments
The Company will not make, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make, any Restricted Payment, unless:
(1) no Default or Event of Default has occurred and is continuing at
the time of or immediately after giving effect to such Restricted Payment;
(2) immediately after giving pro forma effect to such Restricted
Payment, the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under "--Limitation on Additional
Indebtedness" above; and
(3) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of, without duplication:
(a) 50% of the Company's Cumulative Consolidated Net Income (or
minus 100% of any cumulative deficit in Consolidated Net Income during
such period);
(b) 100% of the aggregate Net Proceeds received by the Company
from the issue or sale after the Issue Date of Capital Stock (other
than Disqualified Capital Stock or Capital Stock of the Company issued
to any Subsidiary of the Company or to an employee stock ownership
plan or other trust established by the Company or any of its
Subsidiaries for the benefit of their employees to the extent the
purchase by such plan or trust is financed by Indebtedness of such
plan or trust and for which the Company is liable as guarantor or
otherwise) of the Company or any Indebtedness or other securities of
the Company convertible into or exercisable or exchangeable for
Capital Stock (other than Disqualified Capital Stock) of the Company
which have been so converted, exercised or exchanged, as the case may
be;
-83-
(c) without duplication of any amounts included in clause (3)(b)
above, 100% of the aggregate Net Proceeds received by the Company from
any equity contribution from a holder of the Company's Capital Stock,
excluding, in the case of clauses 3(b) and (c), any Net Proceeds used
to purchase, redeem or otherwise retire Capital Stock or Indebtedness
as set forth in clause (2) below; and
(d) without duplication, the sum of:
(i) the aggregate amount returned in cash on or with respect
to an Investment (other than a Permitted Investment) in any
Person made subsequent to the Issue Date whether through interest
payments, principal payments, dividends or other distributions;
(ii) the net proceeds received by the Company or any of its
Restricted Subsidiaries from the disposition (other than to the
Company or a Subsidiary of the Company), retirement or redemption
of all or any portion of an Investment described in clause
(3)(d)(i); and
(iii) upon redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, the fair market value of the net assets of
such Subsidiary;
provided, however, that, with respect to an Investment in any Person,
the sum of clauses (i), (ii) and (iii) above with respect to the
Investment in such Person may not exceed the aggregate amount of all
Investments made in such Person subsequent to the Issue Date.
For purposes of determining under clause (3) above, the amount expended for
Restricted Payments, cash distributed will be valued at the face amount thereof
and property other than cash will be valued at its fair market value.
The provisions of this covenant will not prohibit
(1) the payment of any distribution within 60 days after the date of
declaration thereof, if at such date of declaration such payment would
comply with the provisions of the Indenture;
(2) the repurchase, redemption, defeasance or other acquisition or
retirement of any shares of Capital Stock of the Company or Indebtedness
subordinate in right of payment to the notes by conversion into, or by or
in exchange for, shares of Capital Stock of the Company (other than
Disqualified Capital Stock), or out of the Net Proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company or
to an employee stock ownership plan or other trust established by the
Company or any of its Subsidiaries for the benefit of their employees to
the extent the purchase by such plan or trust is financed by Indebtedness
of such plan or trust and for which the Company is liable as guarantor or
otherwise) of other shares of Capital Stock of the Company (other than
Disqualified Capital Stock);
(3) the redemption or retirement of Indebtedness of the Company
subordinate in right of payment to the notes in exchange for, by conversion
into, or out of the Net Proceeds of a substantially concurrent sale or
incurrence of, Indebtedness of the Company (other than any Indebtedness
owed to a Subsidiary of the Company) that is Refinancing Indebtedness;
(4) the repurchase of shares of, or options to purchase shares of,
common stock of the Company or any of its Subsidiaries from employees,
former employees, directors or former directors of the Company or any of
its Subsidiaries (or permitted transferees of such employees, former
employees, directors or former directors), pursuant to the terms of the
agreements (including employment agreements and stockholders' agreements)
or plans (or amendments thereto) approved by the Board of Directors under
which such persons purchase or sell or are granted the option to purchase
or sell, shares of such common stock; provided, however, that the aggregate
amount of such repurchases shall not exceed $2 million;
-84-
(5) so long as no Default or Event of Default shall have occurred and
be continuing, the payment of fees and the reimbursement of out-of-pocket
expenses, in each case pursuant to the Monitoring Agreement as in effect on
the Issue Date, and pursuant to any amendment thereto or any replacement
agreement thereto so long as any such amendment or replacement agreement is
not more disadvantageous to the Holders in any material respect than the
Monitoring Agreement as in effect on the Issue Date;
(6) so long as no Default or Event of Default shall have occurred and
be continuing, the repurchase, redemption, repayment, retirement or other
acquisition of shares of Series A Preferred Stock and/or Series E Preferred
Stock outstanding on the Issue Date (together with any additional Capital
Stock issued as in-kind dividends thereon and the amount of any accumulated
but unpaid dividends thereon, in each case, pursuant to the terms of such
Preferred Stock as in effect on the Issue Date) with the net proceeds of
Subordinated Indebtedness issued pursuant to clause (15) of the definition
of Permitted Indebtedness; and
(7) so long as no Default or Event of Default shall have occurred and
be continuing, the payment of cash dividends accruing after March 15, 2005
on the Series A Preferred Stock in accordance with the terms thereof as in
effect on the Issue Date.
In calculating the aggregate amount of Restricted Payments made subsequent
to the Issue Date for purposes of clause (3) of the first paragraph above,
amounts expended pursuant to clauses (1), (4) and (7) of the immediately
preceding paragraph will be included in such calculation.
Not later than the date of making any Restricted Payment, the Company will
deliver to the Trustee an officers' certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant described above were computed, which calculations may
be based upon the Company's latest available financial statements.
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 acquired, transferred or issued to or by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
Limitation on Liens
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, incur or otherwise cause or suffer to exist or become
effective any Liens of any kind (other than Permitted Liens) upon any property
or asset of the Company or any of its Restricted Subsidiaries or any shares of
Capital Stock or Indebtedness of any Restricted Subsidiary of the Company which
owns property or assets, now owned or hereafter acquired, without making or
causing (except with respect to Permitted Liens) the Restricted Subsidiary to
make, effective provision for securing the notes or, with respect to Liens on
any Guarantor's property or assets, the Guarantee of such Guarantor; and
(1) if such Lien secures Indebtedness which is subordinate in right of
payment to the notes or the Guarantee of such Guarantor, as the case may
be, any such Lien will be subordinate to the Lien granted to Holders or the
Guarantee of such Guarantor, as the case may be, to the same extent as such
Indebtedness is subordinate in right of payment to the notes or the
Guarantee of such Guarantor, as the case may be; and
(2) in all other cases, the notes or the Guarantee of such Guarantor,
as the case may be, are equally and ratably secured.
Limitation on Transactions with Affiliates
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into any transaction or series of
related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with or for the benefit of
any Affiliate (each, an "Affiliate Transaction") or ex-
-85-
tend, renew, waive or otherwise modify the terms of any Affiliate Transaction
entered into prior to the Issue Date unless
(1) such Affiliate Transaction is between or among the Company and one
or more of its Wholly Owned Subsidiaries; or
(2) the terms of such Affiliate Transaction are fair and reasonable to
the Company or such Restricted Subsidiary, as the case may be, and the
terms of such Affiliate Transaction are at least as favorable as the terms
which could be obtained by the Company or such Restricted Subsidiary, as
the case may be, in a comparable transaction made on an arm's-length basis
between unaffiliated parties.
In any Affiliate Transaction (or any series of related Affiliate
Transactions which are similar or part of a common plan) involving an amount or
having a fair market value in excess of $1 million which is not permitted under
clause (1) above, the Company must obtain a board resolution of the Board of
Directors of the Company certifying that such Affiliate Transaction complies
with clause (2) above. In any Affiliate Transaction (or any series of related
Affiliate Transactions which are similar or part of a common plan) involving an
amount or having a fair market value in excess of $10 million which is not
permitted under clause (1) above, the Company must obtain a favorable written
opinion as to the fairness of such transaction or transactions, as the case may
be, from an Independent Financial Advisor.
The foregoing provisions will not apply to
(1) any Restricted Payment that is not prohibited by the provisions
described under "--Limitation on Restricted Payments" above;
(2) reasonable fees and compensation paid to, and indemnity provided
on behalf of, officers, directors or employees of the Company or any
Restricted Subsidiary of the Company as determined in good faith by the
Company's Board of Directors;
(3) the grant of stock options, restricted stock or similar rights to
employees and directors of the Company pursuant to plans approved by the
Company's Board of Directors;
(4) loans or advances to employees in the ordinary course of business
in accordance with the past practices of the Company or its Restricted
Subsidiaries, but in any event not to exceed $2 million in the aggregate
outstanding at any one time;
(5) any agreement as in effect as of the Issue Date or any amendment
thereto or any transaction contemplated thereby (including pursuant to any
amendment thereto) in any replacement agreement thereto so long as any such
amendment or replacement agreement is not more disadvantageous to the
holders in any material respect than the original agreement as in effect on
the Issue Date;
(6) (i) issuances of Capital Stock of the Company (other than
Disqualified Capital Stock) and (ii) the amendment of any terms of any
Capital Stock of the Company;
(7) any transaction between the Company and any of its Affiliates
involving ordinary course of business investment banking, commercial
banking, financial advisory services and related activities; and
(8) the payment of fees and the reimbursement of out-of-pocket
expenses, in each case pursuant to the Monitoring Agreement as in effect on
the Issue Date and pursuant to any amendment thereto and any replacement
agreement thereto so long as any such amendment or replacement agreement is
not more disadvantageous to the Holders in any material respect than the
Monitoring Agreement as in effect on the Issue Date.
-86-
Limitation on Creation of Subsidiaries
The Company will not create or acquire, and will not permit any of its
Restricted Subsidiaries to create or acquire, any Subsidiary other than
(1) a Restricted Subsidiary existing as of the Issue Date;
(2) a Restricted Subsidiary that is acquired or created after the
Issue Date; provided, however, that each such Restricted Subsidiary (other
than a Foreign Restricted Subsidiary) at the time it has either assets or
shareholders' equity in excess of $1 million must execute a Guarantee,
satisfactory in form and substance to the Trustee (and with such
documentation relating thereto as the Trustee may require, including,
without limitation, a supplement or amendment to the Indenture and opinions
of counsel as to the enforceability of such Guarantee), pursuant to which
such Restricted Subsidiary will become a Guarantor; or
(3) an Unrestricted Subsidiary.
Limitation on Asset Sales
The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless
(1) the Company or such Restricted Subsidiary, as the case may be,
receives consideration at the time of such sale or other disposition at
least equal to the fair market value of the assets sold or otherwise
disposed of;
(2) not less than 75% of the consideration received by the Company or
such Restricted Subsidiary, as the case may be, is in the form of cash and
Cash Equivalents other than in the case where the Company is undertaking a
Permitted Asset Swap; provided that the following will be deemed to be cash
for purposes of this clause (2):
(a) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet) of the Company or any
Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinate in right of payment to
the notes or any Guarantee) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that releases
the Company or such Restricted Subsidiary from further liability; and
(b) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that
are converted by the Company or such Restricted Subsidiary into cash
(to the extent of the cash received in that conversion) within 180
days after the applicable Asset Sale; and
(3) the Asset Sale Proceeds received by the Company or such Restricted
Subsidiary are applied:
(a) first, to the extent the Company or any such Restricted
Subsidiary, as the case may be, elects, or is required, to prepay,
repay or purchase Indebtedness under any then existing Senior
Indebtedness of the Company or any such Restricted Subsidiary within
365 days following the receipt of the Asset Sale Proceeds from any
Asset Sale; provided that any such repayment, to the extent relating
to revolving credit, must result in a permanent reduction of the
commitments thereunder in an amount equal to the principal amount so
repaid;
(b) second, to the extent of the balance of Asset Sale Proceeds
after application as described above, to the extent the Company
elects, to make an Investment in property or other assets (including
Capital Stock or other securities purchased in connection with the
acquisition of
-87-
Capital Stock or property of another Person) in compliance with
"--Limitation on Conduct of Business" below within 365 days following
the receipt of such Asset Sale Proceeds; and
(c) third, if on such 365th day in the case of clause (3)(a) or
(3)(b) with respect to any Asset Sale, the Available Asset Sale
Proceeds exceed $5 million, the Company must apply an amount equal to
the Available Asset Sale Proceeds to an offer to repurchase the notes,
at a purchase price in cash equal to 100% of the principal amount
thereof plus accrued and unpaid interest, if any, to the purchase date
(an "Excess Proceeds Offer");
provided that, notwithstanding the foregoing, Asset Sale Proceeds that consist
of insurance proceeds may be applied at any time within 365 days to either a
prepayment, repayment or purchase under any of the Senior Credit Facilities or
an Investment in property or other assets in compliance with "--Limitation on
Conduct of Business" below.
Within 30 days of the date specified in clause (3)(c) above, the Company
will mail to the Trustee and each Holder a notice stating, among other things,
that the Company is making an Excess Proceeds Offer and offering to repurchase
notes on the date specified in such notice (which will be a Business Day no
earlier than 30 days nor later than 45 days from the date such notice is mailed)
pursuant to the procedures required by the Indenture and described in such
notice.
If an Excess Proceeds Offer is not fully subscribed, the Company may retain
the portion of the Available Asset Sale Proceeds not required to repurchase
notes.
In the event of the transfer of substantially all of the property and
assets of the Company and its Restricted Subsidiaries as an entirety to a Person
in a transaction permitted under "--Merger, Consolidation or Sale of Assets"
below, the successor Person will be deemed to have sold the properties and
assets of the Company and its Restricted Subsidiaries not so transferred for
purposes of this covenant, and must comply with the provisions of this covenant
with respect to such deemed sale as if it were an Asset Sale.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and other securities laws and regulations thereunder to the extent
such laws and regulations are applicable in connection with the repurchase of
notes pursuant to an Excess Proceeds Offer. To the extent that the provisions of
any securities laws or regulations conflict with the "Asset Sale" provisions of
the Indenture, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under the
"Asset Sale" provisions of the Indenture by virtue thereof.
Limitation on Preferred Stock of Restricted Subsidiaries
The Company will not permit any of its Restricted Subsidiaries to issue any
Preferred Stock (except Preferred Stock issued to the Company or a Wholly Owned
Subsidiary of the Company) or permit any Person (other than the Company or a
Wholly Owned Subsidiary of the Company) to hold any such Preferred Stock unless
such Restricted Subsidiary would be entitled to incur or assume Indebtedness
(other than Permitted Indebtedness) in compliance with "--Limitation on
Additional Indebtedness" above in the aggregate principal amount equal to the
aggregate liquidation value of the Preferred Stock to be issued.
Limitation on Capital Stock of Restricted Subsidiaries
The Company will not
(1) sell, pledge, hypothecate or otherwise convey or dispose of any
Capital Stock of a Restricted Subsidiary of the Company (other than any
such transaction resulting in a Lien which constitutes a Permitted Lien);
or
(2) permit any of its Restricted Subsidiaries to issue any Capital
Stock, other than to the Company or a Wholly Owned Subsidiary of the
Company.
-88-
The foregoing restrictions will not apply to an Asset Sale made in
compliance with "--Limitation on Asset Sales" above (provided that if such Asset
Sale is for less than all of the outstanding Capital Stock of any Restricted
Subsidiary held by the Company or any of its Restricted Subsidiaries, such Asset
Sale must also comply with "--Limitation on Restricted Payments" above) or the
issuance of Preferred Stock in compliance with "--Limitation on Preferred Stock
of Restricted Subsidiaries" above.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company to
(1) pay dividends or make any other distributions to the Company or
any Restricted Subsidiary of the Company
(a) on its Capital Stock or
(b) with respect to any other interest or participation in, or
measured by, its profits;
(2) repay any Indebtedness or any other obligation owed to the Company
or any Restricted Subsidiary of the Company;
(3) make loans or advances or capital contributions to the Company or
any of its Restricted Subsidiaries; or
(4) transfer any of its properties or assets to the Company or any of
its Restricted Subsidiaries;
except for such encumbrances or restrictions existing under or by reason of
(1) encumbrances or restrictions existing on the Issue Date to the
extent and in the manner such encumbrances and restrictions are in effect
on the Issue Date;
(2) the Indenture, the notes and the Guarantees;
(3) applicable law;
(4) any instrument governing Acquired Indebtedness, which encumbrance
or restriction is not applicable to any Person, or the properties or assets
of any Person, other than the Person, or the property or assets of the
Person (including any Subsidiary of the Person), so acquired or any
contract to which the Person (including any Subsidiary of such Person) so
acquired is a party so long as such contract was not entered into in
contemplation of such acquisition;
(5) customary non-assignment provisions in leases or other agreements
entered in the ordinary course of business and consistent with past
practices;
(6) Refinancing Indebtedness; provided that such restrictions are no
more restrictive than those contained in the agreements governing the
Indebtedness being refunded, refinanced or extended;
(7) customary restrictions in Capitalized Lease Obligations, security
agreements or mortgages securing Indebtedness of the Company or a
Restricted Subsidiary to the extent such restrictions restrict the transfer
of the property subject to such Capitalized Lease Obligations, security
agreements and mortgages;
-89-
(8) customary restrictions with respect to a Restricted Subsidiary of
the Company pursuant to an agreement that has been entered into for the
sale or disposition of all or substantially all of the Capital Stock or
assets of such Restricted Subsidiary;
(9) the Senior Credit Facilities;
(10) customary provisions restricting dispositions of real property
interests set forth in any reciprocal easement agreements of the Company or
any Restricted Subsidiary.
Limitation on Conduct of Business
The Company and its Restricted Subsidiaries will not engage in any
businesses which are not the same as or similar, ancillary, complementary or
related to the businesses in which the Company and its Restricted Subsidiaries
are engaged in on the Issue Date. Notwithstanding the foregoing, the Company may
acquire and operate any business which at the time of acquisition is primarily
the same, similar, ancillary or related to the businesses in which the Company
and its Restricted Subsidiaries are engaged in on the Issue Date.
Limitation on Sale and Lease-Back Transactions
The Company will not, and will not permit any of its Restricted
Subsidiaries to, enter into any Sale and Lease-Back Transaction; provided that
the Company or any Guarantor may enter into a Sale and Lease-Back Transaction
if:
(1) the Company or that Guarantor, as applicable, could have
(a) incurred Indebtedness (other than Permitted Indebtedness) in
an amount equal to the Attributable Indebtedness relating to such Sale
and Lease-Back Transaction under "--Limitation on Additional
Indebtedness" above; and
(b) incurred a Lien to secure such Indebtedness pursuant to
"--Limitation on Liens" above (assuming solely for purposes of this
clause (b) that the Attributable Indebtedness relating to such Sale
and Lease-Back Transactions constituted Capitalized Lease
Obligations);
(2) the gross cash proceeds of that Sale and Lease-Back Transaction
are at least equal to the fair market value of the property sold; and
(3) the transfer of assets in that Sale and Lease-Back Transaction is
permitted by, and the Company applies the proceeds of such transaction in
compliance with "--Limitation on Asset Sales" above.
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, whether by
way of interest, fee or otherwise, to any Holder 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 or agreed to be
paid to all Holders that so consent, waive or agree to amend in the time frame
set forth in solicitation documents relating to such consent, waiver or
amendment.
Change of Control Offer
If a Change of Control occurs, the Company must make an offer to repurchase
(the "Change of Control Offer") each Holder's outstanding notes at a purchase
price (the "Change of Control Purchase Price") equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the Change of
Control Payment Date (as defined) in accordance with the procedures set forth
below.
-90-
Within 30 days of the occurrence of a Change of Control, the Company will
mail to the Trustee and each Holder a notice describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
notes on the date specified in such notice (which will be a Business Day no
earlier than 30 days nor later than 45 days from the date such notice is mailed
(the "Change of Control Payment Date")) pursuant to the procedures required by
the Indenture and described in such notice.
On the Change of Control Payment Date, the Company will, to the extent
lawful,
(1) accept for payment notes or portions thereof tendered pursuant to
the Change of Control Offer;
(2) deposit with the Paying Agent money sufficient to pay the Change
of Control Purchase Price of all notes or portions thereof so tendered; and
(3) deliver or cause to be delivered to the Trustee notes so accepted
together with an officers' certificate stating the aggregate principal
amount of notes or portions thereof tendered to the Company.
The Paying Agent will promptly mail to each Holder of notes so accepted
payment in an amount equal to the Change of Control Purchase Price for such
notes, and the Company will execute and issue, and the Trustee will promptly
authenticate and mail to such holder, a new Note equal in principal amount to
any unpurchased portion of the notes surrendered; provided that each such new
Note will be issued in an original principal amount in denominations of $1,000
and integral multiples thereof.
Prior to the mailing of the notice to holders described above, but in any
event within 30 days following any Change of Control, the Company covenants to
(1) repay in full all obligations and terminate all commitments under
or in respect of all outstanding Senior Indebtedness the terms of which
prohibit the purchase by the Company of the notes upon a Change of Control
in compliance with the terms of this covenant or offer to repay in full all
obligations and terminate all commitments under or in respect of all such
Senior Indebtedness and repay the Senior Indebtedness owed to each such
lender who has accepted such offer; or
(2) obtain the requisite consents under all such Senior Indebtedness
containing such prohibition to permit the repurchase of the notes as
described above.
The Company must first comply with the covenant described in the preceding
sentence before it will be required to purchase notes in the event of a Change
of Control; provided that the Company's failure to comply with the covenant
described in the preceding sentence will constitute an Event of Default
described in clause (4) under "--Events of Default" below.
The Indenture further provides that (1) if the Company or any Restricted
Subsidiary of the Company has outstanding any Indebtedness that is subordinated
in right of payment to the notes or Preferred Stock, and the Company or such
Restricted Subsidiary is required to make a change of control offer or to make a
distribution with respect to such subordinated Indebtedness or Preferred Stock
in the event of a Change of Control, the Company will not consummate any such
offer or distribution with respect to such subordinated Indebtedness or
Preferred Stock until such time as the Company has paid the Change of Control
Purchase Price to the Holders that have accepted the Company's Change of Control
Offer and must otherwise have consummated the Change of Control Offer and (2)
the Company will not issue Indebtedness that is subordinated in right of payment
to the notes or Preferred Stock with change of control provisions requiring the
payment of such Indebtedness or Preferred Stock prior to the payment of the
notes tendered pursuant to a Change of Control Offer in the event of a Change of
Control.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company will comply with the
-91-
applicable securities laws and regulations and will not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
The definition of Change of Control includes a phrase relating to the sale,
lease, exchange or other transfer of "all or substantially all" of the Company's
assets. Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of notes to require
the Company to repurchase the notes as a result of sale, lease, exchange or
other transfer of less than all of the assets of the Company to another person
may be uncertain.
Merger, Consolidation or Sale of Assets
The Company will not and will not permit any of its Restricted Subsidiaries
to (1) consolidate or merge with or into another Person (whether or not the
Company or such Restricted Subsidiary will be the continuing Person), or (2)
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company and its Restricted Subsidiaries,
taken as a whole (as an entirety or substantially as an entirety in one
transaction or a series of related transactions) to any Person unless:
(1) either the Company or such Restricted Subsidiary, as the case may
be, is the continuing Person, or the Person (if other than the Company or
such Restricted Subsidiary) formed by such consolidation or into which the
Company or such Restricted Subsidiary, as the case may be, is merged or to
which the assets of the Company or such Restricted Subsidiary, as the case
may be, are sold, assigned, transferred, leased, conveyed or otherwise
disposed of must be a corporation organized and existing under the laws of
the United States or any State thereof or the District of Columbia and must
expressly assume, by a supplemental indenture, executed and delivered to
the Trustee, in form satisfactory to the Trustee, all of the obligations of
the Company or such Restricted Subsidiary, as the case may be, under the
Indenture, the notes and the Guarantees, and the obligations thereunder
will remain in full force and effect;
(2) immediately before and immediately after giving effect to such
transaction, no Default or Event of Default will have occurred and be
continuing; and
(3) immediately after giving effect to such transaction on a pro forma
basis the Company or such Person
(a) will have a Consolidated Net Worth equal to or greater than
the Consolidated Net Worth of the Company immediately prior to such
transaction and
(b) will be able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under "--Certain
Covenants--Limitation on Additional Indebtedness" above.
In connection with any consolidation, merger or transfer of assets
contemplated by this provision, the Company will deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an officers' certificate and an opinion of counsel, each stating that
such consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, will be deemed to
be the transfer of all or substantially all of the properties and assets of the
Company.
Reports to Holders
Whether or not required by the Commission, so long as any notes are
outstanding, the Company will furnish to the Holders, within the time periods
specified in the Commission's rules and regulations:
-92-
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report on
the annual financial statements by the Company's certified independent
accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports.
If the Company has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph will include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereto, and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of the Company
and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of the Company.
In addition, whether or not required by the Commission, the Company 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. The Company will also furnish
to Holders, securities analysts and prospective investors upon request the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
Guarantees
The Guarantors will guarantee the notes on a general unsecured basis. All
payments pursuant to the Guarantees by the Guarantors will be subordinate in
right of payment to the prior payment in full of all existing and future Senior
Indebtedness of each respective Guarantor, to the same extent and in the same
manner that all payments pursuant to the notes are subordinated in right of
payment to the prior payment in full of all Senior Indebtedness of the Company.
The obligations of each Guarantor are limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor (including, without limitation, any guarantees of Senior Indebtedness)
and after giving effect to any collections from or payments made by or on behalf
of any other Guarantor in respect of the obligations of such other Guarantor
under its Guarantee or pursuant to its contribution obligations under the
Indenture, result in the obligations of such Guarantor under the Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Guarantor that makes a payment or distribution under a Guarantee
will be entitled to a contribution from each other Guarantor in a pro rata
amount based on the Adjusted Net Assets of each Guarantor.
A Guarantor will be released from all of its obligations under its
Guarantee if:
(1) (a) all of its assets or Capital Stock is sold, in each case in a
transaction in compliance with "--Certain Covenants--Limitation on Asset
Sales" above, (b) the Guarantor merges with or into or consolidates with,
or transfers all or substantially all of the assets to the Company or
another Guarantor in compliance with "--Merger, Consolidation or Sale of
Assets" above, or (c) such Guarantor is designated an Unrestricted
Subsidiary; and
(2) such Guarantor has delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent herein provided for relating to such transaction have been
complied with.
-93-
Events of Default
The following events are defined in the Indenture as "Events of Default":
(1) default in payment of any principal of, or premium, if any, on the
notes whether at maturity, upon redemption, required repurchase or
otherwise (whether or not such payment is prohibited by the subordination
provisions of the Indenture);
(2) default for 30 days in payment of any interest on the notes;
(3) default by the Company or any Restricted Subsidiary in the
observance of its obligations under "--Merger, Consolidation or Sale of
Assets";
(4) default by the Company or any Restricted Subsidiary in the
observance or performance of any of its obligations under the covenants
described above under "--Change of Control Offer" or under the covenants
described in "--Certain Covenants" (in each case, other than a failure to
purchase notes) for 30 days after written notice from the Trustee or the
Holders of not less than 25% in aggregate principal amount of the notes
then outstanding;
(5) default by the Company or any Restricted Subsidiary in the
observance or performance of any other covenant in the notes or the
Indenture for 60 days after written notice from the Trustee or the Holders
of not less than 25% in aggregate principal amount of the notes then
outstanding;
(6) failure to pay when due (giving effect to any applicable grace
periods and any waiver or extension thereof) principal, interest or premium
with respect to any Indebtedness of the Company or any Restricted
Subsidiary thereof, or the acceleration of any such Indebtedness, if the
aggregate amount of such Indebtedness, together with the amount of any
other such Indebtedness in default for failure to pay principal, interest
or premium or which has been accelerated, aggregates $10 million or more at
any time;
(7) any final judgment or judgments which can no longer be appealed
for the payment of money in excess of $10 million is rendered against the
Company or any Restricted Subsidiary, and is not discharged for any period
of 60 consecutive days during which a stay of enforcement is not in effect;
(8) certain events involving bankruptcy, insolvency or reorganization of
the Company or any Restricted Subsidiary that is a Significant Subsidiary;
and
(9) any of the Guarantees ceases to be in full force and effect or any
of the Guarantees is declared to be null and void and unenforceable or any
of the Guarantees is found to be invalid or any of the Guarantors denies
its liability under its Guarantee (other than by reason of release of a
Guarantor in accordance with the terms of the Indenture).
The Indenture provides that the Trustee may withhold notice to the Holders
of any Default (except in payment of principal or premium, if any, or interest
on the notes) if the Trustee considers it to be in the best interest of the
Holders to do so.
The Indenture provides that if an Event of Default (other than an Event of
Default of the type described in clause (8) above) has occurred and is
continuing, then the Trustee or the Holders of not less than 25% in aggregate
principal amount of the notes then outstanding may declare to be immediately due
and payable the entire principal amount of all the notes then outstanding plus
accrued and unpaid interest, if any, to the date of acceleration and (1) the
same will become immediately due and payable or (2) if there are any amounts
outstanding under any Senior Credit Facility, will become immediately due and
payable upon the first to occur of an acceleration under such Senior Credit
Facility or five business days after receipt by the Company and the
representative under such Senior Credit Facility of a notice of acceleration;
provided, however, that after such acceleration but before a judgment or decree
based on acceleration is obtained by the Trustee, the Holders of a majority in
aggregate principal amount of outstanding notes may rescind and annul such
acceleration if
-94-
(1) all Events of Default, other than nonpayment of principal,
premium, if any, or interest that has become due solely because of the
acceleration, have been cured or waived as provided in the Indenture;
(2) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become
due otherwise than by such declaration of acceleration, has been paid;
(3) the Company has paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances; and
(4) in the event of the cure or waiver of an Event of Default of the
type described in clause (6) or (7) of the above Events of Default, the
Trustee must have received an officers' certificate and an opinion of
counsel that such Event of Default has been cured or waived.
No such rescission will affect any subsequent Default or impair any right
consequent thereto. In case an Event of Default of the type described in clause
(8) above occurs, the principal, premium and interest amount with respect to all
of the notes will be due and payable immediately without any declaration or
other act on the part of the Trustee or the Holders.
The Holders of a majority in principal amount of the notes then outstanding
have the right to waive any existing Default or compliance with any provision of
the Indenture or the notes and to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, subject to
certain limitations provided for in the Indenture and under the TIA.
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless
(1) such Holder has previously given to the Trustee written notice of
a continuing Event of Default;
(2) the Holders of at least 25% in aggregate principal amount of the
outstanding notes have made written request and offered reasonable
indemnity to the Trustee to institute such proceeding as Trustee;
(3) the Trustee has not received from the Holders of a majority in
aggregate principal amount of the outstanding notes a direction
inconsistent with such request; and
(4) the Trustee has failed to institute such a proceeding within 60
days.
Notwithstanding the foregoing, such limitations do not apply to a suit
instituted on such Note on or after the respective due dates expressed in such
Note.
No Personal Liability of Directors, Officers, Employees and Stockholders
None of the directors, officers, employees, incorporators or stockholders
of the Company or its Subsidiaries, as such, will be personally liable for any
obligations of the Company or its Subsidiaries under the notes or the Indenture
or for any claim based on, in respect of, or by reason of, these obligations or
their creation. Each Holder, by accepting a note waives and releases all such
liability. This waiver and release are part of the consideration for the
issuance of the notes.
Modification of Indenture
From time to time, the Company, the Guarantors and the Trustee may, without
the consent of the Holders, amend or supplement the Indenture for certain
specified purposes, including providing for uncertificated notes in
-95-
addition to certificated notes, and curing any ambiguity, defect or
inconsistency, or making any other change that does not, in the opinion of the
Trustee, materially and adversely affect the rights of any Holder. The Indenture
contains provisions permitting the Company, the Guarantors and the Trustee, with
the consent of Holders of at least a majority in principal amount of the
outstanding notes, to modify or supplement the Indenture, except that no such
modification may, without the consent of each Holder affected thereby,
(1) reduce the percentage in principal amount of outstanding notes
whose Holders must consent to an amendment, supplement, or waiver or
consent to take any action under the Indenture or the notes;
(2) reduce the rate of or change the time for payment of interest
(including defaulted interest), on any note;
(3) reduce the principal of or change or have the effect of changing
the fixed maturity of any notes, or change the date on which any notes may
be subject to redemption or repurchase, or reduce the redemption or
repurchase price therefor;
(4) make any note payable in money other than that stated in the note
or change the place of payment from New York, New York;
(5) waive a Default in the payment of the principal of, interest on,
or redemption payment with respect to, any note (except a rescission of
acceleration of the notes by the Holders and a waiver of the payment
default that resulted from such acceleration);
(6) make any change in provisions of the Indenture protecting the
right of each Holder to receive payment of principal of and interest on
such note on or after the due date thereof or to bring suit to enforce such
payment, or permitting Holders of a majority in principal amount of notes
to waive Defaults or Events of Default;
(7) affect the subordination or ranking of the notes or any Guarantee
in a manner adverse to the Holders;
(8) after such obligation has arisen, amend, change or modify in any
material respect the obligation of the Company to make and consummate a
Change of Control Offer in the event of a Change of Control or make and
consummate an Excess Proceeds Offer with respect to any Asset Sale that has
been consummated or modify any of the provisions or definitions with
respect thereto; or
(9) release any Guarantor from any of its obligations under its
Guarantee or the Indenture otherwise than in accordance with the terms of
the Indenture.
Legal Defeasance and Covenant Defeasance
The Indenture provides that the Company may elect either
(1) to defease and be discharged from any and all of their and any
Guarantor's obligations with respect to the notes (except for the
obligations to register the transfer or exchange of such notes, to replace
temporary or mutilated, destroyed, lost or stolen notes, to maintain an
office or agency in respect of the notes and to hold monies for payment in
trust) ("Legal Defeasance"); or
(2) to be released from their obligations with respect to the notes
under some of the covenants contained in the Indenture ("Covenant
Defeasance")
upon the deposit with the Trustee (or other qualifying trustee), in trust for
such purpose, of money and/or non-callable U.S. government obligations which
through the payment of principal and interest in accordance with their terms
will provide money, in an amount sufficient to pay the principal of, premium, if
any, and interest on the notes,
-96-
on the scheduled due dates therefor or on a selected date of redemption in
accordance with the terms of the Indenture. Such a trust may only be established
if, among other things,
(1) the Company has delivered to the Trustee an opinion of counsel to
the effect that neither the trust nor the Trustee will be required to
register as an investment company under the Investment Company Act of 1940,
as amended;
(2) (i) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service
a ruling or (B) since the date of the Indenture, there has been a change in
the applicable U.S. federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm that, the
Holders of the outstanding notes will not recognize income, gain or loss
for U.S. federal income tax purposes as a result of such Legal Defeasance
and will be subject to U.S. 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; (ii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the
United States reasonably acceptable to the Trustee confirming that the
Holders of the outstanding notes will not recognize income, gain or loss
for U.S. federal income tax purposes as a result of such Covenant
Defeasance and will be subject to U.S. federal income tax on the same
amounts, in the same manner and at the same time as would have been the
case if such Covenant Defeasance had not occurred;
(3) no Default or Event of Default has occurred and is continuing on
the date of such deposit or insofar as Events of Default from bankruptcy,
insolvency or reorganization events are concerned, at any time in the
period ending on the 91st day after the date of deposit;
(4) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of or constitute a Default under the Indenture or any
other material agreement or instrument to which any of the Company or any
of its Subsidiaries is a party or by which the Company or any Subsidiary is
bound;
(5) the Company has delivered to the Trustee an officers' certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders over any other creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding any other creditors
of the Company or others;
(6) the Company has delivered to the Trustee an officers' certificate
and an opinion of counsel, each stating that all conditions precedent
provided for or relating to the Legal Defeasance or the Covenant Defeasance
have been complied with;
(7) the Company has delivered to the Trustee an opinion of counsel to
the effect that
(a) the trust funds will not be subject to any rights of holders
of Senior Indebtedness of the Company or of any Guarantor, including,
without limitation, those arising under the Indenture, and
(b) assuming no intervening bankruptcy occurs and that no Holder
is an insider of the Company, 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; and
(8) other customary conditions precedent are satisfied.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
notes, as expressly provided for in the Indenture) as to all outstanding notes
-97-
and the Trustee, on written demand of and at the expense of the Company, shall
execute proper instruments acknowledging satisfaction and discharge of the
Indenture, when:
(1) either:
(a) all the notes authenticated and delivered (except lost,
stolen or destroyed notes which have been replaced or paid and
notes for whose payment money has been deposited in trust or
segregated and held in trust by the Company and thereafter repaid
to the Company or discharged from such trust) have been delivered
to the Trustee for cancellation; or
(b) all notes not delivered to the Trustee for cancellation
have become due and payable or will become due and payable at
their stated maturity within one year or are to be called for
redemption within one year under arrangements satisfactory to the
Trustee for the giving of notice of redemption by the Trustee in
the name and at the expense of the Company and the Company has
irrevocably deposited or caused to be deposited with the Trustee
funds in an amount sufficient to pay and discharge the entire
Indebtedness on the notes not delivered to the Trustee for
cancellation, for principal of, premium, if any, and interest on
the notes to the date of deposit together with irrevocable
instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the
case may be;
(2) the Company has paid all other sums payable under the Indenture
by the Company; and
(3) the Company has delivered to the Trustee an officers' certificate
and an opinion of counsel stating that all conditions precedent
under the Indenture relating to the satisfaction and discharge of
the Indenture have been complied with.
Compliance Certificate
The Company will deliver to the Trustee on or before 90 days after the end
of the Company's fiscal year and on or before 45 days after the end of each of
the first, second and third fiscal quarters in each year an officers'
certificate stating whether or not the signers know of any Default or Event of
Default that has occurred. If they do, the certificate will describe the Default
or Event of Default, its status and the intended method of cure, if any.
Methods of Receiving Payments on the Notes
The Company will make all principal, premium and interest payments on the
notes at the office or agency of the Paying Agent and Registrar within the City
and State of New York unless the Company elects to make interest payments by
check mailed to the Holders at their address set forth in the register of
Holders. 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, and the Company or any of its Subsidiaries may act as Paying Agent or
Registrar.
The Trustee
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
-98-
Transfer and Exchange
Holders may transfer or exchange notes in accordance with the Indenture.
The Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents, and the Company may require a Holder to pay
any taxes and fees required by law or permitted by the Indenture. The Company is
not required to transfer or exchange any Note selected for redemption and 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 may be treated as the owner of such Note
for all purposes.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
Indenture. We refer you to the Indenture for the full definition of all such
terms as well as any other capitalized terms used herein for which no definition
is provided.
"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary) existing at the time such Person becomes a Restricted
Subsidiary or is merged into or consolidated with any other Person or which is
assumed in connection with the acquisition of assets from such Person and, in
each case, whether or not incurred by such Person in connection with, or in
anticipation or contemplation of, such Person becoming a Restricted Subsidiary
or such merger, consolidation or acquisition.
"Adjusted Net Assets" of any Person at any date means the lesser of the
amount by which
(1) the fair value of the property of such Person exceeds the total
amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent
liabilities), but excluding liabilities under the Guarantee of such Person
at such date; and
(2) the present fair salable value of the assets of such Person at
such date exceeds the amount that will be required to pay the probable
liability of such Person on its debts (after giving effect to all other
fixed and contingent liabilities and after giving effect to any collection
from any Subsidiary of such Person in respect of the obligations of such
Person under the Guarantee of such Person), excluding Indebtedness in
respect of the Guarantee of such Person, as they become absolute and
matured.
"Affiliate" means, with respect to any specific Person, any other Person
that directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. For the
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlling," "controlled by," and "under common control with"), as
used with respect to any Person, means 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, for purposes of the covenant described under
"--Certain Covenants--Limitation on Transactions with Affiliates," beneficial
ownership of at least 10% of the voting securities of a Person, either directly
or indirectly, will be deemed to be control.
"Asset Acquisition" means
(1) an Investment by the Company or any Restricted Subsidiary of the
Company in any other Person (other than Investments in the Company or any
existing Restricted Subsidiary of the Company) pursuant to which such
Person becomes a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or is merged with or into the Company or any
Restricted Subsidiary of the Company; or
(2) the acquisition by the Company or any Restricted Subsidiary of the
Company of the assets of any Person (other than a Restricted Subsidiary of
the Company) which constitute all or substantially all of the assets of
such Person or comprise 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.
-99-
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
assignment, transfer, lease or other disposition (including any Sale and
Lease-Back Transaction), other than to the Company or any of its Wholly Owned
Subsidiaries, in any single transaction or series of related transactions of
(1) any Capital Stock of or other equity interest in any Restricted
Subsidiary of the Company; or
(2) any other property or assets of the Company or of any Restricted
Subsidiary thereof;
provided that Asset Sales do not include
(1) receipt of proceeds from transactions that involve assets, in each
fiscal year of the Company, having a fair market value or for which the
Company or its Restricted Subsidiaries receive aggregate consideration of
no more than $1,000,000;
(2) sales of inventory and the Company's products in the ordinary
course of business and consistent with past practices;
(3) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of the Company as permitted under
"--Merger, Consolidation or Sale of Assets" above;
(4) sales of Cash Equivalents;
(5) granting of Liens not otherwise prohibited by the Indenture;
(6) leases or subleases to third persons in the ordinary course of
business that do not interfere in any material respect with the business of
the Company or any of its Restricted Subsidiaries;
(7) sales or other disposition of assets that are obsolete,
uneconomic, negligible, worn out or surplus in the ordinary course of
business;
(8) sales of assets in connection with Sale and Lease-Back
Transactions that occur substantially contemporaneously with the
acquisition of such assets by the Company and its Restricted Subsidiaries;
provided, that such Sale and Lease-Back Transactions occur no later than
180 days after the acquisition of such assets; and
(9) issuances of directors' qualifying shares.
"Asset Sale Proceeds" means, with respect to any Asset Sale,
(1) cash received by the Company or any Restricted Subsidiary of the
Company from such Asset Sale (including cash received as consideration for
the assumption of liabilities incurred in connection with or in
anticipation of such Asset Sale), after
(a) provision for all income or other taxes measured by or
resulting from such Asset Sale;
(b) payment of all brokerage commissions, underwriting and other
fees and expenses related to, and other costs and charges incurred in
connection with, such Asset Sale;
(c) provision for minority interest holders in any Restricted
Subsidiary of the Company as a result of such Asset Sale;
(d) repayment of Indebtedness that is secured by the assets
subject to such Asset Sale or otherwise required to be repaid in
connection with such Asset Sale;
-100-
(e) deduction of appropriate amounts to be provided by the
Company or a Restricted Subsidiary of the Company as a reserve, in
accordance with GAAP, against any liabilities associated with the
assets sold or disposed of in such Asset Sale and retained by the
Company or a Restricted Subsidiary after such Asset Sale, including,
without limitation, pension and other post-employment benefit
liabilities and liabilities related to environmental matters or
against any indemnification obligations associated with the assets
sold or disposed of in such Asset Sale; and
(f) any amounts required to be placed by the Company or any
Restricted Subsidiary of the Company in a restricted escrow or reserve
account by the terms of the agreements pursuant to which the Asset
Sale is made, provided that any such amounts shall be deemed to be
Asset Sale Proceeds of an Asset Sale upon the release of such amounts
to the Company or any Subsidiary; and
(2) promissory notes and other non-cash consideration received by the
Company or any Restricted Subsidiary of the Company from such Asset Sale or
other disposition upon the liquidation or conversion of such promissory
notes or non-cash consideration into cash.
"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, as at the time of determination the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the total obligations of the lessee for rental payments during the remaining
term of the lease included in such Sale and Lease-Back Transaction (including
any period for which such lease has been extended).
"Available Asset Sale Proceeds" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sale that have not been applied in
accordance with clause (3)(a) or (3)(b), and which have not yet been the basis
for an Excess Proceeds Offer in accordance with clause (3)(c) of the first
paragraph of "--Certain Covenants--Limitation on Asset Sales" above.
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof (which, with respect to any
Person that is not a corporation, shall include any board, committee, person or
other group having similar authority and responsibilities).
"Borrowing Base" means, as of any date, an amount equal to the sum of (i)
60% of the aggregate book value of inventory (adjusted to include any LIFO
reserves) and (ii) 85% of the aggregate book value of all accounts receivable
(net of bad debt reserves) of the Company and its Restricted Subsidiaries on a
consolidated basis, as determined in accordance with GAAP consistently applied.
To the extent that information is not available as to the amount of inventory or
accounts receivable as of a specific date, the Company shall use the most recent
available information for purposes of calculating the Borrowing Base.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated and whether
or not voting) of corporate stock, partnership or limited liability company
interests or any other participation, right or other interest in the nature of
an equity interest in such Person including, without limitation, Common Stock
and Preferred Stock of such Person, or any option, warrant or other security
convertible into any of the foregoing.
"Capitalized Lease Obligations" means with respect to any Person,
Indebtedness represented by obligations under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such Indebtedness will be the capitalized amount of such obligations
determined in accordance with GAAP.
"Cash Equivalents" means
(1) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency or
instrumentality thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition thereof;
-101-
(2) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's, a division of The
McGraw Hill Companies, Inc. ("S&P") or Moody's Investors Service, Inc.
("Moody's");
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by any bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the
date of acquisition thereof combined capital and surplus of not less than
$250,000,000;
(5) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with any bank meeting the qualifications specified in clause (4)
above; and
(6) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (1) through
(5) above.
A "Change of Control" of the Company will be deemed to have occurred at
such time as
(1) any Person or group of related Persons for purposes of Section
13(d) of the Exchange Act (a "Group"), other than a Permitted Holder,
becomes the beneficial owner (as defined under Rule 13d-3 or any successor
rule or regulation promulgated under the Exchange Act, except that a Person
will be deemed to have "beneficial ownership" of all securities that such
Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time) of 50% or more of the total
voting power of the Company's Capital Stock;
(2) there is consummated any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of all or
substantially all of the assets of the Company and its Restricted
Subsidiaries, taken as a whole, to any Person or Group, together with any
Affiliates thereof (whether or not otherwise in compliance with the
provisions of the Indenture) other than to the Company, any of its
Restricted Subsidiaries or the Permitted Holders; or
(3) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors
or whose nomination for election by the stockholders of the Company has
been approved by a majority of the directors then still in office who
either were directors at the beginning of such period or whose election or
recommendation for election was previously so approved) cease to constitute
a majority of the Board of Directors of the Company.
"Commission" means the United States Securities and Exchange Commission.
"Common Stock" of any Person means all Capital Stock of such Person that is
generally entitled to
(1) vote in the election of directors of such Person; or
(2) if such Person is not a corporation, vote or otherwise participate
in the selection of the governing body, partners, managers or others that
will control the management and policies of such Person.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of EBITDA of such Person during the four full fiscal quarters
(the "Four Quarter Period") ending on or prior to the date of the transaction
giving rise to the need to calculate the Consolidated Fixed Charge Coverage
Ratio (the "Transaction
-102-
Date") to Consolidated Fixed Charges of such Person for the Four Quarter Period.
In addition to and without limitation of the foregoing, for purposes of this
definition, "EBITDA" and "Consolidated Fixed Charges" will be calculated after
giving effect on a pro forma basis for the period of such calculation to
(1) the incurrence or repayment of any Indebtedness of such Person or
any of its Restricted Subsidiaries or the issuance or redemption or other
repayment of Preferred Stock of any such Restricted Subsidiary (and the
application of the proceeds thereof) giving rise to the need to make such
calculation and any incurrence or repayment of other Indebtedness and, in
the case of any Restricted Subsidiary, the issuance or redemption or other
repayment of Preferred Stock (and the application of the proceeds thereof),
other than the incurrence or repayment of Indebtedness in the ordinary
course of business for working capital purposes pursuant to working capital
facilities, occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to
the Transaction Date, as if such incurrence or repayment or issuance or
redemption or other repayment, as the case may be (and the application of
the proceeds thereof), occurred on the first day of the Four Quarter
Period; and
(2) any Asset Sales or Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Restricted
Subsidiaries (including any Person who becomes a Restricted Subsidiary as a
result of the Asset Acquisition) incurring, assuming or otherwise being
liable for Acquired Indebtedness and also including any EBITDA (provided
that such EBITDA will be included only to the extent that Consolidated Net
Income would be includable pursuant to the definition of "Consolidated Net
Income") attributable to the assets which are the subject of the Asset
Acquisition or Asset Sale during the Four Quarter Period) occurring during
the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
Asset Sale or Asset Acquisition (including the incurrence, assumption or
liability for any such Acquired Indebtedness) occurred on the first day of
the Four Quarter Period.
If such Person or any of its Restricted Subsidiaries directly or indirectly
guarantees Indebtedness of a third Person, the preceding sentence will give
effect to the incurrence of such guaranteed Indebtedness as if such Person or
any Restricted Subsidiary of such Person had directly incurred or otherwise
assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated
Fixed Charges" for purposes of determining the denominator (but not the
numerator) of this "Consolidated Fixed Charge Coverage Ratio,"
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so
determined thereafter will be deemed to have accrued at a fixed rate per
annum equal to the rate of interest on such Indebtedness in effect on the
Transaction Date;
(2) if interest on any Indebtedness actually incurred on the
Transaction Date may optionally be determined at an interest rate based
upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rates, then the interest rate in effect on the Transaction
Date will be deemed to have been in effect during the Four Quarter Period;
and
(3) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered
by one or more agreements in respect of Hedging Obligations, will be deemed
to accrue at the rate per annum resulting after giving effect to the
operation of such agreements.
For purposes of this definition, any pro forma calculation shall be made in
good faith by a responsible financial or accounting officer of the Company
consistent with Regulation S-X of the Exchange Act.
"Consolidated Fixed Charges" means, with respect to any Person, for any
period, the sum, without duplication of Consolidated Interest Expense, plus the
amount of all cash dividend payments on any series of Preferred Stock of such
Person and its Restricted Subsidiaries paid during such period.
"Consolidated Interest Expense" means, with respect to any Person, without
duplication, for any period, the aggregate amount of interest expense which, in
conformity with GAAP, would be set forth opposite the caption "in-
-103-
terest expense" or any like caption on an income statement for such Person and
its Restricted Subsidiaries on a consolidated basis including, but not limited
to,
(1) imputed interest included in Capitalized Lease Obligations;
(2) all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing;
(3) the net payment obligations associated with Hedging Obligations;
(4) amortization of financing fees and expenses and the write-off of
deferred financing costs;
(5) the interest portion of any deferred payment obligation;
(6) amortization of discount or premium, if any;
(7) all non-cash interest expense (other than interest amortized to
cost of sales);
(8) all capitalized interest for such period; and
(9) all interest incurred or paid under any guarantee of Indebtedness
(including a guarantee of principal, interest or any combination thereof)
of any Person.
"Consolidated Leverage Ratio" means, with respect to any Person, the ratio
of
(1) the aggregate outstanding amount of Indebtedness (excluding the
aggregate undrawn amount of all outstanding letters of credit) of such
Person and its Restricted Subsidiaries and Preferred Stock of any such
Restricted Subsidiary as of the date of calculation (the "Transaction
Date") on a consolidated basis determined in accordance with GAAP to
(2) such Person's EBITDA for the four full fiscal quarters (the "Four
Quarter Period") ending on or prior to the Transaction Date.
For purposes of this definition, clauses (1) and (2) above will be
calculated after giving effect on a pro forma basis to
(1) the incurrence or repayment of any Indebtedness of such Person or
any of its Restricted Subsidiaries giving rise to the need to make such
calculation and any incurrence or repayment of other Indebtedness, other
than the incurrence or repayment of Indebtedness in the ordinary course of
business for working capital purposes pursuant to working capital
facilities, occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to
the Transaction Date, as if such incurrence or repayment, as the case may
be (and the application of the proceeds thereof), occurred on the first day
of the Four Quarter Period; and
(2) any Asset Sales or Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Restricted
Subsidiaries (including any Person who becomes a Restricted Subsidiary as a
result of the Asset Acquisition) incurring, assuming or otherwise being
liable for Acquired Indebtedness and also including any EBITDA (provided
that such EBITDA will be included only to the extent that Consolidated Net
Income would be includable pursuant to the definition of "Consolidated Net
Income") attributable to the assets which are the subject of the Asset
Acquisition or Asset Sale during the Four Quarter Period) occurring during
the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
Asset Sale or Asset Acquisition (including the incurrence, assumption or
liability for any such Acquired Indebtedness) occurred on the first day of
the Four Quarter Period.
-104-
If such Person or any of its Restricted Subsidiaries directly or indirectly
guarantees Indebtedness of a third Person, the preceding sentence will give
effect to the incurrence of such guaranteed Indebtedness as if such Person or
any Restricted Subsidiary of such Person had directly incurred or otherwise
assumed such guaranteed Indebtedness. For purposes of this definition, any pro
forma calculation shall be made in good faith by a responsible financial or
accounting officer of the Company consistent with Regulation S-X of the Exchange
Act.
"Consolidated Net Income" means, with respect to any 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, however, that
(1) the Net Income of any Person, other than a Restricted Subsidiary
of the referent Person, will be included only to the extent of the amount
of dividends or distributions paid to the referent Person or a Restricted
Subsidiary of such referent Person;
(2) the Net Income of any Restricted Subsidiary of the Person in
question that is subject to any restriction or limitation on the payment of
dividends or the making of other distributions will be excluded to the
extent of such restriction or limitation;
(3) solely for the purposes of determining the aggregate amount
available for Restricted Payments under clause (3)(a) of the "Limitation on
Restricted Payments" covenant, the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition will be excluded;
(4) any net gain (but not loss) resulting from an Asset Sale by the
Person in question or any of its Restricted Subsidiaries other than in the
ordinary course of business will be excluded;
(5) extraordinary gains and losses will be excluded;
(6) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or
not such operations were classified as discontinued) will be excluded; and
(7) in the case of a successor to the referent Person by consolidation
or merger or as a transferee of the referent Person's assets, any earnings
of the successor corporation prior to such consolidation, merger or
transfer of assets will be excluded.
"Consolidated Net Worth" of any Person means the consolidated shareholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person.
"Cumulative Consolidated Net Income" means, with respect to any Person, as
of any date of determination, Consolidated Net Income from April 1, 2004 to the
end of such Person's most recently ended full fiscal quarter prior to such date,
taken as a single accounting period.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Designated Senior Indebtedness," as to the Company or any Guarantor, as
the case may be, means
(1) any Senior Indebtedness under any Senior Credit Facility; and
(2) any other Senior Indebtedness which at the time of determination
exceeds $10 million in aggregate principal amount (or accreted value in the
case of Indebtedness issued at a discount) outstanding or available under a
committed facility, which is specifically designated in the instrument
evidencing such
-105-
Senior Indebtedness as "Designated Senior Indebtedness" by such Person and
as to which the Trustee has been given written notice of such designation.
"Disqualified Capital Stock" means any Capital Stock of a Person or a
Restricted Subsidiary thereof which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable at the
option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the notes, for cash; provided, however, that
Preferred Stock of a Person or any Restricted Subsidiary thereof that is issued
with the benefit of provisions requiring a change of control offer or an asset
sale offer to be made for such Preferred Stock in the event of a change of
control or an asset sale offer of such Person or Restricted Subsidiary which
provisions have substantially the same effect as the provisions described under
"--Change of Control Offer" above, will not be deemed to be Disqualified Capital
Stock solely by virtue of such provisions. Notwithstanding anything to the
contrary herein, for purposes of the definition of "Indebtedness," the Existing
Preferred Stock shall not constitute Disqualified Capital Stock for purposes of
the Indenture as long as the terms thereof do not provide for any mandatory
sinking fund payment, redemption or other acceleration requirements until after
the payment in full in cash of the obligations under the notes (other than
contingent indemnification obligations).
"EBITDA" means, with respect to any Person and its Restricted Subsidiaries,
for any period, an amount equal to
(1) the sum of
(a) Consolidated Net Income for such period, plus
(b) the provision for taxes for such period based on income or
profits to the extent such income or profits were included in
computing Consolidated Net Income and any provision for taxes utilized
in computing net loss under clause (a) hereof, plus
(c) Consolidated Interest Expense for such period, plus
(d) depreciation for such period on a consolidated basis, plus
(e) amortization of intangibles for such period on a consolidated
basis, plus
(f) any other non-cash items reducing Consolidated Net Income for
such period, other than non-cash items that represent accruals of, or
reserves for, cash disbursements to be made in any future period;
minus
(2) all non-cash items increasing Consolidated Net Income for such
period, all for such Person and its Restricted Subsidiaries determined on a
consolidated basis in accordance with GAAP.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Existing Preferred Stock" means, collectively, the Series A Preferred
Stock, the Series C Preferred Stock, the Series D Preferred Stock and the Series
E Preferred Stock.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value will
be determined by the Board of Directors of the Company acting reasonably and in
good faith and shall be evidenced by a resolution of such Board of Directors.
-106-
"First Lien Credit Agreement" means the First Lien Secured Credit Facility,
dated as of March 16, 2004, by and among the Company, the lenders party thereto
from time to time and Lehman Brothers Inc., Lehman Commercial Paper Inc.,
Wachovia Capital Markets, LLC and Credit Suisse First Boston, as amended from
time to time.
"Foreign Restricted Subsidiary" means a Restricted Subsidiary that is
incorporated in a jurisdiction other than the United States or a State thereof
or the District of Columbia.
"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States from time to time.
"Guarantee" means the guarantee by each Guarantor of the obligations of the
Company with respect to the notes.
"Guarantor" means the issuer at any time of a Guarantee (so long as such
Guarantee remains outstanding).
"Hedging Obligations" means, with respect to any Person, the net payment
obligations of such Person under (a) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (b) other agreements
or arrangements entered into in order to protect such Person against
fluctuations in commodity prices, interest rates or currency exchange rates.
"Holder" means a Person in whose name a Note is registered on the
Registrar's books.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person (and
"incurrence," "incurred," and "incurring" will have meanings correlative to the
foregoing); provided that a change in GAAP that results in an obligation of such
Person that exists at such time becoming Indebtedness will not be deemed an
incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property if and to the extent any of the foregoing indebtedness would appear as
a liability upon a balance sheet of such Person prepared in accordance with
GAAP, and will also include, to the extent not otherwise included,
(1) any Capitalized Lease Obligations of such Person;
(2) obligations secured by a lien to which the property or assets
owned or held by such Person is subject, whether or not the obligation or
obligations secured thereby have been assumed, provided, that the amount of
Indebtedness attributed to such obligations shall not exceed the fair
market value of the property or assets securing such obligations;
(3) guarantees of (or obligations with respect to letters of credit
supporting) obligations of other Persons which would be included within
this definition as Indebtedness for such other Persons (whether or not such
items would appear upon the balance sheet of the guarantor);
(4) all obligations for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction;
(5) Disqualified Capital Stock of such Person or any Restricted
Subsidiary thereof; and
(6) hedging obligations of any such Person applicable to any of the
foregoing (if and to the extent such hedging obligations would appear as a
liability upon a balance sheet of such Person prepared in accordance with
GAAP).
-107-
The amount of Indebtedness of any Person at any date will be the
outstanding balance at such date of all unconditional obligations as described
above and, with respect to contingent obligations, the maximum reasonably
anticipated liability upon the occurrence of the contingency giving rise to the
obligation as determined in good faith by the Person incurring such liability;
provided that
(1) the amount outstanding at any time of any Indebtedness issued with
original issue discount is the principal amount of such Indebtedness less
the remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP; and
(2) Indebtedness will not include
(a) any liability for federal, state, local or other taxes, and
(b) any accounts payable, trade payables and other accrued
liabilities arising in the ordinary course of business.
"Independent Financial Advisor" means an investment banking firm of
national reputation in the United States
(1) which does not, and whose directors, officers and employees or
Affiliates do not, have a direct or indirect financial interest in the
Company, and
(2) which, in the judgment of the Board of Directors of the Company,
is otherwise independent and qualified to perform the task for which it is
to be engaged.
"Investments" means, with respect of any Person, directly or indirectly,
any advance, account receivable (other than an account receivable arising in the
ordinary course of business of such Person), loan or capital contribution to (by
means of transfers of property to others, payments for property or services for
the account or use of others or otherwise), the purchase of any Capital Stock,
bonds, notes, debentures, partnership or joint venture interests or other
securities of, the acquisition, by purchase or otherwise, of all or
substantially all of the business or assets or stock or other evidence of
beneficial ownership of, any Person or the making of any investment in any
Person. Investments exclude
(1) extensions of trade credit on commercially reasonable terms in
accordance with normal trade practices of such Person; and
(2) the repurchase of securities of any Person by such Person.
For the purposes of the "Limitation on Restricted Payments" covenant, (1)
"Investments" (a) include and are valued at the fair market value of the net
assets of any Restricted Subsidiary at the time that such Restricted Subsidiary
is designated an Unrestricted Subsidiary and (b) exclude the fair market value
of the net assets of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary, provided, that,
in no event may such amount exceed the net amount of any Investments
constituting Restricted Payments made in such Subsidiary after the Issue Date
and (2) the amount of any Investment will be the original cost of such
Investment plus the cost of all additional Investments by the Company or any of
its Restricted Subsidiaries, without any adjustments for increases or decreases
in value, or write-ups, write-downs or write-offs with respect to such
Investment, reduced by the (i) amount returned in cash with respect to such
Investment whether through interest payments, principal payments, dividends or
other distributions and (ii) proceeds received by the Company or any of its
Restricted Subsidiaries from the disposition, retirement or redemption of all or
any portion of such Investment; provided that the aggregate of all such
reductions may not exceed the amount of such initial Investment plus the cost of
all additional Investments; provided, further, that no such payment of
distributions or receipt of any such other amounts may reduce the amount of any
Investment if such payment of distributions or receipt of any such amounts would
be included in Consolidated Net Income. If the Company or any Restricted
Subsidiary of the Company sells or otherwise disposes of any Common Stock of any
direct or indirect Restricted Subsidiary of the Company such that, after giving
effect to any such sale or disposition, the Company no longer owns, directly or
indirectly, 100% of
-108-
the outstanding Common Stock of such Restricted Subsidiary, the Company will be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Common Stock of such Restricted Subsidiary
not sold or disposed of.
"Issue Date" means May 21, 2004, the date the notes are issued under the
Indenture.
"Lien" means, with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
"Monitoring Agreement" means the Amended and Restated Monitoring Services
Agreement dated as of May 17, 2004, by and among the Company and Transportation
Investment Partners, L.L.C., Caravelle Investment Fund, L.L.C., Albion Alliance
Mezzanine Fund, L.P., Albion Alliance Mezzanine Fund II, L.P., Trimaran Fund
Management, L.L.C. and Albion Alliance, LLC.
"Net Income" means, with respect to any Person, for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Proceeds" means
(1) in the case of any sale of Capital Stock by or equity contribution
to any Person, the aggregate net cash proceeds received by such Person,
after payment of expenses, commissions and the like incurred in connection
therewith;
(2) in the case of any exchange, exercise, conversion or surrender of
outstanding securities of any kind for or into shares of Capital Stock of
the Company which is not Disqualified Capital Stock, the net book value of
such outstanding securities on the date of such exchange, exercise,
conversion or surrender (plus any additional amount required to be paid by
the holder to such Person upon such exchange, exercise, conversion or
surrender, less any and all payments made to the holders, e.g., on account
of fractional shares and less all expenses incurred by such Person in
connection therewith); and
(3) in the case of any issuance of any Indebtedness by the Company or
any Restricted Subsidiary, the aggregate net cash proceeds received by such
Person after the payment of expenses, commissions, underwriting discounts
and the like incurred in connection therewith.
"New Credit Facilities" means the First Lien Credit Agreement together with
the Second Lien Credit Agreement.
"Non-Payment Default" means any event (other than a Payment Default) the
occurrence of which entitles one or more Persons to accelerate the maturity of
any Designated Senior Indebtedness.
"Payment Default" means any default, whether or not any requirement for the
giving of notice, the lapse of time or both, or any other condition to such
default becoming an event of default has occurred, in the payment of principal
of or premium, if any, or interest on or any other amount payable in connection
with Designated Senior Indebtedness.
"Permitted Asset Swap" means, with respect to any Person, the substantially
concurrent exchange of assets of such Person for assets of another Person which
are useful to the business of such aforementioned Person.
"Permitted Holders" means (a) (i) CIBC Inc., (ii) Caravelle Investment
Fund, L.L.C., (iii) Albion Alliance Mezzanine Fund, L.P., (iv) Albion Alliance
Mezzanine Fund II, L.P., (v) Trimaran Fund II, L.L.C., (vi) Transportation
Investment Partners, L.L.C., (vii) any Affiliate of any Person named in clauses
(a)(i) through (a)(vi) (collectively, the "Institutional Investors") and (viii)
with respect to any Institutional Investor, any person managed by such
-109-
Institutional Investor or any of its Affiliates (other than their other
portfolio companies), and (b) (i) Thomas Begel, (ii) Andrew Weller, (iii)
Camillo Santomero, (iv) James Cirar and (v) Persons that are wholly owned by the
individuals named in clauses (b)(i) through (b)(iv) above.
"Permitted Indebtedness" means:
(1) Indebtedness of the Company or any Restricted Subsidiary incurred
pursuant to one or more Term Loan Facilities not to exceed $215 million
aggregate principal amount at any time outstanding, less the amount of any
repayments of principal made since the Issue Date;
(2) Indebtedness of the Company or any Restricted Subsidiary incurred
pursuant to one or more Revolving Facilities in a principal amount
outstanding at any time not to exceed the greater of (A) $50 million and
(B) the Borrowing Base;
(3) Indebtedness under the notes, and the Indenture and the
Guarantees;
(4) Indebtedness not covered by any other clause of this definition
which is outstanding on the Issue Date reduced by the amount of any
mandatory prepayments, permanent reductions or scheduled payments actually
made thereunder;
(5) Indebtedness of the Company to any Wholly Owned Subsidiary and
Indebtedness of any Wholly Owned Subsidiary to the Company or another
Wholly Owned Subsidiary, in each case subject to no Lien held by a Person
other than the Company; provided, however, that:
(a) (i) if the Company is the obligor on such Indebtedness or
(ii) any Guarantor is the obligor on such Indebtedness, other than if
the Indebtedness is owed to the Company, then, in each case, such
Indebtedness must be expressly subordinate in right of payment to the
prior payment in full in cash of all obligations with respect to the
notes, in the case of the Company, or the Guarantee of such Guarantor,
in the case of a Guarantor; and
(b) if as of any date any Person other than the Company or a
Wholly Owned Subsidiary of the Company owns or holds any such
Indebtedness or if as of any date any Person other than the Company
holds a Lien in respect of such Indebtedness, such date will be deemed
to be the incurrence of Indebtedness not constituting Permitted
Indebtedness by the issuer of such Indebtedness;
(6) Purchase Money Indebtedness of the Company or any Restricted
Subsidiary and Capitalized Lease Obligations of the Company or any
Restricted Subsidiary incurred to acquire property in the ordinary course
of business which Purchase Money Indebtedness and Capitalized Lease
Obligations do not in the aggregate exceed $10 million at any one time
outstanding;
(7) Indebtedness of the Company or any Restricted Subsidiary 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 two
business days of incurrence;
(8) the incurrence by the Company or any Restricted Subsidiary of
Hedging Obligations that are incurred in the ordinary course of business of
the Company or such Restricted Subsidiary and not for speculative purposes
or as required by any Senior Credit Facility; provided that, in the case of
any Hedging Obligation that relates to
(a) interest rate risk, the notional principal amount of such
Hedging Obligation does not exceed the principal amount of the
Indebtedness to which such Hedging Obligation relates;
-110-
(b) currency risk, such Hedging Obligation does not increase the
Indebtedness of the Company and its Restricted Subsidiaries
outstanding other than as a result of fluctuations in foreign currency
exchange rates or by reason of fees, indemnities and compensation
payable thereunder; and
(c) commodity price risk, with respect to commodities purchased
by such Person in the ordinary course of business, such Hedging
Obligation does not increase the Indebtedness of the Company and its
Restricted Subsidiaries outstanding other than as a result of
fluctuations in commodity prices or by reason of fees, indemnities and
compensation payable thereunder;
(9) Indebtedness in respect of performance bonds, bankers'
acceptances, letters of credit and surety or appeal bonds provided by the
Company and the Restricted Subsidiaries to their customers in the ordinary
course of their business;
(10) Refinancing Indebtedness;
(11) additional Indebtedness of the Company and its Restricted
Subsidiaries not to exceed $10 million in aggregate principal amount at any
one time outstanding;
(12) Indebtedness of the Company or any Restricted Subsidiary
consisting of guarantees, indemnities or obligations in respect of purchase
price adjustments (including adjustments in the purchase price related to
the performance or results of any acquired business) in connection with the
acquisition or disposition of assets permitted under the Indenture;
(13) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, issued in the ordinary course of
business of the Company or such Restricted Subsidiary, including, without
limitation, in order to provide security for workers' compensation claims
or payment obligations in connection with self-insurance or similar
requirements in the ordinary course of business and other Indebtedness with
respect to workers' compensation claims, self-insurance obligations,
performance, surety and similar bonds and completion guarantees provided by
the Company or any Restricted Subsidiary in the ordinary course of
business;
(14) guarantees of Indebtedness otherwise permitted under the
Indenture;
(15) Subordinated Indebtedness the net proceeds of which are applied
to repurchase, redeem, repay, retire or otherwise acquire all or any
portion of the Series A Preferred Stock and/or Series E Preferred Stock and
the guarantee of such Subordinated Indebtedness by the Guarantors; provided
that such guarantee is subordinated in right of payment to the Guarantee of
the Notes at least to the same extent as such Subordinated Indebtedness is
subordinated in right of payment to the Notes; provided, further, after
giving effect to the incurrence of such Subordinated Indebtedness and the
receipt and application of the proceeds thereof, the Company's Consolidated
Leverage Ratio does not exceed 4.25 to 1; and
(16) Indebtedness of Persons that are acquired by the Company or any
of its Restricted Subsidiaries or merged into a Restricted Subsidiary in
accordance with the terms of this Indenture; provided, however, that such
Indebtedness is not incurred in contemplation of such acquisition or merger
or to provide all or a portion of the funds or credit support required to
consummate such acquisition or merger; provided, further, however, that
after giving effect to such acquisition and the incurrence of such
Indebtedness either (x) the Company would be permitted to incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) under
"--Certain Covenants--Limitation on Additional Indebtedness" above; or (y)
the Company's Consolidated Fixed Charge Coverage Ratio would be greater
than immediately prior to such acquisition.
-111-
"Permitted Investments" means Investments made on or after the Issue Date
consisting of
(1) Investments by the Company, or by a Restricted Subsidiary thereof,
in the Company or a Restricted Subsidiary;
(2) Investments by the Company, or by a Restricted Subsidiary thereof,
in a Person, if as a result of such Investment
(a) such Person becomes a Restricted Subsidiary of the Company or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or
is liquidated into, the Company or a Restricted Subsidiary thereof;
(3) Investments in cash and Cash Equivalents;
(4) receivables owing to the Company or any Restricted Subsidiary, if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances;
(5) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of
business;
(6) loans or advances to employees made in the ordinary course of
business consistent with past practices of the Company or such Restricted
Subsidiary not to exceed $2 million in the aggregate outstanding at any one
time;
(7) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments;
(8) an Investment that is made by the Company or a Restricted
Subsidiary thereof in the form of any Capital Stock, bonds, notes,
debentures, partnership or joint venture interests or other securities that
are issued by a third party to the Company or such Restricted Subsidiary
solely as partial consideration for the consummation of an Asset Sale that
is otherwise permitted under "--Certain Covenants--Limitation on Asset
Sales" above;
(9) 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;
(10) Hedging Obligations entered into in the ordinary course of the
Company's or its Restricted Subsidiaries' business and not for speculative
purposes;
(11) Capital Stock of a joint venture or similar entity primarily
engaged in a business which is the same, similar, ancillary or related to
the businesses in which the Company and its Restricted Subsidiaries are
engaged in on the Issue Date, provided that such Investments shall not
exceed $10 million outstanding at any time;
(12) notes or chattel paper received by the Company or a Restricted
Subsidiary as consideration for the ordinary course of business sale or
lease of trucks or other products or inventory;
-112-
(13) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and workers' compensation, performance and
similar deposits entered into as a result of the operations of the business
in the ordinary course of business; and
(14) obligations of one or more officers or other employees of the
Company or any of its Restricted Subsidiaries in connection with such
officer's or employee's acquisition of shares of Common Stock of the
Company so long as no cash is paid by the Company or any of its Restricted
Subsidiaries to such officers or employees in connection with the
acquisition of any such obligations.
"Permitted Junior Securities" means equity securities or subordinated
debt securities of the Company as reorganized or readjusted or securities of the
Company or any other company, trust, corporation or partnership provided for by
a plan of reorganization or readjustment, that, in the case of any such
subordinated securities are junior or the payment of which is otherwise
subordinate, at least to the extent provided in the Indenture with respect to
the notes, to the payment and satisfaction in full in cash of all Senior
Indebtedness of the Company at the time outstanding, and to the payment of all
securities issued in exchange therefor, to the holders of the Senior
Indebtedness at the time outstanding.
"Permitted Liens" means
(1) Liens on property or assets of, or any shares of Capital Stock of
or secured Indebtedness of, any Person existing at the time such Person
becomes a Restricted Subsidiary of the Company or at the time such Person
is merged into the Company or any of its Restricted Subsidiaries; provided
that such Liens
(a) are not incurred in connection with, or in contemplation of,
such Person becoming a Restricted Subsidiary of the Company or merging
into the Company or any of its Restricted Subsidiaries, and
(b) do not extend to or cover any property, assets, Capital Stock
or Indebtedness other than those of such Person at the time such
Person becomes a Restricted Subsidiary or is merged into the Company
or any of its Restricted Subsidiaries;
(2) Liens securing Senior Indebtedness which Senior Indebtedness is
incurred in compliance with "--Certain Covenants--Limitation on Additional
Indebtedness" above;
(3) Liens existing on the Issue Date;
(4) Liens securing the notes and the Guarantees;
(5) Liens securing Refinancing Indebtedness; provided that any such
Lien does not extend to or cover any property, asset, Capital Stock or
Indebtedness other than the property, asset, Capital Stock or Indebtedness
so refunded, refinanced or extended;
(6) Liens in favor of the Company or any of its Restricted
Subsidiaries;
(7) Liens to secure Purchase Money Indebtedness that is otherwise
permitted under the Indenture; provided that (a) the principal amount of
the Indebtedness secured by such Lien does not exceed 100% of the purchase
price, or the cost of installation, construction or improvement, of the
property or asset to which such Purchase Money Indebtedness relates, (b)
such Lien does not extend to or cover any property or asset other than such
item of property or asset and any improvements on such property or asset,
and (c) such Lien is created with 180 days of such acquisition or the
completion of such installation, construction or improvement, as the case
may be;
(8) statutory liens or landlords', carriers', warehouseman's,
mechanics', banker's (and right of setoff), suppliers', materialmen's,
repairmen's, workmen's or other like Liens arising in the ordinary
-113-
course of business which do not secure any Indebtedness and with respect to
amounts not yet delinquent or being contested in good faith by appropriate
proceedings;
(9) Liens for taxes, assessments, charges or other governmental levies
not yet due or as to which the period of grace (not to exceed 60 days), if
any, related thereto has not expired or which are overdue but are being
contested in good faith by appropriate proceedings;
(10) Liens securing Capitalized Lease Obligations permitted to be
incurred under clause (6) of the definition of "Permitted Indebtedness";
provided that such Lien does not extend to any property other than that
subject to the underlying lease;
(11) easements, rights-of-way, restrictions (including zoning
restrictions), covenants, licenses, encroachments, protrusions and other
similar charges or encumbrances in respect of real property not interfering
in any material respect with the ordinary conduct of the business of the
Company or any of its Restricted Subsidiaries;
(12) purported Liens evidenced by the filing of precautionary Uniform
Commercial Code financing statements relating solely to operating leases of
personal property entered into in the ordinary course of business;
(13) licenses of patents, trademarks and other intellectual property
rights granted by the Company or any of its Restricted Subsidiaries in the
ordinary course of business and not interfering in any respect with the
ordinary conduct of the business of the Company or such Restricted
Subsidiary;
(14) leases or subleases to third persons in the ordinary course of
business that do not interfere in any material respect with the business of
the Company and its Restricted Subsidiaries taken as a whole;
(15) other Liens securing obligations incurred in the ordinary course
of business which obligations do not exceed $2.5 million in the aggregate
at any one time outstanding;
(16) Liens to secure the performance of bids, trade contracts, leases,
statutory obligations, surety or appeal bonds, performance bonds or other
similar obligations (other than obligations for borrowed money) in the
ordinary course of business;
(17) Liens arising out of conditional sale, title retention or
consignment in the ordinary course of business;
(18) Liens securing the payment of workers' compensation, unemployment
insurance, other social security benefits or other insurance-related
obligations in the ordinary course of business;
(19) Liens securing Hedging Obligations permitted by the Indenture;
(20) Liens arising out of judgments, decrees, orders or awards in
respect of which the Company shall in good faith be prosecuting an appeal
or proceedings for review; and
(21) any extensions, substitutions, replacements or renewals (or
successive extensions, substitutions, replacements or renewals) of the
foregoing.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government (including any agency or political subdivision
thereof).
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
-114-
"Purchase Money Indebtedness" means Indebtedness of any Person incurred for
the purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement of, any property or asset.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances or
extends any Indebtedness of the Company outstanding on the Issue Date or other
Indebtedness permitted to be incurred by the Company or its Restricted
Subsidiaries pursuant to the terms of the Indenture, but only to the extent that
(1) the Refinancing Indebtedness is subordinated to the notes to at
least the same extent as the Indebtedness being refunded, refinanced or
extended, if at all;
(2) the Refinancing Indebtedness is scheduled to mature either
(a) no earlier than the Indebtedness being refunded, refinanced
or extended, or
(b) after the maturity date of the notes;
(3) the portion, if any, of the Refinancing Indebtedness that is
scheduled to mature on or prior to the maturity date of the notes has a
Weighted Average Life to Maturity at the time such Refinancing Indebtedness
is incurred that is equal to or greater than the Weighted Average Life to
Maturity of the portion of the Indebtedness being refunded, refinanced or
extended that is scheduled to mature on or prior to the maturity date of
the notes;
(4) such Refinancing Indebtedness is in an aggregate principal amount
that is equal to or less than the sum of
(a) the aggregate principal amount then outstanding under the
Indebtedness being refunded, refinanced or extended, and
(b) the amount of accrued and unpaid interest, if any, and
premiums owed, if any, not in excess of preexisting prepayment
provisions on such Indebtedness being refunded, refinanced or
extended, and
(c) the amount of customary fees, expenses and costs related to
the incurrence of such Refinancing Indebtedness; and
(d) such Refinancing Indebtedness is incurred by the same Person
that initially incurred the Indebtedness being refunded, refinanced or
extended, provided that the Company may incur Refinancing Indebtedness
to refund, refinance or extend Indebtedness that was initially
incurred by a Restricted Subsidiary.
"Restricted Payment" means any of the following:
(1) the declaration or payment of any dividend or any other
distribution or payment on Capital Stock of the Company or any Restricted
Subsidiary of the Company or any payment made to the direct or indirect
holders (in their capacities as such) of Capital Stock of the Company or
any Restricted Subsidiary of the Company (other than (a) dividends or
distributions payable solely in Capital Stock (other than Disqualified
Capital Stock) or in options, warrants or other rights to purchase such
Capital Stock (other than Disqualified Capital Stock), and (b) in the case
of Restricted Subsidiaries of the Company, dividends or distributions
payable to the Company or to a Restricted Subsidiary of the Company;
(2) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company or any of its Restricted
Subsidiaries (other than Capital Stock owned by the Company or a Wholly
Owned Subsidiary of the Company, excluding Disqualified Capital Stock) or
any option, warrants or other rights to purchase such Capital Stock;
-115-
(3) the making of any principal payment on, or the purchase,
defeasance, repurchase, redemption or other acquisition or retirement for
value, prior to any scheduled maturity, scheduled repayment or scheduled
sinking fund payment, of any Indebtedness which is subordinated in right of
payment to the notes (other than any such subordinated Indebtedness (except
for Subordinated Indebtedness incurred pursuant to clause (15) of the
definition of Permitted Indebtedness) acquired in anticipation of
satisfying a scheduled sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of
acquisition);
(4) the making of any Investment or guarantee of any Investment in any
Person other than a Permitted Investment;
(5) any designation of a Subsidiary as an Unrestricted Subsidiary
(valued at the fair market value of the net assets of such Restricted
Subsidiary on the date of such designation); and
(6) the forgiveness of any Indebtedness of an Affiliate of the Company
(other than a Guarantor) to the Company or a Restricted Subsidiary of the
Company.
"Restricted Subsidiary" means a Subsidiary of the Company other than an
Unrestricted Subsidiary and includes all of the Subsidiaries of the Company
existing as of the Issue Date. The Board of Directors of the Company may
designate any Unrestricted Subsidiary as a Restricted Subsidiary if immediately
after giving effect to such action (and treating any Acquired Indebtedness as
having been incurred at the time of such action),
(1) the Company could have incurred at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to "--Certain
Covenants--Limitation on Additional Indebtedness" above; and
(2) no Default or Event of Default has occurred and is continuing or
results therefrom.
"Revolving Facilities" means the revolving credit facilities provided to
the Company pursuant to one or more Senior Credit Facilities.
"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Restricted Subsidiary of the
Company of any real or tangible personal property, which property has been or is
to be sold or transferred by the Company or such Restricted Subsidiary to such
Person in contemplation of such leasing.
"Second Lien Credit Agreement" means the Second Lien Secured Credit
Facility, dated as of March 16, 2004, by and among the Company, the lenders
party thereto from time to time and Lehman Brothers Inc., Lehman Commercial
Paper Inc., Wachovia Capital Markets, LLC and Credit Suisse First Boston, as
amended from time to time.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Senior Credit Facilities" means the New Credit Facilities, together with
the related documents thereto (including, without limitation, any guarantee
agreements and security documents, including as provided by any Subsidiaries of
the Company), in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from time
to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder (provided that such increase in borrowings is
permitted under "--Certain Covenants--Limitation on Additional Indebtedness"
above) or adding Restricted Subsidiaries of the Company as additional borrowers
or guarantors thereunder) all or any portion of the Indebtedness under such
agreement or any successor or replacement agreement and whether by the same or
any other agents, lender or group of lenders.
-116-
"Senior Indebtedness" means the principal of and premium, if any, and
interest on, and any and all other fees, expense reimbursement obligations and
other amounts due pursuant to the terms of all agreements, documents and
instruments providing for, creating, securing or evidencing or otherwise entered
into in connection with
(1) all Indebtedness of the Company or any Guarantor owed to lenders
under any Senior Credit Facilities;
(2) all obligations of the Company or any Guarantor with respect to
Hedging Obligations; (3) all obligations of the Company or any Guarantor to
reimburse any bank or other person in respect of amounts paid under letters
of credit, acceptances or other similar instruments;
(4) all other Indebtedness of the Company or any Guarantor which does
not provide that it is to rank pari passu with or subordinate to the notes
or the Guarantee of any Guarantor, as the case may be; and
(5) all deferrals, renewals, extensions and refundings of, and
amendments, modifications and supplements to, any of the Senior
Indebtedness described above.
Notwithstanding anything to the contrary in the foregoing, Senior
Indebtedness will not include
(1) Indebtedness of the Company or any Guarantor to any of their
respective Subsidiaries, or to any Affiliate of the Company or such
Guarantor or any of such Affiliate's Subsidiaries;
(2) Indebtedness represented by the notes and the Guarantees;
(3) any Indebtedness which by the express terms of the agreement or
instrument creating, evidencing or governing the same is junior or
subordinate in right of payment to any item of Senior Indebtedness;
(4) any trade payable arising from the purchase of goods or
materials or for services obtained in the ordinary course of business;
(5) Indebtedness incurred in violation of the Indenture;
(6) Indebtedness represented by Disqualified Capital Stock; and
(7) any Indebtedness to or guaranteed on behalf of, any
stockholders, director, officer or employee of the Company or any
Guarantor or any Subsidiary of the Company or such Guarantor.
"Series A Preferred Stock" means the 14.5% Senior Redeemable Preferred
Stock of the Company, par value $0.01 per share, originally issued on March 9,
2000, and any shares of Preferred Stock into which such series are exchangeable
in accordance with the terms thereof.
"Series C Preferred Stock" means the Series C Preferred Stock of the
Company, par value $0.01 per share, issued on December 19, 2003.
"Series D Preferred Stock" means the Series D Preferred Stock of the
Company, par value $0.01 per share, issued on December 19, 2003.
"Series E Preferred Stock" means the 25% Senior Redeemable Preferred Stock,
Series E, of the Company, par value $0.01 per share, issued on December 19,
2003.
-117-
"Significant Subsidiary" means, with respect to any Person, any Restricted
Subsidiary of such Person that satisfies the criteria for a "significant
subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities
Act, as such Rule is in effect on the Issue Date.
"Subordinated Indebtedness" means Indebtedness of the Company (i) that is
subordinated in right of payment to the Notes at least to the same extent as the
Notes are subordinated to Designated Senior Indebtedness of the Company as
determined in good faith by the Company and (ii) that does not provide for a
maturity or mandatory sinking fund payment prior to the maturity of the Notes.
"Subsidiary" of any specified Person means any corporation, partnership,
limited liability company, joint venture, association or other business entity,
whether now existing or hereafter organized or acquired,
(1) in the case of a corporation, of which more than 50% of the total
voting power of the Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
officers or trustees thereof is held by such first-named Person or any of
its Subsidiaries; or
(2) in the case of a partnership, limited liability company, joint
venture, association or other business entity, with respect to which such
first-named Person or any of its Subsidiaries has the power to direct or
cause the direction of the management and policies of such entity by
contract or otherwise or if in accordance with GAAP such entity is
consolidated with the first-named Person for financial statement purposes.
"Term Loan Facilities" means the term loans under the Senior Credit
Facilities.
"Unrestricted Subsidiary" means
(1) any Subsidiary of an Unrestricted Subsidiary; and
(2) any Subsidiary of the Company which has been designated after the
Issue Date as an Unrestricted Subsidiary by a resolution adopted by the
Board of Directors of the Company; provided that a Subsidiary may be so
designated as an Unrestricted Subsidiary only if
(a) such designation is in compliance with "--Certain
Covenants--Limitation on Restricted Payments" above;
(b) immediately after giving effect to such designation, the
Company could have incurred at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to "Certain
Covenants--Limitation on Additional Indebtedness" above;
(c) no Default or Event of Default has occurred and is continuing
or results therefrom; and
(d) neither the Company nor any Restricted Subsidiary will at any
time,
(i) provide a guarantee of, or similar agreement or
undertaking as credit support to, any Indebtedness of such
Subsidiary (including any undertaking, agreement or instrument
evidencing such Indebtedness);
(ii) be directly or indirectly liable for any Indebtedness
of such Subsidiary; or
(iii) be directly or indirectly liable for any other
Indebtedness which provides that the holder thereof may (upon
notice, lapse of time or both) declare a default thereon (or
cause the payment thereof to be accelerated or payable prior to
its final scheduled maturity) upon the occurrence of a default
with respect to any other Indebted-
-118-
ness that is Indebtedness of such Subsidiary (including any
corresponding right to take enforcement action against such
Subsidiary);
except in the case of clause (i) or (ii) to the extent (i) that the
Company or such Restricted Subsidiary could otherwise provide such a
guarantee or incur such Indebtedness (other than as Permitted
Indebtedness) pursuant to "--Certain Covenants--Limitation on
Additional Indebtedness" above and (ii) the provision of such
guarantee and the incurrence of such Indebtedness otherwise would be
permitted under "--Certain Covenants--Limitation on Restricted
Payments" above.
The Trustee will be provided with an officers' certificate stating that
such designation is permitted and setting forth the basis upon which the
calculations required by this definition were computed, together with a copy of
the resolution adopted by the Board of Directors of the Company making such
designation.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing
(1) the then outstanding aggregate principal amount of such
Indebtedness into
(2) the sum of the total of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payment of principal, including
payment at final maturity, in respect thereof, by
(b) the number of years (calculated to the nearest one-twelfth)
which will elapse between such date and the making of such payment.
"Wholly Owned Subsidiary" means any Restricted Subsidiary, all of the
outstanding voting securities (other than directors' qualifying shares) of which
are owned, directly or indirectly, by the Company.
-119-
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of certain U.S. federal income tax
consequences of the exchange of outstanding notes received in such exchange for
exchange notes and the beneficial ownership and disposition of the exchange
notes. This discussion is for general information only and does not consider all
aspects of U.S. federal income taxation that may be relevant to the purchase,
ownership and disposition of the notes by a prospective investor in light of
such investor's personal circumstances. This discussion applies only to
investors that hold the notes as capital assets (generally, held for investment)
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"), and does not address the U.S. federal income tax
consequences to investors subject to special treatment under the U.S. federal
income tax laws, including dealers in securities or currencies, partnerships or
other pass-through entities or investors in such entities, tax-exempt entities,
banks, financial institutions, insurance companies, expatriates, investors that
hold the notes as part of a "straddle," "hedge," "conversion transaction" or
other integrated investment, and U.S. Holders (as defined below) that have a
"functional currency" other than the U.S. dollar. In addition, this discussion
does not describe any U.S. federal alternative minimum tax consequences and does
not describe any tax consequences arising under the laws of any state, local or
foreign jurisdiction. This discussion is based upon the Code, Treasury
regulations promulgated thereunder, and current administrative rulings and court
decisions, all of which are subject to change, possibly on a retroactive basis.
If an entity treated as a partnership for U.S. federal income tax purposes
holds the notes, the tax treatment of a partner generally will depend upon the
status of the partner and the activities of the partnership. A holder that is a
partner of a partnership purchasing the notes should consult with its own tax
advisor about the U.S. federal income tax consequences of purchasing, holding
and disposing of the notes.
For purposes of this discussion, (1) a "U.S. Holder" is a holder of a note
that is, for U.S. federal income tax purposes, (A) an individual who is a
citizen or resident of the United States, (B) a corporation or any other entity
taxable as a corporation for U.S. federal income tax purposes which is created
or organized under the laws of the United States, any State thereof or the
District of Columbia, (C) an estate the income of which is subject to U.S.
federal income tax regardless of its source, or (D) a trust if a court within
the United States is able to exercise primary supervision over the trust's
administration and one or more United States persons have the authority to
control all of its substantial decisions or certain trusts that have elected to
be treated as U.S. Holders, and (2) a "non-U.S. Holder" is a beneficial owner of
the notes that is a nonresident alien or a corporation, trust or estate that is
not a U.S. Holder.
Prospective investors considering the purchase of notes should consult
their tax advisors concerning the application of U.S. federal income tax laws,
as well as the laws of any state, local or foreign taxing jurisdiction, to their
particular situations.
Exchange of Notes
The exchange of outstanding notes for exchange notes pursuant to this
exchange offer will not constitute a taxable event for U.S. federal income tax
purposes. Consequently, no gain or loss will be recognized by a holder of the
old notes upon receipt of an exchange note. A holder's adjusted tax basis in the
exchange note will be the same as the adjusted tax basis in the old note
exchanged therefor. A holder's holding period of the exchange note will include
the holding period of the old note exchanged therefor.
Consequences of Ownership and Disposition of the Exchange Notes
U.S. Holders
Original Issue Discount
The outstanding notes were issued (and therefore the exchange notes will be
treated as issued) with original issue discount ("OID") for U.S. federal income
tax purposes in an amount equal to the excess of the "stated redemption price at
maturity" of the notes over their "issue price." The "stated redemption price at
maturity" of a debt instrument is the sum of all payments to be made under the
debt instrument other than payments of "qualified stated interest." "Qualified
stated interest" means stated interest that is unconditionally payable in cash
or in property (other than debt instruments issued by us) at least annually at a
single fixed rate throughout the term of the debt instrument. Because we have
the option to pay up to one-half of the September 30, 2004 interest payment
through the issuance of additional notes, only one-half of each interest payment
on the exchange notes will qualify as qualified stated interest regardless of
whether we exercise this option. While not free from doubt, we intend to take
the position that the issue price of the outstanding notes (and therefore the
exchange notes) will be their face amount (although it is possible that the
issue price of the notes will be the first price at which a substantial amount
of the outstanding notes were sold for cash (excluding sales to bond houses,
brokers or similar persons or organizations acting in the capacity of
underwriter, placement agent or wholesaler)).
U.S. Holders should be aware that they generally must include OID in gross
income in advance of the receipt of cash attributable to that income (but will
not be taxed again when such cash is received). The amount of
-120-
OID includible in income for a taxable year by a U.S. Holder will generally
equal the sum of the "daily portions" of the total OID on the exchange note for
each day during the taxable year on which such holder held the note. Generally,
the daily portion of the OID is determined by allocating to each day in any
accrual period a ratable portion of the OID allocable to such accrual period.
The amount of OID allocable to an accrual period will generally be the product
of the "adjusted issue price" of an exchange note at the beginning of such
accrual period and its "yield to maturity", less the amount of any qualified
stated interest allocable to such period. The "adjusted issue price" of a note
at the beginning of an accrual period will equal the issue price plus the amount
of OID previously includible in the gross income of any U.S. Holder, less any
payments made on such note on or before the first day of the accrual period
(other than payments of qualified stated interest). The "yield to maturity" of a
note will be computed on the basis of a constant interest rate and compounded at
the end of each accrual period. An accrual period may be of any length and may
vary in length over the term of the note, provided that each accrual period is
no longer than one year and each scheduled payment of principal or interest
occurs either on the final day or the first day of an accrual period.
Market Discount
Under the market discount rules of the Code, a U.S. Holder who purchased an
outstanding note at a market discount will generally be required to treat any
gain recognized on the sale, exchange, retirement or other taxable disposition
of the exchange note received in exchange therefor as ordinary income to the
extent of the accrued market discount (during the periods in which the holder
held the outstanding note and the exchange note) that has not been previously
included in income. Market discount is generally defined as the amount by which
a U.S. Holder's purchase price for a note is less than the note's stated
redemption price at maturity (generally, the note's principal amount) of the
note on the date of purchase, subject to a statutory de minimis exception. In
general, market discount accrues on a ratable basis over the remaining term of
the note unless a U.S. Holder makes an irrevocable election to accrue market
discount on a constant yield to maturity basis. A U.S. Holder of a note with
market discount may be required to defer part or all of its interest deductions
with respect to any debt issued by such U.S. Holder (unless the U.S. Holder
elects to include market discount in income on a current basis, as described
below).
A U.S. Holder of a note may elect to report market discount as ordinary
income as it accrues -- on either a ratable or a constant yield basis. If a U.S.
Holder makes this election, the rules regarding the treatment of gain upon the
disposition of the note and upon the receipt of certain cash payments as
ordinary income and regarding the deferral of interest deductions will not
apply. Currently, if the foregoing election is made by a U.S. Holder, the
election will apply to all market discount obligations acquired by such holder
during or after the first taxable year to which the election applies, and the
election may not be revoked without the consent of the Internal Revenue Service.
Amortizable Bond Premium
A U.S. Holder who purchases an outstanding note for an amount in excess of
its principal amount will be considered to have purchased the outstanding note
at a premium. A U.S. Holder may elect to amortize the premium over the remaining
term of the exchange note on a constant yield method. The amount amortized in
any year will be treated as a reduction of the U.S. Holder's interest income
from the exchange note. A U.S. Holder who elects to amortize the premium on a
note must reduce its tax basis in the note by the amount of the premium
amortized in any year. An election to amortize bond premium applies to all
taxable debt obligations then owned and thereafter acquired by the U.S. Holder
and may be revoked only with the consent of the IRS. Bond premium on a note held
by a U.S. Holder who does not make such an election will decrease the capital
gain or increase the capital loss otherwise recognized on the disposition of the
note.
Qualified Stated Interest
Qualified stated interest on the exchange notes will be taxable to a U.S.
Holder as ordinary interest income either at the time it accrues or is received
in accordance with such holder's method of tax accounting.
Sale, Exchange, Redemption or Other Taxable Disposition of the Notes
Subject to the market discount rules described above, upon the sale,
exchange, redemption or other taxable disposition of an exchange note
(collectively, a "disposition"), a U.S. Holder will generally recognize capital
gain or loss equal to the difference between (1) the amount of cash and the fair
market value of any property received with respect to such disposition (other
than in respect of accrued and unpaid qualified stated interest, which will be
taxable as ordinary income to the extent not previously included in gross income
as described above) and (2) the U.S. Holder's adjusted tax basis in the exchange
note. A U.S. Holder's adjusted tax basis in an exchange note generally will
equal the cost of the outstanding note,
-121-
increased by the amount of OID and any market discount previously included in
income and decreased by the amount of any cash payment received with respect to
the note (other than payments of qualified stated interest) and any amortized
bond premium. Such capital gain or loss will be long-term capital gain or loss
if the U.S. Holder's holding period for such note exceeded one year on the date
of disposition. Subject to certain limited exceptions, capital losses cannot be
used to offset ordinary income.
Backup Withholding and Information Reporting
Under certain circumstances, U.S. Holders may be subject to information
reporting and/or backup withholding at a current rate of 28%. In general, backup
withholding applies if a U.S. Holder (1) fails to furnish its social security or
other taxpayer identification number ("TIN") within a reasonable time after a
request therefor, (2) furnishes an incorrect TIN, (3) fails to report interest
or dividends properly or (4) fails, under certain circumstances, to provide a
certified statement, signed under penalties of perjury, that the TIN provided is
its correct number and that it is not subject to backup withholding. Backup
withholding is not an additional tax. Any amount withheld from a payment to a
U.S. Holder under the backup withholding rules is allowable as a credit against
such holder's U.S. federal income tax liability (and may entitle such holder to
a refund), provided that the required information is furnished to the IRS.
Certain persons are exempt from backup withholding, including corporations and
financial institutions. U.S. Holders should consult their tax advisors as to
their qualification for exemption from backup withholding and the procedure for
obtaining such exemption.
Non-U.S. Holders
Interest and Original Issue Discount
Subject to the discussion of backup withholding below, payments of interest
(including original issue discount) to a non-U.S. Holder generally will not be
subject to U.S. withholding tax so long as the non-U.S. Holder:
o does not actually or constructively own 10% or more of the total
combined voting power of all classes of our stock entitled to vote,
o such interest is not effectively connected with the conduct by the
non-U.S. Holder of a trade or business within the United States (not
"Effectively Connected Interest"),
o is not a controlled foreign corporation that is related to us through
stock ownership and
o provides to us, our payment agent, or the person who would otherwise
be required to withhold U.S. tax a properly executed IRS Form W-8BEN
(or successor form), under penalties of perjury, certifying it is not
a U.S. person.
If a non-U.S. Holder does not satisfy the preceding requirements, payments
of interest on an exchange note that are not Effectively Connected Interest
would generally be subject to U.S. withholding tax at a 30% rate (or a lower
applicable treaty rate). In order to obtain the benefit of a lower applicable
treaty rate, a non-U.S. Holder must provide to us, our payment agent, or the
person who would otherwise be required to withhold U.S. tax, a properly executed
IRS Form W-8BEN (or successor form).
If interest on an exchange note is Effectively Connected Interest (and in
the case of an applicable tax treaty resident, is attributable to a permanent
establishment or, in the case of an individual, a fixed base maintained by the
non-U.S. Holder in the U.S.), the non-U.S. Holder will be exempt from U.S.
withholding tax but will be subject to regular U.S. federal income tax on
payments of interest (and accruals of OID) in the same manner as if it were a
U.S. person. In order to establish an exemption from U.S. withholding tax, a
non-U.S. Holder must provide to us, our payment agent, or the person who would
otherwise be required to withhold U.S. tax a properly executed IRS Form W-8ECI
(or successor form). In addition to regular U.S. federal income tax, a non-U.S.
Holder that is a foreign corporation may be subject to a U.S. branch profits tax
at 30% rate (or lower applicable treaty rate).
-122-
Sale, Exchange, Redemption or Other Taxable Disposition of the Notes
Subject to the discussion of backup withholding below, gain recognized on a
disposition of an exchange note generally will not be subject to U.S. federal
income tax unless:
o the gain is effectively connected with the non-U.S. Holder's conduct
of a trade or business within the U.S. ("Effectively Connected Gain")
and, in the case of an applicable tax treaty resident, is attributable
to a permanent establishment or, in the case of an individual, a fixed
base maintained by the non-U.S. Holder in the U.S. or
o in the case of a non-U.S. Holder that is an individual, the non-U.S.
Holder is present in the U.S. for 183 or more days in the taxable year
and certain other requirements are met.
If a non-United States Holder's gain is Effectively Connected Gain such
holder generally will be required to pay U.S. federal income tax on the net gain
derived from the sale in the same manner as if it were a U.S. person. If such a
non-United States Holder is a corporation, such holder may also, under certain
circumstances, be subject to a branch profits tax at a 30% rate (or lower
applicable treaty rate). If a non-United States Holder is subject to the 183-day
rule described above, such holder generally will be subject to U.S. federal
income tax at a rate of 30% (or a reduced rate under an applicable treaty) on
the amount by which capital gains allocable to U.S. sources (including gains
from the sale, exchange, retirement or other disposition of the exchange note)
exceed capital losses allocable to U.S. sources.
Backup Withholding and Information Reporting
Backup withholding tax is a withholding tax imposed at a 28% rate on
certain payments to persons who fail to furnish the information required under
U.S. information reporting requirements. In the case of payments of interest
(including OID), backup withholding tax and certain information reporting will
not apply to such payments with respect to which either the certification
described under "Interest and Original Issue Discount" above has been received
or an exemption has otherwise been established.
Payments of the proceeds from the sale, exchange, redemption or other
disposition of an exchange note made to or through a foreign office of a broker
generally will not be subject to information reporting or backup withholding.
However, if the broker is a U.S. person, a controlled foreign corporation for
U.S. tax purposes or a foreign person 50% or more of whose gross income is
effectively connected with the conduct of a U.S. trade or business for a
specified three-year period, however, information reporting (but not backup
withholding) may apply to such payments unless an exemption is otherwise
established.
Payments of the proceeds from the sale, exchange, redemption or other
disposition of an exchange note made to or through the U.S. office of a broker
are subject to information reporting and backup withholding unless a non-U.S.
Holder certifies under penalties of perjury as to its non-U.S. status or
otherwise establishes an exemption from information reporting and backup
withholding.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against a non-U.S. Holder's
U.S. federal income tax liability, if any, provided that the required
information is timely furnished to the IRS.
-123-
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 by
such broker-dealer as a result of market-making activities or other trading
activities. We have agreed that for a period beginning when exchange notes are
first issued in the exchange offer and ending upon the earlier of the expiration
of the 180th day after the exchange offer has been completed or such time as no
broker-dealer owns any registrable securities, we will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale.
We will not receive any proceeds from any sale of exchange notes. 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 at negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such 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 of 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 beginning when exchange notes are first issued in the exchange
offer and ending upon the earlier of the expiration of the 180th day after the
exchange offer has been completed or such time as no broker-dealer owns any
registrable securities, we will promptly upon request send additional copies of
this prospectus and any amendment or supplement thereto to any broker-dealer
that requests such documents in the letter of transmittal. We have agreed to pay
all expenses incident to the exchange offer (including the expenses of any one
counsel for the holders of the outstanding notes) other than commissions or
concessions of any brokers or dealers and will indemnify the holders of the
outstanding notes participating in the exchange offer (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the exchange notes offered hereby
will be passed upon for us by Cahill Gordon & Reindel LLP, New York, New York.
EXPERTS
Our consolidated financial statements as of December 31, 2002 and 2003 and
for each of the three years in the period ended December 31, 2003 included in
this prospectus, have been audited by Deloitte & Touche LLP, independent
registered public accounting firm, as stated in their report appearing herein
and elsewhere in this prospectus (which report expresses an unqualified opinion
and includes an explanatory paragraph regarding the adoption of SFAS 142,
"Goodwill and Other Intangible Assets"), and have been included in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
CHANGE IN INDEPENDENT ACCOUNTANTS
In 2002, with the requisite approval of our board of directors, we
dismissed Arthur Andersen LLP as our independent public accountants. We had not
had any material disagreements with Arthur Andersen LLP during the last two
fiscal years preceding such dismissal. Arthur Andersen LLP has not reissued its
audit report with respect to our audited consolidated financial statements
prepared by it. As a result, you will probably not have an effective
-124-
remedy against Arthur Andersen LLP in connection with a material misstatement or
omission with respect to our consolidated financial statements that were audited
by Arthur Andersen LLP. Even if you were able to assert such a claim
successfully, as a result of its conviction and other lawsuits and claims,
Arthur Andersen LLP may not have sufficient assets to satisfy claims made by us
or by our investors that might arise under the federal securities or other laws
relating to any alleged material misstatement or omission with respect to our
audited consolidated financial statements audited by Arthur Andersen LLP.
-125-
TRANSPORTATION TECHNOLOGIES INDUSTRIES, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Registered Public Accounting Firm................... F-2
Consolidated Balance Sheets as of December 31, 2002 and 2003
(audited), June 30, 2004 (unaudited).................................... F-3
Consolidated Statements of Operations for the years ended December 2001,
2002 and 2003 (audited) and the three and six months ended June 30, 2003
and 2004 (unaudited)...................................................... F-4
Consolidated Statements of Cash Flows for the years ended December 2001,
2002 and 2003 (audited) and the six months ended June 30, 2003 and
2004 (unaudited)........................................................ F-5
Consolidated Statements of Changes in Shareholders' Equity and Other
Comprehensive Loss...................................................... F-6
Notes to Consolidated Financial Statements................................ F-8
F-1
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Transportation Technologies Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Transportation
Technologies Industries, Inc. and subsidiaries (the "Company") as of December
31, 2003 and 2002, and the related consolidated statements of operations, of
cash flows and of changes in stockholders' equity and other comprehensive loss
for each of the three years in the period ended December 31, 2003. 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 the standards of the United States
Public Company Accounting Oversight Board. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Transportation Technologies
Industries, Inc. and Subsidiaries as of December 31, 2003 and 2002, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 5 to the financial statements, the Company changed its
method of accounting for goodwill and certain identifiable intangible assets in
2002.
/s/ DELOITTE & TOUCHE LLP
April 19, 2004
(July 6, 2004 as to Notes 8 and 23)
F-2
TRANSPORTATION TECHNOLOGIES INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
------------------------- -------------
2002 2003 2004
--------- ------------ -------------
(unaudited)
(in thousands except per share data)
Assets:
Current assets:
Cash and cash equivalents........................................... $ 14,085 $ -- $ --
Accounts receivable (net of allowance: 2002--$1,058;
2003--$767; 2004--$752 (unaudited))................................ 35,261 50,884 72,107
Inventories--net.................................................... 35,086 44,314 49,956
Deferred income tax assets.......................................... 8,932 6,692 10,631
Other current assets................................................ 8,888 9,111 6,125
------------ ------------ ------------
Total current assets............................................... 102,252 111,001 138,819
Property, plant and equipment--net.................................... 91,996 87,414 84,995
Deferred financing costs and other--net............................... 14,317 11,002 9,458
Goodwill.............................................................. 199,079 199,079 199,079
Intangible assets--net................................................ 42,899 42,248 42,012
------------ ------------ ------------
Total assets...................................................... $ 450,543 $ 450,744 $ 474,363
============ ============ ============
Liabilities and shareholders' equity:
Liabilities:
Accounts payable.................................................... $ 28,086 $ 40,124 $ 52,549
Accrued payroll and employee benefits............................... 12,720 12,022 15,532
Other current liabilities........................................... 26,223 25,867 21,821
Current maturities of long-term debt................................ 18,829 19,473 1,150
------------ ------------ ------------
Total current liabilities.......................................... 85,858 97,486 91,052
Senior long-term debt less current maturities......................... 183,811 171,228 224,663
Subordinated notes.................................................... 145,196 118,428 100,000
Deferred income tax liabilities....................................... 3,524 11,304 11,304
Other long-term liabilities........................................... 57,529 32,529 30,749
------------ ------------ ------------
Total liabilities.................................................. 475,918 430,975 457,768
Shareholders' equity:
Preferred stock--400,000 shares authorized--all series Senior Series E
preferred stock, par $0.01--25% cumulative;
41,475 and 46,141 issued and outstanding as of December 31,
2003 and June 30, 2004 (unaudited), respectively .................. -- -- --
Series A junior preferred stock, par $0.01--14.5% cumulative;
103,806 and 119,752 and 128,475 issued and outstanding as of
December 31, 2002 and 2003 and June 30, 2004 (unaudited),
respectively....................................................... 1 1 1
Series C and Series D junior preferred stock, both par
$0.01--14,000 and 42,000 issued and outstanding as of
December 31, 2002 and 2003 and June 30, 2004 (unaudited),
respectively....................................................... -- 1 1
Common stock, par $0.01--20,000,000 shares, authorized and
1,860,464 issued and outstanding shares as of December 31,
2002 and 2003 and June 30, 2004 (unaudited), respectively;......... 19 19 19
Paid-in capital..................................................... 128,362 185,950 200,852
Accumulated deficit................................................. (139,209) (153,477) (171,553)
Accumulated other comprehensive loss and other...................... (14,548) (12,725) (12,725)
------------ ------------ ------------
Total shareholders' equity......................................... (25,375) 19,769 16,595
------------ ------------ ------------
Total liabilities and shareholders' equity......................... $ 450,543 $ 450,744 $ 474,363
============ ============ ============
See notes to consolidated financial statements.
F-3
TRANSPORTATION TECHNOLOGIES INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31, Three months ended June 30, Six months ended June 30,
----------------------------------- ----------------------------- -------------------------
2001 2002 2003 2003 2004 2003 2004
---------- ---------- ----------- ------------ ----------- --------- -------------
(in thousands except per (unaudited)
share data)
Net sales.................. $ 391,401 $ 411,598 $ 440,009 $ 112,550 $ 144,788 $ 217,306 $ 279,568
Cost of sales.............. 330,873 340,103 368,931 93,560 121,855 181,347 235,338
---------- ---------- ----------- ------------ ----------- --------- -------------
Gross profit............... 60,528 71,495 71,078 18,990 22,933 35,959 44,230
Selling, general, and
administrative expense... 43,701 36,673 38,896 9,947 10,456 19,786 21,148
Net (gain) loss on
disposition of
property, plant and
equipment................ -- -- (2,600) -- 2,203 -- 2,203
Reduction in estimated
environmental
remediation liability.... -- -- (6,636) -- -- -- --
Restructuring costs........ 19,573 -- -- -- -- -- --
---------- ---------- ----------- ------------ ----------- --------- -------------
Operating (loss) income.. (2,746) 34,822 41,418 9,043 10,274 16,173 20,879
Gain on sale of rail
assets................... (5,000) -- (10,000) -- -- -- --
Loss on debt
extinguishment........... 796 -- 1,803 -- 4,107 -- 10,655
Transaction related costs.. 1,592 -- -- -- 4,107 -- --
Interest income............ (597) (92) (496) (8) -- (390) --
Interest expense........... 45,640 42,306 40,362 9,805 8,093 20,368 16,182
---------- ---------- ----------- ------------ ----------- --------- -------------
Income (loss) before
income taxes............. (45,177) (7,392) 9,749 (754) (1,926) (3,805) (5,958)
Income tax expense
(benefit)................ (15,151) (1,679) 6,248 (246) (1,198) (1,399) (2,784)
---------- ---------- ----------- ------------ ----------- --------- -------------
Net (loss) income before
cumulative effect of
accounting change........ (30,026) (5,713) 3,501 (508) (728) (2,406) (3,174)
Cumulative effect of
accounting change-- net
of income taxes.......... -- (3,794) -- -- -- -- --
Net (loss) income.......... (30,026) (9,507) 3,501 (508) (728) (2,406) (3,174)
Preferred stock dividends.. 13,393 15,267 17,769 4,281 7,580 8,423 14,902
---------- ---------- ----------- ------------ ----------- --------- -------------
Net loss available to
common shareholders...... $ (43,419) $ (24,774) $ (14,268)$ (4,789) $ (8,308) $ (10,829) $ (18,076)
========= ========== =========== ============ ======== ========= =========
Weighted average common
shares
outstanding--basic and
diluted.................. 2,102 2,280 2,605 2,581 2,674 2,535 2,674
Net loss per common
share before
cumulative effect of
accounting change........ $ (20.66) $ (9.21) (5.48) (1.86) (3.11) (4.27) (6.76)
---------- ---------- ----------- ------------ ----------- --------- -------------
Cumulative effect of
accounting change per
common share............. -- (1.66) -- -- -- -- --
---------- ---------- ----------- ------------ ----------- --------- -------------
Net loss per common
share--basic and diluted.. $ (20.66) $ (10.87) $ (5.48)$ (1.86) $ (3.11) $ (4.27) $ (6.76)
========= ========== =========== ============ ======== ========= =========
See notes to consolidated financial statements.
F-4
TRANSPORTATION TECHNOLOGIES INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31, Six months ended June 30,
----------------------- -------------------------
2001 2002 2003 2003 2004
---- ---- ---- ---- ----
(in thousands) (unaudited)
Cash flows from operating
activities:
Net income (loss).................. $ (30,026) $ (9,507) $ 3,501 $ (2,406) $ (3,174)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and intangible
asset amortization............... 25,054 15,518 15,546 8,114 7,000
Deferred financing cost and
senior subordinated note
discount amortization............ 3,185 3,541 4,114 1,948 1,276
Senior subordinated note
interest paid in kind............ 10,211 10,979 7,894 5,772 --
Deferred income taxes............. (8,452) (837) 9,694 2,730 (2,468)
Gain on sale of rail assets....... (5,000) -- (10,000) -- --
Reduction in estimated
environmental remediation
liability........................ -- -- (6,636) -- --
Net (gain) loss on
disposition of property,
plant and equipment.............. -- -- (2,600) -- 2,203
Loss on extinguishment of
long-term debt................... 796 -- 1,803 -- 10,655
Cumulative change in
accounting--net................... -- 3,794 -- -- --
Restructuring charges............. 19,552 -- -- -- --
Changes in assets and
liabilities:
Accounts receivable............. 12,276 (302) (15,623) (16,315) (21,223)
Inventories..................... 5,611 (3,339) (9,228) (2,074) (5,642)
Accounts payable................ (7,640) 2,290 12,038 11,261 12,425
Accrued payroll and
employee benefits.............. (1,899) (1,221) (698) 1,764 3,510
Other assets and liabilities.... (1,372) 2,278 (1,959) (416) (7,953)
---------- ----------- ------------ ---------- -----------
Cash provided by operating 23,194 (10,378)
activities.................... 22,296 7,846 (3,391)
---------- ----------- ------------ ---------- -----------
Cash flows from investing
activities:
Capital expenditures............... (5,450) (10,242) (15,044) (8,828) (2,960)
Proceeds from the sale of
property, plant and equipment...... -- -- 6,651 -- --
Proceeds from the sale of rail
assets............................. 15,000 -- -- -- --
---------- ----------- ------------ ---------- -----------
Cash provided by investing
activities.................... 9,550 (10,242) (8,393) (8,828) (2,960)
---------- ----------- ------------ ---------- -----------
Cash flows from financing
activities:
Net borrowing under the
revolving credit facility.......... -- -- 12,000 -- 8,000
Proceeds from stock issuances........ 10,000 -- 1,000 -- --
Proceeds from new revolving
credit facility.................... 215,000
Payments of term loans............... (28,996) (13,984) (23,939) (8,808) (287)
Prepayment of existing revolving
credit facility.................... -- -- -- -- (187,601)
Prepayment of old subordinated
notes -- (20,926)
Payments of debt financing and
equity issuance costs.............. (923) (1,162) (2,599) -- (7,835)
---------- ----------- ------------ ---------- -----------
Cash used in financing
activities.................... (19,919) (15,146) (13,538) (8,808) 6,351
---------- ----------- ------------ ---------- -----------
Net change in cash and cash
equivalents........................ 11,927 (2,194) (14,085) (7,258) --
Cash and cash
equivalents--beginning of period.... 4,352 16,279 14,085 14,085 --
---------- ----------- ------------ ---------- -----------
Cash and cash equivalents--end of
period............................. $ 16,279 $ 14,085 $ -- $ 6,827 $ --
========== =========== ============ ========== ===========
Supplemental Information:
Cash paid for:
Interest........................... $ 32,003 $ 27,414 $ 24,229 $ 12,418 $ 13,371
Income taxes....................... 1,249 231 838 293 2,800
Supplemental disclosure of non-cash
financing activities:
Issuance of senior preferred
stock............................. $ -- $ -- $ 40,475 -- --
Extinguishment of senior
subordinated notes................ -- -- (39,140) -- --
Exchange of senior
subordinated notes................ -- -- -- (100,000) --
See notes to consolidated financial statements.
F-5
TRANSPORTATION TECHNOLOGIES INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SHAREHOLDERS' EQUITY AND OTHER COMPREHENSIVE LOSS
Series A Series C Series D Series E Total Total
Preferred Preferred Preferred Preferred Preferred Preferred PreferredPreferred Preferred Preferred
Stock Stock Stock Stock Stock Stock Stock Stock Stock Stock
(in thousands) Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
BALANCE--January 1, 2001--as
restated....................... 78,073 $ 1 -- $ -- -- $ -- -- $ -- 78,073 $ 1
Shares released from Rabbi
Trust.........................
Preferred stock in-kind
dividends..................... 11,951 -- 11,951 --
Preferred stock accretion......
Net loss.......................
Unrealized loss on cash
flow hedge--net of tax of
$913..........................
Common stock issuance..........
Warrants issued to
subordinated note holders.....
Minimum pension liability
increase--net of tax of
$2,431........................
Total comprehensive loss.......
-------- -------- ----- ------- -------- ------- -------- ------ ------- --------
BALANCE -- December 31, 2001.... 90,024 1 -- -- -- -- -- -- 90,024 1
Shares released from Rabbi
Trust.........................
Preferred stock in-kind
dividends..................... 13,782 -- 13,782 --
Preferred stock accretion......
Net loss.......................
Change in unrealized loss
on cash flow hedge--net of
tax of $1,179.................
Minimum pension liability
increase--net of tax of
$6,525........................
Total comprehensive loss.......
-------- -------- ----- ------- -------- ------- -------- ------ ------- --------
BALANCE--December 31, 2002...... 103,806 1 -- -- -- -- -- -- 103,806 1
Preferred Stock in-kind
dividends..................... 15,946 -- 15,946 --
Preferred stock accretion......
Net income.....................
Change in unrealized loss
on cash flow hedge--net of
tax of $353...................
Minimum pension liability
increase--net of tax of
$795..........................
Senior preferred stock
issuance...................... 14,000 -- 42,000 -- 41,475 1 97,475 1
Total comprehensive loss.......
-------- -------- ----- ------- -------- ------- -------- ------ ------- --------
BALANCE--December 31, 2003...... 119,752 1 14,000 -- 42,000 -- 41,475 1 217,227 2
Preferred stock in-kind
dividends (unaudited).......... 8,889 -- 5,281 -- 14,170 --
Preferred stock accretion
(unaudited)...................
Net income (unaudited).........
-------- -------- ----- ------- -------- ------- -------- ------ ------- --------
BALANCE--June 30, 2004
(unaudited).................... 128,641 $ 1 14,000 $ -- 42,000 $ -- 46,756 $ 1 231,397 $ 2
======== ======== ====== ======= ======== ======= ======== ====== ======= ========
F-6
TRANSPORTATION TECHNOLOGIES INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY AND OTHER COMPREHENSIVE LOSS
Accumulated
Common Common Other Other
Stock Stock Paid-in Accumulated Comprehensive Comprehensive
Shares Amount Capital Deficit (Loss) Income Loss Other Total
------ ------ ------- ------- ------------- ---- ----- -----
BALANCE--January 1, 2001--as restated...... 1,395 $ 14 $ 86,707 $ (71,016) $ -- $ -- $ (2,650) $ 13,056
Shares released from Rabbi Trust.......... 545 545
Preferred stock in-kind dividends......... 12,023 (12,023) --
Preferred stock accretion................. 1,370 (1,370) --
Net loss.................................. (30,026) (30,026)
Unrealized loss on cash flow
hedge--net of tax of $913................. (2,343) (2,343) (2,343)
Common stock issuance..................... 465 5 9,995 10,000
Warrants issued to subordinated
note holders............................. 3,000 3,000
--
Minimum pension liability
increase--net of tax of $2,431............ -- -- (3,803) (3,803) -- (3,803)
---------
Total comprehensive loss.................. (6,146)
------ ------- -------- --------- --------- --------- -------- --------
BALANCE -- December 31, 2001.............. 1,860 19 113,095 (114,435) (6,146) (2,105) (9,571)
Shares released from Rabbi Trust.......... 2,105 2,105
Preferred stock in-kind dividends......... 13,864 (13,864)
Preferred stock accretion................. 1,403 (1,403) --
Net loss.................................. (9,507) (9,507)
Change in unrealized loss on cash
flow hedge--net of tax of $1,179.......... 1,814 1,814 1,814
Minimum pension liability
increase--net of tax of $6,525............ -- -- (10,216) (10,216) -- (10,216)
---------
Total comprehensive loss.................. (8,402)
------ ------- -------- --------- --------- --------- -------- --------
BALANCE--December 31, 2002.................. 1,860 19 128,362 (139,209) (14,548) (25,375)
Preferred Stock in-kind dividends......... 16,332 (16,332) --
Preferred stock accretion................. 1,437 (1,437) --
Net income................................ 3,501 3,501
--
Change in unrealized loss on cash
flow hedge--net of tax of $353............ 529 529 529
--
Minimum pension liability
increase--net of tax of $795.............. 1,294 1,294 1,294
---------
Senior preferred stock issuance........... 39,819 -- -- 39,820
Total comprehensive loss.................. 1,823
------ ------- -------- --------- --------- --------- -------- --------
BALANCE--December 31, 2003.................. 1,860 19 185,950 (153,477) (12,725) -- 19,769
Preferred stock in-kind dividends
(unaudited).............................. 14,170 (14,170) --
Preferred stock accretion
(unaudited).............................. 732 (732) -- --
Net income (unaudited).................... (3,174) (3,174)
------ ------- -------- --------- --------- -------- --------
BALANCE--June 30, 2004 (unaudited) 1,860 $ 19 $ 200,852 $(171,553) $(12,725) $ -- $ 16,595
====== ======= ======== ========= ========= ======== ========
See notes to consolidated financial statements.
F-7
TRANSPORTATION TECHNOLOGIES INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
Transportation Technologies Industries, Inc. and its subsidiaries (the
"Company"), formed in October 1991, is a leading manufacturer of wheel-end
components, body and chassis components, seating assemblies, steerable drive
axles, gear boxes and castings for the heavy- and medium-duty truck industry.
The Company's operations comprise one operating segment conducted by wholly
owned subsidiaries located in North America.
2. Summary of Significant Accounting Policies
Principles of Consolidation--The consolidated financial statements include
the accounts of Transportation Technologies Industries, Inc. and its wholly
owned subsidiaries. All significant intercompany transactions and accounts have
been eliminated in the accompanying consolidated financial statements.
Interim Financial Information--The quarterly financial statements presented
herein and the related quarterly information contained within the following
footnotes are unaudited. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. Although the
registrant believes that all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation have been made, interim periods
are not necessarily indicative of the results of operations for a full year.
Reclassifications--Certain reclassifications have been made to prior year
financial statements and the notes to conform with current year presentation.
Use of Estimates--The preparation of financial statements in conformity
with accounting principles generally accepted in the United States 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 net sales and
expenses during the reporting period. Actual results could differ from those
estimates. Significant estimates include the allowance for doubtful accounts,
reserve for inventory valuation, reserve for returns and allowances, valuation
of goodwill and intangible assets having indefinite lives, pension benefits and
depreciation and amortization.
Cash and Cash Equivalents--The Company considers all short-term investments
with original maturities of three months or less when acquired to be cash
equivalents.
Allowance for Doubtful Accounts--The Company calculates allowances for
estimated losses resulting from the inability of customers to make required
payments. The Company assesses the creditworthiness of its customers based on
multiple sources of information and analyzes such factors as historical bad debt
experience, publicly available information regarding customers and the inherent
credit risk related to them, current economic trends and changes in customer
payment terms or payment patterns. The Company's calculation is then reviewed by
management to assess whether, based on economic events, additional analyses are
required to appropriately estimate losses.
Inventories--Inventories are stated at the lower of cost or market, the
cost being determined principally by the first-in, first-out ("FIFO") method,
with the cost of the remaining inventories determined on the last-in, first-out
method ("LIFO"). The Company regularly evaluates the composition and age of
inventory to identify slow-moving, excess and obsolete inventories. The method
of establishing the reserve is based on evaluating historical experience as well
as estimates of future sales. The reserve is adjusted for any expected changes
to ensure that the identified slow-moving, excess and obsolete inventories are
stated at net realizable value. The provision for such amounts is reflected as a
component of cost of sales. Had all inventories been determined on the FIFO
method, inventories would have been higher than those reported at December 31,
2002 and 2003 by $1.5 million and $1.6 million, respectively.
F-8
Long-lived Assets--Long-lived assets, including property, plant and
equipment, and certain identifiable finite intangible assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. When indications of
impairment are present, the carrying values of the assets are evaluated in
relation to the operating performance and estimated future net cash flows of the
underlying business. An impairment in the carrying value of an asset is
recognized whenever anticipated future cash flows (undiscounted and without
interest charges) from an asset are estimated to be less than its carrying
value. If such review indicates that the carrying amount of long-lived assets is
not recoverable, the carrying amount of such assets is reduced to the estimated
fair value. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
Property, Plant and Equipment--Property, plant and equipment is recorded at
cost and depreciated based on the following estimated useful lives:
buildings--20 to 40 years; building improvements--10 to 40 years; and machinery
and equipment--3 to 12 years. Depreciation is computed using the straight-line
method. Maintenance and repairs are charged to expense as incurred, while major
replacements and improvements are capitalized. For tax purposes, assets are
depreciated using accelerated methods.
Goodwill and Other Intangibles--As of January 1, 2002, upon the adoption of
Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other
Intangible Assets, goodwill and intangibles with an indefinite life are no
longer amortized. Prior to the adoption of SFAS No. 142, goodwill was amortized
on a straight-line method over 40 years, and intangibles with indefinite lives
were amortized from 13 to 40 years. The Company's finite-lived acquired
intangible assets are amortized on a straight-line method and include the
following: patents, 8 years; and non-compete agreements, 4 years. See Note 6
"Goodwill and Other Intangibles."
Deferred Financing Costs--Deferred financing costs of $17.6 million, $19.1
million and $20.1 million at December 31, 2001, 2002 and 2003, respectively,
relate to the issuance and subsequent amendments to the Company's Credit
Facility, Subordinated Notes and Industrial Revenue Bond debt. Deferred
financing costs are amortized using the effective interest rate method over the
term of the related debt. During 2001, 2002 and 2003, the Company recorded
amortization expense of $2.5 million, $2.7 million and $3.4 million as a
component of interest expense.
Income Taxes--Deferred tax liabilities and assets are recognized for the
expected future tax consequences of events that have been included in the
consolidated financial statements or tax returns. Deferred tax liabilities and
assets are determined based on the differences between the consolidated
financial statements and the tax basis of assets and liabilities, using tax
rates in effect for the years in which the differences are expected to reverse.
A valuation allowance is provided to offset any deferred tax assets if, based
upon the available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.
Environmental Reserves--The Company is subject to comprehensive and
frequently changing federal, state and local environmental laws and regulations,
and will incur additional capital and operating costs in the future to comply
with currently existing laws and regulations, new regulatory requirements
arising from recently enacted statutes and possible new statutory enactments. In
addition to environmental laws that regulate the Company's ongoing operations,
the Company is also party to environmental remediation liability. It is the
Company's policy to provide and accrue for the estimated cost of environmental
matters, on a non-discounted basis, when it is probable that a liability has
been incurred and the amount of the liability can be reasonably estimated. Such
provisions and accruals exclude claims for recoveries from insurance carriers.
Revenue Recognition--Revenue from product sales is recognized upon shipment
whereupon title passes and the Company has no further obligations to the
customer. Provisions for discounts and rebates to customers, and returns and
other adjustments are provided for in the same period the related sales are
recorded as a percentage of sales based upon management's best estimate of
future returns and other claims considering the Company's historical experience.
Allowances for estimated returns, discounts, customer rebate programs and
pricing adjustments are recognized as a reduction of sales when the related
sales are recorded. The allowance for these items is estimated based on various
market data, historical trends and information from the Company's customers.
Adjustments to the allowances are recorded quarterly based on current estimates
available.
F-9
Financial Instruments--All derivatives are recorded on the balance sheet at
fair value. Changes in derivative fair values are recognized in earnings as
offsets to the changes in fair value of related hedged assets, liabilities and
firm commitments. The ineffective portion, if any, of a hedging derivative's
change in fair value is immediately recognized in earnings.
Concentration of Risk--The Company's principal business is the
manufacturing and sale of wheel-end components, body and chassis components,
seating assemblies, steerable drive axles, gear boxes and castings for the
heavy- and medium-duty truck industry. Due to the nature of its operations, the
Company is subject to significant concentration risks relating to business with
four customers in 2003 and three customers in 2002. These customers accounted
for 10%, 19% and 10%; 14%, 19% and 11%; and 17%, 16% and 10% of accounts
receivable at December 31, 2001, 2002 and 2003, respectively. The Company also
has concentrations of labor subject to collective bargaining arrangements. The
percentage of the Company's labor force covered by a collective bargaining
agreement is 44% at December 31, 2003.
Accounting Pronouncements--On April 30, 2003, the Financial Accounting
Standards Board, or FASB, issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. The statement amends and
clarifies derivative instruments embedded in other contracts, and for hedging
activities under Statement 133. SFAS 149 was effective for us on a prospective
basis for contracts entered into or modified and for hedging relationships
designated for fiscal periods beginning after June 30, 2003. This statement had,
and is expected to have, no effect on our consolidated financial statements.
On May 15, 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. This
statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability, even though it might previously have been
classified as equity. SFAS 150 was effective for financial instruments entered
into or modified after May 31, 2003, and applies to all financial instruments in
the first interim period beginning after June 15, 2003. This statement had, and
is expected to have, no effect on our consolidated financial statements.
On December 24, 2003, the FASB issued a revision to Interpretation 46 (FIN
46R) to clarify some of the provisions of FASB Interpretation No. 46,
Consolidation of Variable Interest Entities. The term "variable interest" is
defined in FIN 46 as "contractual, ownership or other pecuniary interest in an
entity that change with changes in the entity's net asset value." Variable
interests are investments or other interests that will absorb a portion of an
entity's expected losses if they occur or receive portions of the entity's
expected residual returns if they occur. FIN 46R defers the effective date of
FIN 46 for certain entities and makes several other changes to FIN 46. We do not
expect the recognition provisions of FIN 46 or FIN 46R to have an impact on our
business, results of operations or financial position. This statement had, and
is expected to have, no effect on our consolidated financial statements.
3. Detail of Certain Assets and Liabilities
The following details certain assets and liabilities as of December 31,
2002 and 2003:
2002 2003
---- ----
(in thousands)
Reserve for LIFO inventory valuation:
- --------------------------------------------------------
Balance--beginning of year............................ $ 1,693 $ 1,490
Provision............................................. (203) 143
--------- ---------
Balance--end of year.................................. $ 1,490 $ 1,633
========= =========
Property, plant and equipment:
Land.................................................. $ 5,040 $ 3,717
Buildings and improvements............................ 32,615 33,053
Machinery and equipment............................... 131,395 145,055
Construction in progress.............................. 8,756 5,843
--------- ---------
177,806 187,668
Less accumulated depreciation......................... 85,810 100,254
--------- ---------
F-10
2002 2003
---- ----
(in thousands)
Property, plant and equipment--net...................... $ 91,996 $ 87,414
--------- ---------
Other current liabilities:
Accrued interest...................................... $ 7,997 $ 6,921
Accrued workers' compensation......................... 5,681 5,037
Current portion of post-retirement medical and pension
benefit reserve....................................... 2,984 4,988
Other................................................. 9,561 8,921
--------- ---------
Total other current liabilities......................... $ 26,223 $ 25,867
--------- ---------
Other long-term liabilities:
Post-retirement medical and pension benefit reserve... $ 34,358 $ 25,490
Environmental reserves................................ 9,514 2,850
Deferred gain on rail asset sale...................... 10,000 --
Other................................................. 3,657 4,189
--------- ---------
Total other long-term liabilities....................... $ 57,529 $ 32,529
========= =========
Inventories of the Company consist of the following :
December 31, December 31, June 30,
2002 2003 2004
---- ---- ----
(unaudited)
(in thousands)
Raw materials........... $ 10,754 $ 12,999 $ 13,923
Work-in-progress........ 9,651 12,740 13,254
Finished goods.......... 14,681 18,575 22,779
------------ ------------ ------------
$ 35,086 $ 44,314 $ 49,956
============ ============ ============
4. Valuation and Qualifying Accounts
The following tables summarize the changes in the Company's valuation and
qualifying accounts:
December 31, December 31, December 31,
2001 2002 2003
---- ---- ----
(in thousands)
Allowance for doubtful accounts
Balance--beginning of year.................................. $ 2,017 $ 1,657 $ 1,058
Provision for doubtful accounts............................. 176 41 442
Net write-offs............................................. (536) (640) (733)
------- ------- -------
Balance--end of year........................................ $ 1,657 $ 1,058 $ 767
Reserve for excess and obsolete inventory
Balance--beginning of year.................................. $ 1,343 $ 909 $ 531
Provision................................................... 1,087 (291) 100
Net write-offs............................................. (1,521) (87) (55)
------- ------- -------
Balance--end of year........................................ $ 909 $ 531 $ 576
======= ======= =======
5. Goodwill and Other Intangibles
Effective January 1, 2002, the Company adopted SFAS No. 142. This statement
changed the accounting for goodwill and indefinite-lived intangible assets from
an amortization approach to an impairment-only approach.
As a result of the adoption of SFAS No. 142, the Company recorded a
transitional goodwill impairment charge in 2002 of $6.2 million ($3.8 million
net of tax), presented as a cumulative effect of accounting change. Upon its
adoption of SFAS No. 142, the Company determined that it has five reporting
units. The $6.2 million impairment recognized related to the Company's Imperial
Group reporting unit due to the decline in its operational performance since its
acquisition in 1999.
F-11
The Company selected December 31 as its annual testing date. The SFAS No.
142 goodwill impairment model is a two-step process. First, it requires a
comparison of the book value of net assets to the fair value of the related
operations that have goodwill assigned to them. The Company estimates the fair
values of the related operations using discounted cash flows. The cash flow
forecasts are adjusted by an appropriate discount rate derived from the
Company's market capitalization plus a suitable control premium at the date of
evaluation. If the fair value is determined to be less than book value, a second
step is performed to compute the amount of the impairment. In this process, a
fair value for goodwill is estimated, based in part on the fair value of the
operations used in the first step, and is compared to its carrying value. The
shortfall of the fair value below carrying value represents the amount of
goodwill impairment. SFAS No. 142 requires goodwill to be tested for impairment
annually at the same time every year, and when an event occurs or circumstances
change such that it is reasonably possible that impairment may exist. As a
result of the Company's assessment as of December 31, 2003, no impairment was
indicated and no impairment triggers have been identified.
The Company has determined that certain of its trademarks and technology
have indefinite lives. The Company's determination has been made in accordance
with paragraph 11 of SFAS No. 142 based on its conclusion that at present there
are no legal, regulatory, contractual, competitive, economic or other factors
that limit the useful life of such assets. The amounts tied to trademarks are
primarily attributable to the Company's Gunite and Brillion brand names. Each
such name has been widely known and respected in its respective markets since
the early 1900s, and the Company believes that they will continue to be widely
known and respected indefinitely into the future. Gunite and Brillion products
are two of the leading North American names in their respective product
categories and the Company continues to expand the Gunite and Brillion product
portfolios. The Company may continue to renew their legal status at minimal
cost, and there are no contractual restrictions on use. Finally, the
competitiveness of such companies in their respective markets has been, and the
Company believes will continue to be, widely accepted with the Gunite and
Brillion names representing such competitiveness. The technology with an
indefinite life is primarily attributable to Gunite. The technology to
manufacture Gunite's wheel-end products has proven to be a leading technology
for between 10 to 20 years. Such technology is expected to continue to
contribute cash flows to the Company's business for an indefinite period of time
due to the related products' life cycles and market and competitive trends. Such
technology presently has no legal, regulatory or contractual limitations on use,
and is expected to continue to enable Gunite to retain a leading position in its
market.
In accordance with SFAS No. 142, the effect of the standard is reflected
prospectively. Supplemental disclosure as if the standard has been adopted as of
December 31, 2001 is as follows:
2001 2002 2003
---- ---- ----
(in thousands except per share data)
Reported net loss........................................ $ (43,419) $ (24,774) $ (14,268)
Add back: Goodwill and indefinite life intangible
assets amortization, net of tax........................ 4,591 -- --
Pro forma net loss....................................... (38,828) (24,774) (14,268)
Net loss per share--basic and diluted
Reported net loss........................................ (20.66) (9.21) (5.48)
----------------- ---------------- ---------------
Add back: Goodwill amortization, net of tax.............. 2.18 -- --
----------------- ---------------- ---------------
Adjusted net loss per share--basic and diluted............ $ (18.48) $ (9.21) $ (5.48)
================= ================ ===============
F-12
There were no changes in the carrying amounts of goodwill in the quarter
ended June 30, 2004.
Other intangible assets consist of the following:
December 31, 2002 December 31, 2003
----------------------------- ----------------------------
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
-------------- -------------- -------------- -------------
(in thousands)
Finite-lived intangible assets:
Patents............................................. $ 5,878 $ 2,846 $ 5,878 $ 3,182
Non-compete agreements.............................. 2,550 2,266 2,550 2,476
Pension assets...................................... 1,488 -- 1,383 --
------------ ------- --------- -------
Total finite-lived intangible assets.................. $ 9,916 $ 5,112 $ 9,811 $ 5,658
============ ======= ========= =======
Indefinite-lived intangible assets:
Trademarks.......................................... $ 22,570 -- $ 22,570 --
Technologies........................................ 15,525 -- 15,525 --
------------ ---------
Total indefinite-lived intangible assets.............. $ 38,095 -- $ 38,095 --
============ =========
June 30, 2004
-----------------------------
Gross
Carrying Accumulated
Amount Amortization
------ ------------
(Unaudited)
(In thousands)
Finite-lived tangible assets:
Patents..................................... $ 5,878 $ 3,347
Non-compete agreements...................... 2,550 2,547
Pension assets.............................. 1,383 --
---------- -------
Total finite-lived intangible assets.......... $ 9,811 $ 5,894
========== =======
Indefinite-lived intangible assets:
Trademarks.................................. $ 22,570 --
Technologies................................ 15,525 --
---------- -------
Total indefinite-lived intangible assets...... $ 38,095 --
========== =======
Amortization expense recognized in connection with the Company's
finite-lived intangible assets was $1.8 million, $0.8 million and $0.5 million
for the years ended December 31, 2001, 2002 and 2003, respectively, and $0.3
million and $0.2 million for the six months ended June 30, 2003 and 2004
(unaudited), respectively.
The Company expects amortization expense to be approximately $0.5 million
in 2004 and $0.3 million for each of the next four years.
F-13
6. Debt
As of December 31, 2002 and 2003, and June 30, 2004 (unaudited) total debt
consisted of the following:
December 31, June 30,
2002 2003 2004
---- ---- ----
(unaudited)
(in thousands)
Credit facility:
Revolving loans......................................$ -- $ 12,000 $ 8,000
Term loans........................................... 199,540 175,601 214,713
Senior subordinated notes--net discount of $4,157,
$1,823 and $-- (unaudited), respectively............. 145,196 118,428 100,000
Industrial revenue bonds............................... 3,100 3,100 3,100
----------- ------------ -------------
Total debt............................................. 347,836 309,129 325,813
Less current maturities................................ 18,829 19,473 1,150
----------- ------------ -------------
Total long-term debt...................................$ 329,007 $ 289,656 $ 324,663
=========== ============ =============
Credit Facility--As of December 31, 2003, the Company's Credit Facility
consisted of (i) a $175.6 million term loan facility comprising a $45.5 million
tranche A term loan ("Tranche A") and a $130.1 million tranche B term loan
("Tranche B"); and (ii) a $42.5 million Revolving Facility.
Borrowings bear interest at a rate equal to, at the Company's option, the
following: Tranche A and Revolving Facility, LIBOR plus 3.75% or Prime Rate plus
2.50%, and Tranche B, LIBOR plus 4.25% or Prime Rate plus 3.00%. The Company
also pays the lenders a commitment fee equal to 0.75% per annum of the undrawn
portion of each lender's commitment. The LIBOR and Prime Rate margins are
subject to reductions, based upon certain changes in the leverage ratio. The
Tranche A and Tranche B term loans mature on March 9, 2006 and March 9, 2007,
respectively. The Revolving Facility expires on March 9, 2005. Availability
under the Revolving Facility at December 31, 2003, after consideration of $12.0
million drawn and $15.9 million in outstanding letters of credit, was $14.6
million.
Substantially all assets of the Company and its material subsidiaries, and
a pledge of the stock of all subsidiaries, secure the obligations of the Company
under the Credit Facility. Loans under the Term Facility are required to be
prepaid with 75% of excess cash flow (as defined in the Credit Facility and
subject to reductions, based upon certain changes in the leverage ratio), the
proceeds of certain equity issuances of the Company, and 100% of net cash
proceeds of certain asset sales and debt issuances of the Company.
The Credit Facility contains covenants placing restrictions on: (i)
indebtedness, (ii) the sale of assets, (iii) mergers, acquisitions and other
business combinations, (iv) minority investments and (v) the payment of cash
dividends to shareholders. The Credit Facility also contains financial covenants
requirements to maintain certain levels of interest and fixed charge coverage,
debt to earnings before interest, taxes, depreciation and amortization
("EBITDA") as defined by the agreement, and to limit capital expenditures. The
Company was in compliance with all covenants at December 31, 2003.
Senior Subordinated Notes--On December 19, 2003, the Company amended the
terms of its Senior Subordinated Notes to permit the Company to issue $41.5
million of new Senior Preferred Stock in exchange for $40.0 million of its
Senior Subordinated Notes, $0.5 million of related accrued interest and $1.0
million in cash. Concurrently, certain existing shareholders of the Company,
including members of management, acquired $40.0 million in face value of the
Senior Subordinated Notes. These Senior Subordinated Notes were extinguished on
the same date in exchange for $40.0 million of newly issued Senior Preferred
Stock (see Note 8). The exchange was valued at the estimated fair value of the
Senior Preferred Stock. The loss on the extinguishment of $1.8 million was
determined as the difference between the fair value of the Senior Preferred
Stock and the carrying value of the exchanged Senior Subordinated Notes and
related debt issuance costs.
The Senior Subordinated Notes bear interest at 15% payable semiannually in
arrears. In 2001, 2002 and 2003, 50% of such interest payments were mandatorily
paid through the issuance of additional senior subordinated
F-14
notes with the same terms. These amounts are included in the cash flow statement
as Senior Subordinated Note Interest Paid-in-Kind. The Senior Subordinated Notes
are unsecured senior subordinated obligations of the Company, subordinated in
right of payment to all existing and future senior indebtedness.
The Indenture under which the notes are issued contains covenants that
restrict, among other things: (i) the ability of the Company and its
subsidiaries to incur additional indebtedness, (ii) pay dividends or make
certain other restricted payments, (iii) merge or consolidate with any other
person, (iv) minority investments, and (v) other various covenants that are
customary for transactions of this type. The remaining notes mature on June 30,
2009. The Company was in compliance with all covenants as of December 31, 2003.
The Senior Subordinated Notes are carried net of discounts ($6.0 million at
inception) representing the value assigned to warrants to purchase the Company's
common stock that were issued to the issuers of the Senior Subordinated Notes.
Such discounts are being accreted to interest expense through the maturity date
of the notes.
Debt Agreement Amendments--On December 19, 2003, the terms of the Company's
Credit Facility and Senior Subordinated Notes were amended. The amendment to the
Credit Facility (i) adjusted the levels and calculations of financial covenants,
(ii) increased the Revolving Facility commitment from $35 million to $42.5
million, (iii) increased the Revolving Facility letter of credit sublimit to $20
million from $18 million, and (iv) permitted the Company to issue $41.5 million
of new senior preferred stock in exchange for $40.0 million of its Senior
Subordinated Notes, $0.5 million of related accrued interest and $1.0 million in
cash. All other terms remain substantially unchanged.
The amendment to the Senior Subordinated Notes also provided for mandatory
payment in-kind of 50% of the scheduled interest payment in 2004 and payment
in-kind of 50% of any additional scheduled interest payments if specified
leverage ratio levels are not achieved. All other terms remain substantially
unchanged.
Industrial Revenue Bonds--On April 1, 1999, the Company, through its wholly
owned seating system subsidiary, issued Industrial Revenue Bonds for $3.1
million which bear interest at a variable rate (1.5% as of December 31, 2003)
and can be redeemed by the Company at any time. The bonds are secured by a
letter of credit issued by the Company. The bonds have no amortization and
mature in 2014. The bonds are also subject to a weekly "put" provision by the
holders of the bonds. In the event that any or all of the bonds are put to the
Company under this provision, the Company would either refinance such bonds with
additional borrowings under the Revolving Credit Facility or use available cash
on hand.
As of December 31, 2003, long-term debt maturities were as follows:
Industrial Senior
Revolving Term Revenue Subordinated
Year Ended Facility Loans Bonds Notes Total
---------- -------- ----- ----- ----- -----
(in thousands)
2004................................ $ -- $ 19,473 $ -- $ -- $ 19,473
2005................................ 12,000 23,004 -- -- 35,004
2006................................ -- 101,355 -- -- 101,355
2007................................ 31,769 -- -- 31,769
2008................................ -- -- -- -- --
Thereafter.......................... -- -- 3,100 120,926 124,026
-------------- ------------- ---------- ----------- ------------
$ 12,000 $ 175,601 $ 3,100 $ 120,926 311,627
Less current maturities............. ============== ============= ========== =========== (19,473)
------------
Total............................... $ 292,154
============
F-15
As of December 31, 2002 and 2003, the recorded balance of the Subordinated
Notes includes the following components:
2002 2003
---- ----
(in thousands)
Principal balance................... $ 149,353 $ 120,926
Unamortized discount................ (4,157) (2,498)
-------------- --------------
Recorded balance.................... $ 145,196 $ 118,428
============== ==============
On March 16, 2004, the Company entered into a new Senior Credit Facility
consisting of a five-year $50.0 million first lien revolving credit facility, a
five-year $115.0 million first lien term loan facility and a five- year $100.0
million second lien term loan facility. The first lien term loan facility is to
be repaid on a quarterly basis with 1% of the principal amount being repaid in
each of the first four years, 1% of the principal amount being repaid in each of
the first three quarters of the fifth year and the remainder repaid upon
maturity at the end of the fifth year. The second lien term loan facility has no
amortization until maturity. Subject to certain exceptions, we will be required
to make mandatory repayments of and corresponding reductions under the first
lien term loan facility (and after the first lien facilities have been repaid in
full, the second lien term loan facility) with the proceeds from (1) asset
sales, (2) the issuance of debt securities, (3) proceeds of equity issuances,
(4) insurance and condemnation awards and (5) annual excess cash flow.
Borrowings bear interest at a rate equal to, at the Company's option, the
following: first lien revolver facility, LIBOR plus 3.00% or Prime Rate plus
2.00%, first lien term loan, LIBOR plus 3.75% or Prime Rate plus 2.75%, and
second lien term loan, LIBOR plus 7.0% or Prime Rate plus 6.0%, with a LIBOR
floor of 1.75%. The Company also pays the lenders a commitment fee equal to
0.50% per annum of the undrawn portion of each lender's commitment. The new
Senior Credit Facility imposes certain restrictions on us, including
restrictions on our ability to incur indebtedness, pay dividends, make
investments, engage in transactions with affiliates, sell assets, and merge or
consolidate. All obligations under our new Senior Credit Facility are jointly
and severally guaranteed by all of our direct and indirect domestic
subsidiaries.
As a result of entering into a new Senior Credit Facility, the requirement
to pay 50% of interest due on the Senior Subordinated Notes in 2004 by issuing
additional Senior Subordinated Notes was eliminated.
The Company used $20.9 million of the proceeds from the new credit facility
to repay Senior Subordinated Notes. The remaining Senior Subordinated Notes were
amended to extend the maturity until June 30, 2009. The Company paid $7.0
million in financing costs and recorded a $6.5 million non-cash debt
extinguishment in connection with the new Senior Credit Facility.
On May 21, 2004, we exchanged our outstanding $100.0 million aggregate
principal amount of old 15.0% senior subordinated notes due June 30, 2009 for
$100.0 million principal amount of new senior subordinated exchange notes, which
we refer to in this section as the new notes. The new notes are due on March 31,
2010. The new notes have an interest rate of 12.5% per annum and are guaranteed
on an unsecured, senior subordinated basis by each of our present and future
restricted subsidiaries (excluding our restricted subsidiaries that have neither
assets not shareholders' equity in excess of $1.0 million and all of our foreign
restricted subsidiaries). The new notes are subordinated to all of our senior
debt and contain cross-default provisions. The new notes are subject to optional
redemption by us, in whole or in part, prior to maturity at our option at a
premium declining to par in 2008. Upon the occurrence of a change in control, we
will be required to offer to repurchase the new notes at a price equal to 101%
of the principal amount thereof plus accrued interest. We will pay interest on
the new notes in cash twice a year on each March 31 and September 30, provided
that we may at our option pay up to one-half of the September 30, 2004 interest
payment through the issuance of additional notes. The new notes contain
covenants which restrict our ability, among other things, to incur debt and
liens, sell assets, merge with other companies, pay dividends or repurchase our
shares, make investments and enter into transactions with affiliates. The
Company was in compliance with all covenants on June 30, 2004. We did not
receive any proceeds as a result of the exchange. The Company paid $0.8 million
in financing costs and recorded a $4.1 million non-cash debt extinguishment
charge in connection with the new Senior Subordinated Notes.
F-16
7. Derivative Financial Instruments
The Company uses derivative financial instruments to manage interest rate
risk. The Company does not enter into derivative financial instruments for
trading purposes. The Company uses interest rate swap agreements and interest
rate caps as a part of its program to manage the fixed and floating interest
rate mix of the total debt portfolio and related overall cost of borrowing.
When entered into, these financial instruments are designated as hedges of
underlying exposures. When a high correlation between the hedging instrument and
the underlying exposure being hedged exists, fluctuations in the value of the
instruments are offset by changes in the value of the underlying exposures. As
the critical terms of the swaps are designed to match those of the underlying
hedged debt, the change in fair value of the swaps is offset by changes in fair
value recorded on the hedged debt and no hedge ineffectiveness was recorded in
connection with the Company's derivative instruments.
The estimated fair values of derivatives used to hedge or modify our risks
fluctuate over time. These fair value amounts should not be viewed in isolation,
but rather in relation to the fair values of the underlying hedging transactions
and to the overall reduction in our exposure to adverse fluctuations in interest
rates. The notional amounts of the derivative financial instruments do not
necessarily represent amounts exchanged by the parties and, therefore, are not a
direct measure of our exposure from our use of derivatives. The amounts
exchanged are calculated by reference to the notional amounts and by other terms
of the derivatives, such as interest rates. There were no derivative instruments
outstanding at December 31, 2003.
8. Shareholders' Equity
Common and Preferred Stock--The Company authorized 20,000,000 shares of
common stock (voting) and 1,000,000 shares of Preferred Stock.
On December 19, 2003, the Company issued $41.5 million of Series E Senior
Preferred Stock ("Senior Preferred Stock") to affiliates of Trimaran Capital
Partners and Albion Alliance, as well as to several members of our management,
with dividends that accrete at 25% per annum, in a private placement in exchange
for the retirement of $40.0 million of Senior Subordinated Notes, the payment of
$1.0 million in cash and $0.5 million of accrued interest due on the Senior
Subordinated Notes retired. The Company paid $1.7 million in fees related to the
issuance of the Preferred Stock that were recorded as an offset to Additional
Paid-in Capital. In December 2003, no compensation expense was recorded with the
issuance of the Senior Preferred Stock as it was determined that the enterprise
value of the Company was less than the total debt and preferred equity.
Upon issuance, there were 41,475 shares of Senior Preferred Stock,
representing $41.5 million in aggregate liquidation preference. The Senior
Preferred Stock ranks, as to dividends and liquidation, ahead of the Company's
Series A, Series C and Series D Preferred Stock and the common stock, and is
entitled to a liquidation preference of $1,000 per share. The Senior Preferred
Stock is entitled to cumulative annual dividends, in the form of additional
Senior Preferred Stock, that are payable semiannually in arrears at the rate of
25.0% per annum. The Senior Preferred Stock is redeemable by the Company at any
time. The holders of the Senior Preferred Stock are entitled to a declining
early redemption fee if the stock is redeemed prior to December 31, 2010. At
December 31, 2003, the Senior Preferred Stock had a liquidation value of $41.8
million (including accrued dividends to such date). As of June 30, 2004
(unaudited), the Senior Preferred Stock had a liquidation value of $47.1 million
(including accrued dividends to such date).
The Series A Preferred Stock was issued to affiliates of Trimaran Capital
Partners, Albion Alliance and Caravelle Investment Fund in March 2000 upon
completion of the acquisition of the Company by its current stockholders. Upon
issuance, there were 70,000 shares of Series A Junior Preferred Stock,
representing $70.0 million in aggregate liquidation preference. Since that time,
because dividends on the Series A Junior Preferred Stock have been paid in
additional shares rather than in cash, an additional 59,307 shares of Series A
Junior Preferred Stock have been issued. The Series A Junior Preferred Stock,
which ranks in parity with the Series C Preferred Stock and senior to the Series
D Preferred Stock and junior to the Senior Preferred Stock, is entitled to
cumulative annual dividends that are payable quarterly in arrears at the rate of
14.5% per annum in the form of additional Series A Junior Preferred Stock until
the March 15, 2005 payment, at which time the dividends become payable in cash
and, if not
F-17
paid in cash, they would be payable in additional Series A Junior Preferred
Stock but at the rate of 16.5%, and after three consecutive quarters of
non-payment in cash entitle the holders of the Series A Junior Preferred Stock
to members on the Board of Directors equal to the lesser of two members or 20%
of the Board. The Company has the option to redeem the Series A Preferred Stock
at any time. If redeemed prior to March 9, 2010, the holders of the Series A
Junior Preferred Stock are also entitled to a declining redemption fee. At
December 31, 2003, the Series A Junior Preferred Stock, which is entitled to a
liquidation preference of $1,000 per share, had a liquidation value of $120.8
million (including accrued dividends to such date). As of June 30, 2004
(unaudited), the Series A Junior Preferred Stock had a liquidation value of
$129.3 million (including accrued dividends to such date).
The Series C Preferred Stock was issued in December 2003 simultaneously
with the issuance of the Series E Preferred Stock and Series D Preferred Stock
and was issued to members of our management and certain other holders of the
Company's common stock for the payment of $0.10 per share (or an aggregate of
$140), and such members and holders agreed, as a condition to receiving the
Series C Preferred Stock, to transfer an aggregate 80,233 shares of common stock
to the holders of the Company's Series A Preferred Stock as consideration for
their consenting to permit the Series C Preferred Stock to rank pari passu with
the Series A Preferred Stock. There are 14,000 shares of Series C Preferred
Stock issued, representing a maximum $16.5 million in liquidation preference.
The Series D Preferred Stock was issued in December 2003 to the holders of the
Company's Series A Preferred Stock and an institutional warrantholder
simultaneously with the issuance of the Series E Preferred Stock and Series C
Preferred Stock for the payment of $0.10 per share. There are 42,000 shares of
Series D Preferred Stock issued, representing a maximum $49.5 million in
liquidation preference. The Series C Preferred Stock and the Series D Preferred
Stock are not entitled to dividends and are redeemable only in the event of
certain significant equity sale or debt refinancing transactions. At December
31, 2003, the Series C Preferred Stock and the Series D Preferred Stock had no
liquidation value. As of June 30, 2004 (unaudited), the Series C Preferred Stock
and Series D Preferred Stock had no liquidation value.
Rabbi Trust--In 2000, the Company established a Rabbi Trust to hold shares
due to certain members of management. In 2002, the then-remaining shares were
released and the liability was satisfied in full.
Warrants and Options--As of December 31, 2003, certain of the Company's
common and preferred shareholders held warrants to purchase 813,953 shares of
common stock at $0.01 per share.
In conjunction with the Company's going-private transaction in 2000, the
Company entered into an agreement with its old senior subordinated noteholders
that provided the holders warrants for up to 20% of the common equity if the
Company was unable to repay the old senior subordinated notes by specified
dates. These warrants for 348,837 shares of common stock at an exercise price of
$0.01 per share were issued to the purchasers in the third quarter of 2000
through the first quarter of 2001. These warrants are exercisable for a period
of ten years from the original issuance date. As disclosed in Note 9, the
warrants were valued at $6.0 million. This value was based on $30.0 million of
common equity value of the Company at the time of the going-private transaction.
On February 28, 2001, certain of its common shareholders invested $10.0
million in the Company in exchange for 465,116 shares of common stock, warrants
for 100,000 shares at a conversion price of $21.50 per share, and contingent
warrants for an additional 465,116 shares at $0.01 per share. The warrants for
100,000 shares were exercisable immediately and for a period of nine years. The
465,116 contingent warrants became exercisable ratably at the end of each of the
five fiscal quarters of the Company, beginning with the fiscal quarter ending
June 30, 2002, as the leverage improvement requirements were not met by the
Company. No value was attributed to the 465,116 contingent warrants because the
common stock of the Company was deemed to have minimal value during the period
over which these warrants were issued as the enterprise value of the Company was
insufficient to provide value to the common equity holders. This determination
was made because the enterprise value of the Company was less than the total
debt and preferred equity, which had liquidation preference to the common stock
of approximately $460.0 million. Therefore, no compensation expense was recorded
related to these contingent warrants as the warrants were deemed worthless.
At the date of issuance, the fair market value of the 100,000 warrants was
deemed to be less than the $21.50 per share exercise price as supported by the
$21.50 per share of cash consideration paid for the common stock as part of that
transaction.
F-18
As of December 31, 2003, a key member of management held options to
purchase 10,000 shares of the Company's common stock at a price equal to $10.75
per share.
Accumulated Other Comprehensive Loss--Accumulated other comprehensive loss
comprises the following as of December 31, 2002 and 2003:
2002 2003
---- ----
(in thousands)
Minimum pension liability........................... $ (14,019) $ (12,725)
Derivative liability................................ (529) --
----------- -----------
Accumulated other comprehensive loss................ $ (14,548) $ (12,725)
=========== ===========
9. Earnings Per Share
Earnings per share are calculated as net income divided by the weighted
average number of common shares outstanding during the period. Weighted average
common shares of 2,102,260, 2,279,643 and 2,605,352 are used to calculate basic
earnings (loss) per share as of December 31, 2001, 2002 and 2003, respectively.
These weighted average common shares include weighted average common stock
equivalents issuable for minimal cash consideration of 316,978, 419,178 and
744,877 as of December 31, 2001, 2002 and 2003, respectively. Diluted earnings
(loss) per share are calculated by dividing net income by this weighted-average
number of common shares outstanding plus common stock equivalents outstanding
during the year. Common stock equivalents for 110,000 shares with exercise
prices ranging from $10.75 to $21.50 per share were outstanding at December 31,
2001, 2002 and 2003, respectively, but were not included in the computation of
diluted earnings per share. Common stock equivalents have been excluded from the
calculation of diluted weighted average shares outstanding as they would be
antidilutive.
The following table presents information necessary to calculate basic and
diluted earnings per share and common equivalent shares as of December 31, 2001,
2002 and 2003:
2001 2002 2003
---- ---- ----
(in thousands except
per share data)
Net income (loss)(1)............................ $ (30,026) $ (9,507) $ 3,501
Preferred stock dividends....................... (13,393) (15,267) (17,769)
----------------- --------------- ---------------
Net loss available to common shareholders....... $ (43,419) $ (24,774) $ (14,268)
================= =============== ===============
Average common shares and common stock
equivalent outstanding........................ 2,102 2,280 2,605
Loss per share--basic........................... $ (20.66) $ (10.87) $ (5.48)
================= =============== ===============
Dilutive stock equivalents...................... -- -- --
Average common and common equivalent shares
outstanding................................... 2,102 2,280 2,605
Loss per share--diluted......................... $ (20.66) $ (10.87) $ (5.48)
================= =============== ===============
__________
(1) Net income (loss) is the same for purposes of calculated basic and diluted
earnings per share.
Weighted average common shares of 2,581,395, 2,674,418, 2,535,140 and
2,674,418 are used to calculate basic earnings (loss) per share for the three
and six months ended June 30, 2003 and 2004, (unaudited) respectively. These
weighted average common shares include weighted average common stock equivalents
issuable for minimal cash consideration of 720,930, 813,953, 674,675 and 813,953
for the three and six months ended June 30, 2003 and 2004, (unaudited)
respectively. The following table presents information necessary to calculate
basic and diluted earnings per share and common equivalent shares as of for the
three and six months end June 30, 2003 and 2004:
F-19
Three months ended June 30, Six months ended June 30,
2003 2004 2003 2004
---- ---- ---- ----
(unaudited)
(in thousands except
per share data)
Net loss(1)...................................... $ (508) $ (728) $ (2,406) $ (3,174)
Preferred stock dividends........................ 4,281 7,580 8,423 14,902
--------------- --------------- --------------- ---------------
Net loss available to common shareholders........ $ (4,789) $ (8,308) $ (10,829) $ (18,076)
=============== =============== =============== ===============
Average common shares and common stock
equivalent outstanding......................... 2,581 2,674 2,535 2,674
Loss per share--basic............................ $ (1.86) $ (3.11) $ (4.27) $ (6.76)
=============== =============== =============== ===============
Dilutive stock equivalents....................... -- -- -- --
Average common and common equivalent
shares outstanding............................. 2,581 2,674 2,535 2,674
--------------- --------------- --------------- ---------------
Loss per share--diluted.......................... $ (1.86) $ (3.11) $ (4.27) $ (6.76)
=============== =============== =============== ===============
__________
(1) Net loss is the same for purposes of calculated basic and diluted earnings
per share.
10. Employee Benefit Plans
Pension Benefits--Certain of the Company's subsidiaries have qualified
defined benefit plans covering a majority of their employees. Company
contributions to the plans were made based upon the minimum amounts required
under the Employee Retirement Income Security Act. The plans' assets are held by
independent trustees and consist primarily of equity and fixed income
securities.
Certain of the pension obligations of the Company's former freight car
operations were retained by the Company. Benefits under such plans were frozen
as of the sale date.
Post-retirement Benefits--The Company provides health care benefits and
life insurance for certain salaried and hourly retired employees. Employees may
become eligible for health care benefits if they retire after attaining
specified age and service requirements. These benefits are subject to
deductibles, co-payment provisions and other limitations.
The Company does not offer any other significant post-retirement benefits.
The following table sets forth the plans' funded status.
For measurement purposes, a 10% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 2004 decreasing gradually
to an ultimate rate of 5% by the year 2008 and remains at that level thereafter.
2002 2003
---- ----
Pension Post-retirement Pension Post-retirement
------- --------------- ------- ---------------
(in thousands)
Change in benefit obligation:
Benefit obligations--beginning of year......... $ 48,334 $ 17,828 $ 57,472 $ 29,804
Service cost................................. 461 316 521 499
Interest cost................................ 3,717 1,496 3,609 2,162
Plan amendment............................... -- -- 37 --
Plan curtailment............................. -- -- -- --
Actuarial loss............................... 8,667 11,952 1,312 6,528
Benefits paid................................ (3,704) (1,788) (3,553) (2,277)
----------- ---------- ----------- ----------
Benefit obligations--end of year............... $ 57,475 $ 29,804 $ 59,398 $ 36,716
=========== ========== =========== ==========
Change in plan assets:
Fair value of plan assets--beginning of 36,047
year........................................ $ 39,914 $ -- $ $ --
Actual return on plan assets................. (3,616) -- 7,036 --
Employer contribution........................ 3,453 1,788 6,491 2,277
Benefits paid................................ (3,704) (1,788) (3,553) (2,277)
----------- ---------- ----------- ----------
F-20
2002 2003
---- ----
Pension Post-retirement Pension Post-retirement
------- --------------- ------- ---------------
(in thousands)
Fair value of plan assets--end of year....... $ 36,047 $ -- $ 46,021 $ --
----------- ---------- ----------- ----------
Benefit obligations in excess of plan (13,376)
assets...................................... $ (21,425) $ (29,805) $ $ (36,716)
Unrecognized net loss.......................... 22,965 19,247 20,876 24,484
Unrecognized prior service cost................ 1,488 (5,359) 1,383 (4,870)
----------- ---------- ----------- ----------
Net amount recognized.......................... $ 3,028 $ (15,917) $ 8,883 $ (17,102)
=========== =========== =========== ==========
Recognized in balance sheet:
Accrued benefit obligation................... $ (21,425) $ (15,917) $ (13,376) $ (17,102)
Intangible asset............................. 1,488 -- 1,383 --
Accumulated other comprehensive loss......... 22,965 -- 20,876 --
----------- ---------- ----------- ----------
Net amount recognized.......................... $ 3,028 $ (15,917) $ 8,883 $ (17,102)
=========== =========== =========== ==========
Weighted-average assumptions:
Discount rate................................ 6.75% 6.75% 6.25% 6.25%
Expected return on plan assets............... 9.00% -- 9.00% --
Rate of compensation increase................ N/A N/A N/A N/A
Service cost................................... $ 461 $ 316 $ 521 $ 499
Interest cost.................................. 3,714 1,496 3,609 2,162
Expected return on plan assets................. (3,992) -- (4,202) --
Amortization of unrecognized net loss.......... 278 640 568 1,277
Prior service cost............................. 139 (490) 141 (490)
----------- ---------- ----------- ----------
Net periodic benefit cost...................... $ 600 $ 1,962 $ 637 $ 3,448
=========== =========== =========== ==========
F-21
Three months ended June 30,
2003 2004
---- ----
Pension Post-retirement Pension Post-retirement
----------------------- ------- ---------------
(unaudited)
(in thousands)
Service cost................................... $ 130 $ 116 $ 156 $ 162
Interest cost.................................. 902 504 898 559
Expected return on plan assets................. (1,051) -- (1,083) --
Amortization of unrecognized net loss.......... 142 298 235 350
Prior service cost............................. 35 (114) 36 (123)
- ----------------------------------------------- -- ----- -- -----
Net periodic benefit cost...................... $ 158 $ 804 $ 242 $ 948
========== ======= ========== =======
Six months ended June 30,
2003 2004
---- ----
Pension Post-retirement Pension Post-retirement
------- --------------- ------- ---------------
(unaudited)
(in thousands)
Service cost................................... $ 260 $ 232 $ 312 $ 324
Interest cost.................................. 1,804 1,008 1,796 1,118
Expected return on plan assets................. (2,102) -- (2,166) --
Amortization of unrecognized net loss.......... 284 596 470 700
Prior service cost............................. 70 (228) 72 (246)
- ----------------------------------------------- -- ----- -- -----
Net periodic benefit cost...................... $ 316 $ 1,608 $ 484 $ 1,896
========== ======= ========== =======
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one percentage-point change in
assumed health care cost trend rates would have the following effects:
December 31, 2003
-----------------
1-Percentage-Point 1-Percentage-Point
-------------------------------------
Increase Decrease
-------- --------
(in thousands)
Effect on total of service and interest
cost.................................... $ 391 $ (352)
Effect on post-retirement benefit
obligation.............................. 3,938 (3,544)
Plan Assets--The Company's pension plan weighted average asset allocations
at December 31, 2002 and 2003, by asset category, are as follows:
2002 2003
---- ----
Equity Securities................................. 61% 57%
Debt Securities................................... 33% 43%
Other............................................. 6% --
-------- ---------
Total............................................. 100% 100%
======== =========
The Company expects to contribute $4.8 million to its pension plans and to
pay $2.3 million in post-retirement benefits in 2004.
Defined Contribution Plans--Certain of the Company's subsidiaries also
maintain qualified, defined contribution plans which provide benefits to their
employees based on employee contributions, years of service, employee earnings
or certain subsidiary earnings, with discretionary contributions allowed.
Expenses relating to these plans were $2.0 million for the year ended December
31, 2001 and $2.5 million each for the years ended December 31, 2002 and 2003.
F-22
11. Income Taxes
The provision for income taxes includes current and deferred components as
follows for the years ended December 31, 2001, 2002 and 2003:
2001 2002 2003
---- ---- ----
(in thousands)
Current tax provision (benefit):
Federal.............................................. $ (6,146) $ (559) $ (4,138)
State................................................ (553) (283) 692
----- ----- ---
Total current tax provision (benefit).................. (6,699) (842) (3,446)
Deferred tax provision (benefit)....................... (8,452) (837) 9,694
------- ----- -----
Income tax provision (benefit)......................... $ (15,151) $ (1,679) $ 6,248
=========== ========== ==========
The income tax provision (benefit) differs from the amounts computed by
applying the federal statutory rate as follows:
2001 2002 2003
---- ---- ----
Income taxes at federal statutory rate................. (35.0)% (35.0)% 35.0%
State income taxes--net of federal benefit.............. (0.8) (5.6) (2.4)
Gain on senior subordinated debt exchange.............. -- -- 34.2
Other permanent items.................................. -- -- 1.1
Write-off of tax benefit from rabbi trust shares....... -- 14.0 --
Nondeductible amortization expense..................... 3.9 -- --
Other--net............................................. (1.5) 3.9 (3.8)
- ------------------------------------------------------- ----- --- -----
Effective income tax rate.............................. (33.4)% (22.7)% 64.1%
===== ===== ====
Components of deferred tax benefits (obligations) consist of the following:
2002 2003
---- ----
(in thousands)
Tax credit carryforwards............................... $ 17,072 $ 13,938
Post-retirement medical and pension benefit reserves... 14,029 10,374
Restructuring reserve.................................. 2,222 2,381
Environmental reserve.................................. 3,901 1,226
Vacation reserve....................................... 1,645 1,810
Accrued workers' compensation reserve.................. 2,216 1,975
Other.................................................. 4,835 3,900
----- -----
Total Benefits......................................... $ 45,920 $ 35,604
=========== ===========
Property, plant and equipment.......................... $ (14,619)$ (15,773)
Trademarks and technologies............................ (16,038) (15,702)
Inventories............................................ (2,953) (2,328)
Other.................................................. (3,702) (2,913)
------- -------
Total Obligations...................................... $ (37,312)$ (36,716)
=========== ===========
Net deferred tax benefits (obligations)................ $ 8,608 $ (1,112)
Less valuation allowance............................... (3,200) (3,500)
- ------- -------
Total deferred taxes................................... $ 5,408 $ (4,612)
=========== ===========
In the consolidated balance sheets, these deferred benefits and deferred
obligations are classified as deferred income tax assets or deferred income tax
liabilities, based on the classification of the related liability or asset for
financial reporting purposes. A deferred tax asset or liability that is not
related to an asset or liability for financial reporting, including deferred tax
assets related to carryforwards, is classified according to the expected
reversal date
F-23
of the temporary difference as of the end of the year. Tax credit carryforwards,
which exist at December 31, 2003, consist of certain federal and state tax net
operating loss and credit carryforwards.
As of December 31, 2003, the Company has net operating loss carryforwards
of $26.3 million available to offset future taxable income, resulting in a
deferred tax asset of $9.3 million. Additionally, the Company has approximately
$47.2 million of available state net operating losses ("NOLs") available to
offset future taxable income, resulting in a deferred tax benefit of $4.6
million. However, due to the uncertainty of the Company's ability to utilize the
state NOLs in the future, a valuation reserve of $3.5 million has been booked
against this deferred tax asset.
IRC Section 382 imposes a limitation on the future utilization of NOLs if a
greater than 50% ownership change in the Company occurs. If such a change were
to occur in the future, an annual limitation would be imposed on the utilization
of the NOLs based on the value of the Company at the date of the ownership
change times the long-term tax-exempt rate at the time of the change. The
federal NOLs are scheduled to expire in the tax years ending December 31, 2020
through December 31, 2022. The state NOLs are scheduled to expire in the tax
years ending December 31, 2010 through December 31, 2022.
12. Product Warranties
The Company provides product warranties in conjunction with certain product
sales. Generally, sales are accompanied by a 1- to 5-year standard warranty.
These warranties cover factors such as non-conformance to specifications and
defects in material and workmanship.
Estimated standard warranty costs are recorded in the period in which the
related product sales occur. The warranty liability recorded at each balance
sheet date reflects the estimated number of months of warranty coverage
outstanding for products delivered times the average of historical monthly
warranty payments, as well as additional amounts for certain major warranty
issues that exceed a normal claims level. The following table summarizes product
warranty activity recorded as of December 31, 2002 and 2003.
December 31
-----------
2002 2003
---- ----
(in thousands)
Balance--beginning of year................... $ 851 $ 917
Provision for new warranties............... 1,296 1,131
Payments................................... (1,230) (1,205)
------- -------
Balance--end of year......................... $ 917 $ 843
========= =========
13. Environmental Matters
The Company is subject to comprehensive and frequently changing federal,
state and local environmental laws and regulations, and will incur additional
capital and operating costs in the future to comply with currently existing laws
and regulations, new regulatory requirements arising from recently enacted
statutes and possible new statutory enactments. In addition to environmental
laws that regulate the Company's subsidiaries' ongoing operations, the
subsidiaries also are subject to environmental remediation liability. Under the
federal Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") and analogous state laws, the Company's subsidiaries may be liable as
a result of the release or threatened release of hazardous substances into the
environment. The Company's subsidiaries are currently involved in several
matters relating to the investigation and/or remediation of locations where the
subsidiaries have arranged for the disposal of foundry and other wastes. Such
matters include certain situations in which the Company has been named or is
believed to be a Potentially Responsible Party ("PRP") in the contamination of
the sites (primarily nine off-site locations related to the Company's wheel-end
and truck and industrial components operations). Additionally, environmental
remediation may be required at certain of the Company's facilities at which soil
and groundwater contamination has been identified.
The Company believes that it has valid claims for contractual
indemnification against prior owners for certain of the investigatory and
remedial costs at many of the above-mentioned sites. As a result of a private
party set-
F-24
tlement of litigation with a prior owner of the Company's wheel end subsidiary,
the Company will not be responsible (through a contractual undertaking by the
former owner) for certain liabilities and costs resulting from the wheel-end
subsidiary's waste disposal prior to September 1987 at certain of such sites.
The Company has been notified, however, by certain other contractual indemnitors
that they will not honor future claims for indemnification. Accordingly, the
Company has pursued indemnification claims but there is no assurance that even
if successful in any such claims, any judgments against the indemnitors will
ultimately be recoverable. In addition, the Company believes it is likely that
it has incurred some liability at various sites for activities and disposal
following acquisition that would not in any event be covered by indemnification
by prior owners.
From 1997 through 2003, the Company's environmental reserves decreased from
approximately $11.0 million to $9.5 million to reflect primarily legal and
remedial investigation costs during such periods. Due to events related to the
above-mentioned sites, including inactivity, the anticipated closure of certain
sites and consent decrees obtained at certain sites, the Company undertook in
early 2003 a review, with assistance from third party specialists, of its
exposure relating to these sites. The review indicated that there was a
substantial reduction in its exposure at these sites due primarily to the
inactive status or closure of many of the sites and consent decrees obtained at
certain of these sites. Accordingly, the Company reduced its reserves relating
to the sites to $3.0 million. The Company's 2003 expenditures relating to
environmental compliance and remedial investigation costs were not significant.
The Company currently anticipates spending approximately $0.1 million per
year in 2004 through 2008 for monitoring the various environmental sites
associated with the environmental reserve, including attorney and consultant
costs for strategic planning and negotiations with regulators and other PRPs,
and payment of remedial investigation costs. Based on all of the information
presently available to it, the Company believes that its environmental reserves
will be adequate to cover the future costs related to the sites associated with
the environmental reserves, and that any additional costs will not have a
material adverse effect on the financial condition, results of operations or
cash flows of the Company. However, the discovery of additional sites, the
modification of existing laws or regulations or the imposition of joint and
several liability under CERCLA could result in such a material adverse effect.
14. Commitments and Contingencies
The Company leases certain real property and equipment under long-term
leases expiring at various dates through 2015. The leases generally contain
specific renewal or purchase options at the then fair market value. Future
minimum lease payments at December 31, 2003 are as follows:
Operating
Leases
------
(in thousands)
2004............................................ $ 4,201
2005............................................ 3,672
2006............................................ 2,677
2007............................................ 2,101
2008............................................ 1,391
Thereafter...................................... 10,752
------
Total minimum lease payments.................... $ 24,794
=========
While the Company is liable for maintenance, insurance and similar costs
under most of its leases, such costs are not included in the future minimum
lease payments. Total rental expense for the year was $5.5 million.
On October 30, 2003, the Company sold the real property of its Emeryville,
California plant for $6.5 million and moved the operations into a leased
facility in the area. The transaction resulted in a net gain of $3.7 million and
a mandatory prepayment of senior credit facility term loans of $5.3 million.
The Company is involved in certain threatened and pending legal proceedings
including workers' compensation claims arising out of the conduct of its
businesses. In the opinion of management, the ultimate outcome of
F-25
such legal proceedings will not have a material adverse effect on the financial
position, results of operations or cash flows of the Company.
15. Operating Segment and Concentration of Sales
The Company consists of five operating units that manufacture and sell a
diversified product mix to the heavy- and medium-duty truck industry within
North America. These operating units are aggregated into a single reporting
segment as they have similar economic characteristics, products and production
processes, class of customer and distribution methods. The Company believes this
segmentation is appropriate based upon management's operating decisions and
performance assessment.
Major Customers--The Company's net sales in the aggregate to its four
largest customers during 2001, 2002 and 2003 were 54.0%, 58.2% and 58.8% of
total net sales in these periods, respectively. One customer accounted for
18.1%, 23.3% and 22.5% of total net sales in 2001, 2002 and 2003, respectively.
Product Information--Net Sales
Net sales for the Company's key products and brands were as follows for the
years ended December 31, 2001, 2002 and 2003, respectively:
2001 2002 2003
---- ---- ----
(in thousands)
Wheel-end components and assemblies.................................. $ 164,399 $ 172,948 $ 198,627
Truck body and chassis parts......................................... 66,459 87,438 88,607
Industrial components and farm implements............................ 75,217 73,627 79,003
Seating assemblies................................................... 42,205 43,649 43,877
Other truck components............................................... 43,121 33,936 29,895
------ ------ ------
Total.............................................................. $ 391,401 $ 411,598 $ 440,009
=========== =========== ===========
Net sales for the Company's key products and brands were as follows for the
three and six months ended June 30, 2003 and 2004, respectively:
Three months ended June 30, Six months ended June 30,
2003 2004 2003 2004
---- ---- ---- ----
(unaudited)
(in thousands)
Wheel-end components and assemblies................... $ 58,348 $ 72,074 $ 110,668 $ 139,192
Truck body and chassis parts.......................... 20,460 29,194 40,307 55,553
Industrial components and farm implements............. 20,032 25,034 40,922 49,308
Seating assemblies.................................... 11,425 14,629 20,950 28,338
Other truck components................................ 2,285 3,857 4,459 7,177
----- ----- ----- -----
Total............................................... $ 112,550 $ 144,788 $ 217,306 $ 279,568
=========== =========== =========== ===========
16. Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash in banks,
receivables, accounts payable, debt and interest rate swaps.
The carrying amounts for cash and cash equivalents, receivables and
accounts payable approximate fair value due to the short-term nature of these
instruments. The fair value of senior debt approximates $323.6 million. There is
no ready market for the Company's Senior Subordinated Notes. The Company
believes the fair market value of such notes approximates the face value.
The fair values of interest-rate swap agreements are the estimated amounts
that the Company would pay to terminate the agreements at the reporting date,
taking into account current interest rates and the market expectation for future
interest rates. The Company has entered into interest-rate swap agreements in
order to manage its expo-
F-26
sure to interest rate risk. These interest rate swaps were designated as cash
flow hedges of the Company's variable rate debt. During 2001, 2002, and 2003 no
ineffectiveness was recognized in the statement of operations on these hedges.
As of December 31, 2003, there were no outstanding cash flow hedges.
17. Restructuring Charges and Transaction Related Costs
During 2001, the Company recorded $19.6 million of restructuring charges,
which included $18.9 million of non-cash fixed asset impairment charges and $0.7
million of employee separation expense. The costs related primarily to the
closure of the Company's Erie, Pennsylvania iron casting and machining operation
to reduce the overall fixed costs of production.
Also during 2001, the Company recorded $1.6 million for underwriting fees
associated with the issuance of $10 million in common stock. In 2001, the
Company recorded a loss on debt extinguishment of $0.8 million for the non-cash
write-off of deferred financing costs related to the prepayment of $25.0 million
of its credit facility term loans.
18. Gain on Sale of Rail Assets
In 2001, the Company sold its minority equity interest in its former rail
car operations ("Rail Assets") to certain of its common shareholders for $15.0
million. As a part of the sale of the Rail Assets, the purchasers obtained the
unconditional right to sell up to two-thirds of such assets back to the Company
through December 31, 2003, in exchange for up to 465,116 shares of common stock
at $21.50 per share and up to 465,116 warrants to purchase common stock at $0.01
per share (the "Put Rights"). As a result of the contingent nature of the Rail
Asset sale, the Company had deferred recognition of two-thirds of the related
gain until the Put Rights expired in December 2003, resulting in recognition of
the remaining $10 million gain during the year ended December 31, 2003.
19. Restatement of Prior Period
Subsequent to the issuance of the Company's 2001 financial statements, the
Company's management determined that the estimated liability for workers'
compensation claims did not include the full development of incurred claims or
adequate amounts for incurred but not reported claims. As a result, the December
31, 2000 accumulated deficit amount has been increased by $1.4 million (net of
tax of $913) for inclusion of an estimated liability for both full development
of incurred claims and incurred but not reported claims.
20. Quarterly Results of Operations (unaudited)
Unaudited quarterly financial data is as follows:
Second Fourth
First Quarter Quarter Third Quarter Quarter
------------- ------- ------------- -------
(in thousands except per share data)
2001
Net sales....................................... $ 109,894 $ 101,717 $ 92,603 $ 87,187
Gross profit.................................... 14,278 13,464 16,153 16,633
Net income available to common shareholders..... (6,707) (20,298) (6,832) (9,582)
Diluted earnings (loss) per share............... $ (3.78) $ (9.19) $ (3.09) $ (4.34)
2002
Net sales....................................... $ 99,389 $ 110,252 $ 109,698 $ 92,259
Gross profit.................................... 17,661 21,495 19,423 12,916
Net income available to common shareholders..... (8,189) (3,060) (3,840) (9,685)
Diluted earnings (loss) per share............... $ (3.71) $ (1.39) $ (1.67) $ (4.04)
2003
Net sales....................................... $ 104,756 $ 112,550 $ 111,002 $ 111,701
Gross profit.................................... 16,969 18,997 18,027 17,085
Net income available to common shareholders..... (6,040) (4,789) (5,636) 2,197
Diluted earnings (loss) per share............... $ (2.43) $ (1.86) $ (2.11) $ (0.82)
F-27
21. Related Party Transactions
The Company is a party to a monitoring agreement with Transportation
Investment Partners, L.L.C., Caravelle Advisors Investment Fund, L.L.C., Albion
Alliance Mezzanine Fund, L.P. and Albion Alliance Mezzanine Fund II, L.P. (the
"Monitors"), under which the Monitors have agreed to provide the Company with
ongoing monitoring services in exchange for an annual aggregate monitoring fee
of up to $1.25 million (the "original monitoring fee"). The Company has also
agreed to pay the Monitors annual aggregate director and observer fees of up to
$0.3 million in consideration for the Monitors (and certain of their affiliates)
providing their nominee and/or observers to our board of directors and have
further agreed to pay Trimaran Fund Management, L.L.C. and Albion Alliance, LLC
an additional aggregate annual monitoring fee of $0.3 million (the "additional
monitoring fee"). As of December 31, 2003, there were $0.3 million of accrued
but unpaid fees owed under the monitoring agreement. As of June 30, 2004, there
were $0.2 million of accrued but unpaid fees owed under the monitoring
agreement.
The fees under the monitoring agreement are permitted to be paid only to
the extent permitted under the Company's senior credit facilities and any other
financing agreement the Company has entered into. Notwithstanding the foregoing,
the monitoring and director fees described above will accrue and be earned on a
daily basis and will be payable (including all missed payments) on the first
date that such a payment is permitted under the senior credit facilities or
applicable financing agreement. The monitoring agreement provides that, upon an
initial public offering of the Company's common stock, the monitoring agreement
will terminate provided that the Company pays to the Monitors a $3.5 million
cash termination fee.
Through TMB Industries ("TMB"), members of management, including the
executive officers, hold ownership interests in, and in certain instances are
directors of, privately held companies. These privately held companies pay
management fees to TMB, portions of which are distributed to certain executive
officers. The Company provides certain administrative services and corporate
facilities to TMB and such companies and is reimbursed for the related costs.
These costs are recorded as offsets to selling, general and administrative
expense. The Company received reimbursements totaling approximately $0.3 million
for 2003. The Company's principal stockholders, executive officers and
directors, as a group, will be able to influence or control substantially all
matters requiring approval by its stockholders, including, without limitation,
the election of directors and mergers, consolidations and sales of all or
substantially all of the Company's assets.
22. Loan to Named Executive Officer
On June 10, 1999, pursuant a restated promissory note, the Company lent one
of its executive officers $100,000 to be used towards the purchase of his
residence. Interest of $6,000 relating to this loan has been forgiven each year
and is recognized as additional compensation expense.
23. Subsequent Event
In June 2004, the Company entered into negotiations with a buyer for the
sale of certain of its assets held for sale at its Erie, Pennsylvania location
at a price below carrying value. To comply with the requirements of SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company
will record an impairment loss of approximately $1.6 million to $2.2 million in
the quarter ending June 30, 2004 based upon the anticipated proceeds to be
received from the buyer.
24. Subsequent Event (Unaudited)
On May 4, 2004, the Company filed a registration statement relating to the
initial public offering of the Company's common stock. On August 11, 2004, the
Company announced the postponement of the initial public offering. The Company's
registration with the Securities and Exchange Commission has not been withdrawn
and the Company expects to continue to evaluate the timing of that offering. The
consummation of the proposed initial public offering is subject to market and
other conditions beyond the Company's control. If the proposed initial public
offering is not consummated by December 31, 2004, costs of approximately $3.5
million, capitalized in anticipation of the offering, will be written off in the
fourth quarter of 2004.
F-28
On August 15, 2004, the Company's President, Andrew M. Weller, succeeded
Thomas M. Begel as the Company's Chief Executive Officer. This event resulted in
the termination of Mr. Begel's employment agreement and entitled him to a
payment of $2.7 million in addition to certain continuing benefits, including
retiree medical coverage.
F-29
================================================================================
$100,000,000
TRANSPORTATION TECHNOLOGIES INDUSTRIES, INC.
Offer to Exchange
$100,000,000 Aggregate Principal Amount of 12 1/2%
Senior Subordinated Notes due 2010
for
Transportation Technologies Industries, Inc.
$100,000,000 Aggregate Principal Amount of 12 1/2%
Senior Subordinated Notes due 2010
Registered Under the Securities Act of 1933, as Amended.
- --------------------------------------------------------------------------------
PROSPECTUS
, 2004
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must not
rely on unauthorized information. This prospectus is not an offer to sell or buy
any securities in any jurisdiction where it is unlawful. The information in this
prospectus is current as of the date hereof.
Until , 2004, all dealers that effect transactions in the exchange notes,
whether or not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS.
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interest of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful; and
further that a corporation may indemnify such person against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of action or suit by or in the right of the
corporation, if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper. To the extent that a present or former director or officer of
a corporation has been successful on the merits or otherwise in defense of any
such action describing in this paragraph, suit or proceeding, or in defense of
any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
Section 102(b)(7) of the Delaware General Corporation Law allows a
corporation to include in its certificate of incorporation a provision to
eliminate or limit the personal liability of a director of a corporation to the
corporation or to any of its stockholders for monetary damages for a breach of
fiduciary duty as a director, except in the case where the director (i) breaches
his duty of loyalty to the corporation or its stockholders, (ii) fails to act in
good faith, engages in intentional misconduct or knowingly violates a law, (iii)
authorizes the unlawful payment of a dividend or approves a stock purchase or
redemption in violation of Section 174 of the Delaware General Corporation Law
or (iv) obtains an improper personal benefit. The Company's Certificate of
Incorporation includes a provision which eliminates directors' personal
liability to the fullest extent permitted under the Delaware General Corporation
Law.
The Company's Bylaws (the "Bylaws") provide that the Company shall
indemnify and hold harmless any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he or she is or was a director or officer of the Company, or is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit, or proceeding, and such
person acted in good faith (as defined therein) and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had the
reasonable cause to believe his or her conduct was unlawful; and that the
Company may, by action of its board of directors or stockholders, provide
indemnification to employees and agents of the Company with the same scope
and effect as indemnification of directors and officers.
Section 145 of the Delaware General Corporation Law further provides that a
corporation shall have power to purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against such per-
II-1
son and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would otherwise have the
power to indemnify such person against such liability under Section 145.
The Bylaws provide that the Company may purchase and maintain insurance on
behalf of any person who is or was a director, officer of the Company or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify such person
against such liability.
The Company expects to obtain policies of insurance under which, subject
to the limitations of such policies, coverage will be provided (a) to its
directors and officers against loss arising from claims made by reason of breach
of fiduciary duty or other wrongful acts as a director or officer, including
claims relating to public securities matters and (b) to the Company with
respect to payments which may be made by the Company to these officers and
directors pursuant to the above indemnification provision or otherwise as a
matter of law.
ITEM 21. EXHIBITS
The following Exhibits are filed herewith unless otherwise indicated.
2.1(1) -- Agreement and Plan of Merger between Transportation Technologies
Industries, Inc. and Transportation Acquisition I Corp., dated as of
January 28, 2000 (incorporated by reference to Exhibit (d)(1) to the
Company's Tender Offer Statement under Section 14(D)(1) or 13(E)(1) of the
Securities Exchange Act of 1934, as amended, filed February 3, 2000).
3.1 -- Certificate of Incorporation of Transportation Technologies Industries,
Inc.
3.2 -- Bylaws of Transportation Technologies Industries, Inc.
4.1(1) -- Indenture dated as of May 21, 2004 by and among Transportation
Technologies Industries, Inc., the Guarantors named therein and U.S. Bank
National Association, as Trustee.
4.2(1) -- Form of Notes (filed as part of Exhibit 4.1).
4.3 -- Registration Rights Agreement, dated as of May 21, 2004, by and among
Transportation Technologies Industries, Inc., the Guarantors named therein
and the Holders named therein.
4.4 -- Stockholders' Agreement dated as of March 9, 2000 by and among Caravelle
Investment Fund, L.L.C., CIBC WMC Inc., Albion Alliance Mezzanine Fund,
L.P., Albion Alliance Mezzanine Fund II, L.P., Transportation Technologies
Industries, Inc. and the surviving corporation in the Merger and the
persons listed on Exhibit A attached thereto.
4.5 -- Amendment No. 1 to Stockholders' Agreement dated as of February 28, 2001
by and among Caravelle Investment Fund, L.L.C., CIBC WMC Inc., Albion
Alliance Mezzanine Fund, L.P., Albion Alliance Mezzanine Fund II, L.P.,
Transportation Technologies Industries, Inc. and the surviving corporation
in the Merger and the persons listed on Exhibit A attached thereto.
4.6 -- Amendment No. 2 to Stockholders' Agreement dated as of December 19, 2003
by and among Caravelle Investment Fund, L.L.C., CIBC WMC Inc., Albion
Alliance Mezzanine Fund, L.P., Albion Alliance Mezzanine Fund II, L.P.,
Transportation Technologies Industries, Inc. and the surviving corporation
in the Merger and the persons listed on Exhibit A attached thereto.
4.7(1) -- First Lien Credit Agreement dated as of March 16, 2004 between
Transportation Technologies Industries, Inc., as Borrower, the Lenders
party thereto from time to time, as Lenders,
II-2
and Lehman Brothers Inc., as Joint Bookrunner and Joint Lead Arranger,
Lehman Commercial Paper Inc., as Co-Syndication Agent, Wachovia Capital
Markets, LLC, as Co-Syndication Agent, Joint Bookrunner and Joint Lead
Arranger, and Credit Suisse First Boston, as Administrative Agent,
Collateral Agent, Joint Bookrunner and Joint Lead Arranger.
4.8(1) -- Second Lien Credit Agreement dated as of March 16, 2004 between
Transportation Technologies Industries, Inc., as Borrower, the Lenders
party thereto from time to time, as Lenders, and Lehman Brothers Inc., as
Joint Bookrunner and Joint Lead Arranger, Lehman Commercial Paper Inc., as
Co-Syndication Agent, Wachovia Capital Markets, LLC, as Co-Syndication
Agent, Joint Bookrunner and Joint Lead Arranger, and Credit Suisse First
Boston, as Administrative Agent, Collateral Agent, Joint Bookrunner and
Joint Lead Arranger.
4.9(1) -- Bond Guaranty Agreement dated as of March 1, 1999 by Bostrom Seating,
Inc. in favor of NBD Bank as Trustee.
4.10(1) -- Warrant Agreement, dated as of March 9, 2000 by and between
Transportation Acquisition I Corp. and First Union National Bank.
4.11(1) -- Warrant Agreement dated as of February 28, 2001 by and between
Transportation Technologies Industries, Inc., Transportation Investment
Partners L.L.C., Caravelle Investment Fund, L.L.C. and the parties listed
on Schedule A thereto.
4.12(1) -- Contingent Warrant Agreement dated as of February 28, 2001 by and
between Transportation Technologies Industries, Inc., Transportation
Investment Partners L.L.C., Caravelle Investment Fund, L.L.C., the parties
listed on Schedule A thereto and First Union National Bank.
5.1 -- Opinion of Cahill Gordon & Reindel LLP.
10.1(2) -- Employment Agreement dated as of August 2, 2004 by and between
Transportation Technologies Industries, Inc. and Andrew M. Weller.
10.2(2) -- Employment Agreement dated as of August 2, 2004 by and between
Transportation Technologies Industries, Inc. and James D. Cirar.
10.3(2) -- Employment Agreement dated as of August 2, 2004 by and between
Transportation Technologies Industries, Inc. and Donald C. Mueller.
10.4(2) -- Employment Agreement dated as of August 2, 2004 by and between
Transportation Technologies Industries, Inc. and Kenneth M. Tallering.
10.5(1) -- Lease Agreement dated as of March 1, 1999 by and between the
Industrial Development Board of the City of Piedmont and Bostrom Seating,
Inc.
10.6(1) -- Remarketing Agent Agreement dated as of March 1, 1999 among Bostrom
Seating, Inc., as User, the Industrial Development Board of the City of
Piedmont as Issuer, and Merchant Capital, L.L.C. as Remarketing Agent.
10.7(2) -- Termination Agreement and General Release dated as of August 2, 2004
by and between Transportation Technologies Industries, Inc. and Thomas M.
Begel.
10.8 -- Amended and Restated Monitoring Services Agreement, dated as of May 17,
2004, by and among Transportation Technologies Industries, Inc.,
Transportation Investment Partners, L.L.C., Caravelle Investment Fund,
L.L.C., Albion Alliance Mezzanine Fund, L.P., Albion Mezzanine Fund II,
L.P., Trimaran Fund Management, L.L.C. and Albion Alliance, LLC.
II-3
12.1 -- Statement re Computation of Ratios of Earnings to Fixed Charges.
21.1(1) -- Subsidiaries of Transportation Techologies Industries, Inc.
23.1 -- Consent of Deloitte & Touche LLP.
23.2 -- Consent of Cahill Gordon & Reindel LLP (included in Exhibit 5.1).
24.1 -- Powers of Attorney (included in the signature pages to the Registration
Statement).
25.1 -- Statement of Eligibility and Qualifications under the Trust Indenture
Act of 1939 on Form T-1 of U.S. Bank National Association as Trustee under
the Indenture.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
__________
(1) Incorporated by reference from Transportation Technologies Industries, Inc.
Registration Statement on Amendment No. 1 to Form S-1 filed on June 16,
2004.
(2) Incorporated by reference from Transportation Technologies Industries, Inc.
Registration Statement on Amendment No. 4 to Form S-1 filed on August 11,
2004.
ITEM 22. UNDERTAKINGS.
a) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrants of expenses incurred or paid by a director, officer or
controlling person of the registrants in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrants will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
b) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first
class mail or equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration
statement through the date of responding to the request.
c) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on September 17, 2004.
TRANSPORTATION TECHNOLOGIES INDUSTRIES, INC.
By: /s/ Donald C. Mueller
---------------------------
Name: Donald C. Mueller
Title:
II-5
POWER OF ATTORNEY
We, the undersigned directors and officers of Transportation Technologies
Industries, Inc., do hereby constitute and appoint Mark D. Dalton, Kenneth M.
Tallering and Andrew M. Weller, and each and any of them, our true and lawful
attorneys-in-fact and agents to do any and all acts and things in our names and
our behalf in our capacities as directors and officers and to execute any and
all instruments for us and in our name in the capacities indicated below, which
said attorneys and agents, or any of them, may deem necessary or advisable to
enable Transportation Technologies Industries, Inc. to comply with the
Securities Act of 1933 and any rules, regulations and requirements of the
Securities and Exchange Commission in connection with this registration
statement or any registration statement for this offering of securities that is
to be effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933, including specifically, but without limitation, any and all amendments
(including post-effective amendments) hereto, and we hereby ratify and confirm
all that said attorneys and agents, or any of them, shall do or cause to be done
by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on the 17th day of September, 2004.
Signature Title
/s/ Andrew M. Weller President, Chief Executive Officer and Director
- ----------------------- (Principal Executive Officer)
Andrew M. Weller
/s/ Donald C. Mueller Vice President, Treasurer and
- ----------------------- Chief Financial Officer
Donald C. Mueller (Principal Accounting Officer)
/s/ Thomas M. Begel Chairman
- -----------------------
Thomas M. Begel
/s/ James D. Cirar Director
- -----------------------
James D. Cirar
/s/ Jay R. Bloom Director
- -----------------------
Jay R. Bloom
/s/ Mark D. Dalton Director
- -----------------------
Mark D. Dalton
/s/ Steven A. Flyer Director
- -----------------------
Steven A. Flyer
/s/ Jay R. Levine Director
- -----------------------
Jay R. Levine
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on September 17, 2004.
TRUCK COMPONENTS INC.
By: /s/ Kenneth M. Tallering
--------------------------------
Name: Kenneth M. Tallering
Title:
II-7
TRUCK COMPONENTS INC.
POWER OF ATTORNEY
We, the undersigned directors and officers of Truck Components Inc., do
hereby constitute and appoint Mark D. Dalton, Kenneth M. Tallering and Andrew M.
Weller, and each and any of them, our true and lawful attorneys-in-fact and
agents to do any and all acts and things in our names and our behalf in our
capacities as directors and officers and to execute any and all instruments for
us and in our name in the capacities indicated below, which said attorneys and
agents, or any of them, may deem necessary or advisable to enable Truck
Components Inc. to comply with the Securities Act of 1933 and any rules,
regulations and requirements of the Securities and Exchange Commission in
connection with this registration statement or any registration statement for
this offering of securities that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, including specifically, but without
limitation, any and all amendments (including post-effective amendments) hereto,
and we hereby ratify and confirm all that said attorneys and agents, or any of
them, shall do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on the 17th day of September, 2004.
Signature Title
/s/ Andrew M. Weller President, Chief Executive Officer and Director
- ------------------------ (Principal Executive Officer)
Andrew M. Weller
/s/ Donald C. Mueller Vice President, Treasurer and
- ------------------------ Chief Financial Officer
Donald C. Mueller (Principal Accounting Officer)
/s/ Thomas M. Begel Chairman
- ------------------------
Thomas M. Begel
/s/ James D. Cirar Director
- ------------------------
James D. Cirar
/s/ Mark D. Dalton Director
- ------------------------
Mark D. Dalton
/s/ Steven A. Flyer Director
- ------------------------
Steven A. Flyer
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on September 17, 2004.
GUNITE CORPORATION
By: /s/ Kenneth M. Tallering
------------------------------
Name: Kenneth M. Tallering
Title:
II-9
GUNITE CORPORATION
POWER OF ATTORNEY
We, the undersigned directors and officers of Gunite Corporation, do hereby
constitute and appoint Mark D. Dalton, Kenneth M. Tallering and Andrew M.
Weller, and each and any of them, our true and lawful attorneys-in-fact and
agents to do any and all acts and things in our names and our behalf in our
capacities as directors and officers and to execute any and all instruments for
us and in our name in the capacities indicated below, which said attorneys and
agents, or any of them, may deem necessary or advisable to enable Gunite
Corporation to comply with the Securities Act of 1933 and any rules, regulations
and requirements of the Securities and Exchange Commission in connection with
this registration statement or any registration statement for this offering of
securities that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, including specifically, but without limitation, any and
all amendments (including post-effective amendments) hereto, and we hereby
ratify and confirm all that said attorneys and agents, or any of them, shall do
or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on the 17th day of September, 2004.
Signature Title
/s/ Andrew M. Weller President, Chief Executive Officer and Director
- ----------------------- (Principal Executive Officer)
Andrew M. Weller
/s/ Donald C. Mueller Vice President, Treasurer and Chief Financial Officer
- ----------------------- (Principal Accounting Officer)
Donald C. Mueller
/s/ Thomas M. Begel Chairman
- -----------------------
Thomas M. Begel
/s/ James D. Cirar Director
- -----------------------
James D. Cirar
/s/ Mark D. Dalton Director
- -----------------------
Mark D. Dalton
/s/ Steven A. Flyer Director
- -----------------------
Steven A. Flyer
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on September 17, 2004.
GUNITE EMI CORPORATION
By: /s/ Kenneth M. Tallering
-----------------------------
Name: Kenneth M. Tallering
Title:
II-11
GUNITE EMI CORPORATION
POWER OF ATTORNEY
We, the undersigned directors and officers of Gunite EMI Corporation, do
hereby constitute and appoint Mark D. Dalton, Kenneth M. Tallering and Andrew M.
Weller, and each and any of them, our true and lawful attorneys-in-fact and
agents to do any and all acts and things in our names and our behalf in our
capacities as directors and officers and to execute any and all instruments for
us and in our name in the capacities indicated below, which said attorneys and
agents, or any of them, may deem necessary or advisable to enable Gunite EMI
Corporation to comply with the Securities Act of 1933 and any rules, regulations
and requirements of the Securities and Exchange Commission in connection with
this registration statement or any registration statement for this offering of
securities that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, including specifically, but without limitation, any and
all amendments (including post-effective amendments) hereto, and we hereby
ratify and confirm all that said attorneys and agents, or any of them, shall do
or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on the 17th day of September, 2004.
Signature Title
/s/ Andrew M. Weller President, Chief Executive Officer and Director
- ----------------------- (Principal Executive Officer)
Andrew M. Weller
/s/ Donald C. Mueller Vice President, Treasurer and Chief Financial Officer
- ----------------------- (Principal Accounting Officer)
Donald C. Mueller
/s/ Thomas M. Begel Chairman
- -----------------------
Thomas M. Begel
/s/ James D. Cirar Director
- -----------------------
James D. Cirar
/s/ Mark D. Dalton Director
- -----------------------
Mark D. Dalton
/s/ Steven A. Flyer Director
- -----------------------
Steven A. Flyer
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on September 17, 2004.
BRILLION IRON WORKS, INC.
By: /s/ Kenneth M. Tallering
------------------------------
Name: Kenneth M. Tallering
Title:
II-13
BRILLION IRON WORKS, INC.
POWER OF ATTORNEY
We, the undersigned directors and officers of Brillion Iron Works, Inc., do
hereby constitute and appoint Mark D. Dalton, Kenneth M. Tallering and Andrew M.
Weller, and each and any of them, our true and lawful attorneys-in-fact and
agents to do any and all acts and things in our names and our behalf in our
capacities as directors and officers and to execute any and all instruments for
us and in our name in the capacities indicated below, which said attorneys and
agents, or any of them, may deem necessary or advisable to enable Brillion Iron
Works, Inc. to comply with the Securities Act of 1933 and any rules, regulations
and requirements of the Securities and Exchange Commission in connection with
this registration statement or any registration statement for this offering of
securities that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, including specifically, but without limitation, any and
all amendments (including post-effective amendments) hereto, and we hereby
ratify and confirm all that said attorneys and agents, or any of them, shall do
or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on the 17th day of September, 2004.
Signature Title
/s/ Andrew M. Weller President, Chief Executive Officer and Director
- ------------------------ (Principal Executive Officer)
Andrew M. Weller
/s/ Donald C. Mueller Vice President, Treasurer and Chief Financial Officer
- ------------------------ (Principal Accounting Officer)
Donald C. Mueller
/s/ Thomas M. Begel Chairman
- ------------------------
Thomas M. Begel
/s/ James D. Cirar Director
- ------------------------
James D. Cirar
/s/ Mark D. Dalton Director
- ------------------------
Mark D. Dalton
/s/ Steven A. Flyer Director
- ------------------------
Steven A. Flyer
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on September 17, 2004.
FABCO AUTOMOTIVE CORPORATION
By: /s/ Kenneth M. Tallering
-------------------------------
Name: Kenneth M. Tallering
Title:
II-15
FABCO AUTOMOTIVE CORPORATION
POWER OF ATTORNEY
We, the undersigned directors and officers of Fabco Automotive
Corporation, do hereby constitute and appoint Mark D. Dalton, Kenneth M.
Tallering and Andrew M. Weller, and each and any of them, our true and lawful
attorneys-in-fact and agents to do any and all acts and things in our names and
our behalf in our capacities as directors and officers and to execute any and
all instruments for us and in our name in the capacities indicated below, which
said attorneys and agents, or any of them, may deem necessary or advisable to
enable Fabco Automotive Corporation to comply with the Securities Act of 1933
and any rules, regulations and requirements of the Securities and Exchange
Commission in connection with this registration statement or any registration
statement for this offering of securities that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, including
specifically, but without limitation, any and all amendments (including
post-effective amendments) hereto, and we hereby ratify and confirm all that
said attorneys and agents, or any of them, shall do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on the 17th day of September, 2004.
Signature Title
/s/ Andrew M. Weller President, Chief Executive Officer and Director
- ------------------------ (Principal Executive Officer)
Andrew M. Weller
/s/ Donald C. Mueller Vice President, Treasurer and Chief Financial Officer
- ------------------------ (Principal Accounting Officer)
Donald C. Mueller
/s/ Thomas M. Begel Chairman
- ------------------------
Thomas M. Begel
/s/ James D. Cirar Director
- ------------------------
James D. Cirar
/s/ Mark D. Dalton Director
- ------------------------
Mark D. Dalton
/s/ Steven A. Flyer Director
- ------------------------
Steven A. Flyer
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on September 17, 2004.
BOSTROM HOLDINGS, INC.
By: /s/ Kenneth M. Tallering
-------------------------------
Name: Kenneth M. Tallering
Title:
II-17
BOSTROM HOLDINGS, INC.
POWER OF ATTORNEY
We, the undersigned directors and officers of Bostrom Holdings, Inc.,
do hereby constitute and appoint Mark D. Dalton, Kenneth M. Tallering and Andrew
M. Weller, and each and any of them, our true and lawful attorneys-in-fact and
agents to do any and all acts and things in our names and our behalf in our
capacities as directors and officers and to execute any and all instruments for
us and in our name in the capacities indicated below, which said attorneys and
agents, or any of them, may deem necessary or advisable to enable Bostrom
Holdings, Inc. to comply with the Securities Act of 1933 and any rules,
regulations and requirements of the Securities and Exchange Commission in
connection with this registration statement or any registration statement for
this offering of securities that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, including specifically, but without
limitation, any and all amendments (including post-effective amendments) hereto,
and we hereby ratify and confirm all that said attorneys and agents, or any of
them, shall do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on the 17th day of September, 2004.
Signature Title
/s/ Andrew M. Weller President, Chief Executive Officer and Director
- ------------------------ (Principal Executive Officer)
Andrew M. Weller
/s/ Donald C. Mueller Vice President, Treasurer and Chief Financial Officer
- ------------------------ (Principal Accounting Officer)
Donald C. Mueller
/s/ Thomas M. Begel Chairman
- ------------------------
Thomas M. Begel
/s/ James D. Cirar Director
- ------------------------
James D. Cirar
/s/ Mark D. Dalton Director
- ------------------------
Mark D. Dalton
/s/ Steven A. Flyer Director
- ------------------------
Steven A. Flyer
II-18
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on September 17, 2004.
BOSTROM SEATING, INC.
By: /s/ Kenneth M. Tallering
-------------------------------
Name: Kenneth M. Tallering
Title:
II-19
BOSTROM SEATING, INC.
POWER OF ATTORNEY
We, the undersigned directors and officers of Bostrom Seating, Inc., do
hereby constitute and appoint Mark D. Dalton, Kenneth M. Tallering and Andrew M.
Weller, and each and any of them, our true and lawful attorneys-in-fact and
agents to do any and all acts and things in our names and our behalf in our
capacities as directors and officers and to execute any and all instruments for
us and in our name in the capacities indicated below, which said attorneys and
agents, or any of them, may deem necessary or advisable to enable Bostrom
Seating, Inc. to comply with the Securities Act of 1933 and any rules,
regulations and requirements of the Securities and Exchange Commission in
connection with this registration statement or any registration statement for
this offering of securities that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, including specifically, but without
limitation, any and all amendments (including post-effective amendments) hereto,
and we hereby ratify and confirm all that said attorneys and agents, or any of
them, shall do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on the 17th day of September, 2004.
Signature Title
/s/ Andrew M. Weller President, Chief Executive Officer and Director
- ------------------------ (Principal Executive Officer)
Andrew M. Weller
/s/ Donald C. Mueller Vice President, Treasurer and Chief Financial Officer
- ------------------------ (Principal Accounting Officer)
Donald C. Mueller
/s/ Thomas M. Begel Chairman
- ------------------------
Thomas M. Begel
/s/ James D. Cirar Director
- ------------------------
James D. Cirar
/s/ Mark D. Dalton Director
- ------------------------
Mark D. Dalton
/s/ Steven A. Flyer Director
- ------------------------
Steven A. Flyer
II-20
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on September 17, 2004.
BOSTROM SPECIALTY SEATING, INC.
By: /s/ Kenneth M. Tallering
-------------------------------
Name: Kenneth M. Tallering
Title:
II-21
BOSTROM SPECIALTY SEATING, INC.
POWER OF ATTORNEY
We, the undersigned directors and officers of Bostrom Specialty
Seating, Inc., do hereby constitute and appoint Mark D. Dalton, Kenneth M.
Tallering and Andrew M. Weller, and each and any of them, our true and lawful
attorneys-in-fact and agents to do any and all acts and things in our names and
our behalf in our capacities as directors and officers and to execute any and
all instruments for us and in our name in the capacities indicated below, which
said attorneys and agents, or any of them, may deem necessary or advisable to
enable Bostrom Specialty Seating, Inc. to comply with the Securities Act of 1933
and any rules, regulations and requirements of the Securities and Exchange
Commission in connection with this registration statement or any registration
statement for this offering of securities that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, including
specifically, but without limitation, any and all amendments (including
post-effective amendments) hereto, and we hereby ratify and confirm all that
said attorneys and agents, or any of them, shall do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on the 17th day of September, 2004.
Signature Title
/s/ Andrew M. Weller President, Chief Executive Officer and Director
- ------------------------ (Principal Executive Officer)
Andrew M. Weller
/s/ Donald C. Mueller Vice President, Treasurer and Chief Financial Officer
- ------------------------ (Principal Accounting Officer)
Donald C. Mueller
/s/ Thomas M. Begel Chairman
- ------------------------
Thomas M. Begel
/s/ James D. Cirar Director
- ------------------------
James D. Cirar
/s/ Mark D. Dalton Director
- ------------------------
Mark D. Dalton
/s/ Steven A. Flyer Director
- ------------------------
Steven A. Flyer
II-22
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on September 17, 2004.
IMPERIAL GROUP HOLDING CORP.-1
By: /s/ Kenneth M. Tallering
-------------------------------
Name: Kenneth M. Tallering
Title:
II-23
IMPERIAL GROUP HOLDING CORP.-1
POWER OF ATTORNEY
We, the undersigned directors and officers of Imperial Group Holding
Corp.-1, do hereby constitute and appoint Mark D. Dalton, Kenneth M. Tallering
and Andrew M. Weller, and each and any of them, our true and lawful
attorneys-in-fact and agents to do any and all acts and things in our names and
our behalf in our capacities as directors and officers and to execute any and
all instruments for us and in our name in the capacities indicated below, which
said attorneys and agents, or any of them, may deem necessary or advisable to
enable Imperial Group Holding Corp.-1 to comply with the Securities Act of 1933
and any rules, regulations and requirements of the Securities and Exchange
Commission in connection with this registration statement or any registration
statement for this offering of securities that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, including
specifically, but without limitation, any and all amendments (including
post-effective amendments) hereto, and we hereby ratify and confirm all that
said attorneys and agents, or any of them, shall do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on the 17th day of September, 2004.
Signature Title
/s/ Andrew M. Weller President, Chief Executive Officer and Director
- ------------------------ (Principal Executive Officer)
Andrew M. Weller
/s/ Donald C. Mueller Vice President, Treasurer and Chief Financial Officer
- ------------------------ (Principal Accounting Officer)
Donald C. Mueller
/s/ Thomas M. Begel Chairman
- ------------------------
Thomas M. Begel
/s/ James D. Cirar Director
- ------------------------
James D. Cirar
/s/ Mark D. Dalton Director
- ------------------------
Mark D. Dalton
/s/ Steven A. Flyer Director
- ------------------------
Steven A. Flyer
II-24
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on September 17, 2004.
IMPERIAL GROUP HOLDING CORP.-2
By: /s/ Kenneth M. Tallering
-------------------------------
Name: Kenneth M. Tallering
Title:
II-25
IMPERIAL GROUP HOLDING CORP.-2
POWER OF ATTORNEY
We, the undersigned directors and officers of Imperial Group Holding
Corp.-2, do hereby constitute and appoint Mark D. Dalton, Kenneth M. Tallering
and Andrew M. Weller, and each and any of them, our true and lawful
attorneys-in-fact and agents to do any and all acts and things in our names and
our behalf in our capacities as directors and officers and to execute any and
all instruments for us and in our name in the capacities indicated below, which
said attorneys and agents, or any of them, may deem necessary or advisable to
enable Imperial Group Holding Corp.-2 to comply with the Securities Act of 1933
and any rules, regulations and requirements of the Securities and Exchange
Commission in connection with this registration statement or any registration
statement for this offering of securities that is to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, including
specifically, but without limitation, any and all amendments (including
post-effective amendments) hereto, and we hereby ratify and confirm all that
said attorneys and agents, or any of them, shall do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on the 17th day of September, 2004.
Signature Title
/s/ Andrew M. Weller President, Chief Executive Officer and Director
- ------------------------ (Principal Executive Officer)
Andrew M. Weller
/s/ Donald C. Mueller Vice President, Treasurer and Chief Financial Officer
- ------------------------ (Principal Accounting Officer)
Donald C. Mueller
/s/ Thomas M. Begel Chairman
- ------------------------
Thomas M. Begel
/s/ James D. Cirar Director
- ------------------------
James D. Cirar
/s/ Mark D. Dalton Director
- ------------------------
Mark D. Dalton
/s/ Steven A. Flyer Director
- ------------------------
Steven A. Flyer
II-26
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on September 17, 2004.
IMPERIAL GROUP, L.P.
By: IMPERIAL GROUP HOLDING CORP.-1,
its General Partner
By: /s/ Kenneth M. Tallering
-------------------------------
Name: Kenneth M. Tallering
Title:
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on the 17th day of September, 2004.
Signature Title
/s/ Andrew M. Weller President, Chief Executive Officer and Director
- ------------------------ (Principal Executive Officer)
Andrew M. Weller
/s/ Donald C. Mueller Vice President, Treasurer and Chief Financial Officer
- ------------------------ (Principal Accounting Officer)
Donald C. Mueller
/s/ Thomas M. Begel Chairman
- ------------------------
Thomas M. Begel
/s/ James D. Cirar Director
- ------------------------
James D. Cirar
/s/ Mark D. Dalton Director
- ------------------------
Mark D. Dalton
/s/ Steven A. Flyer Director
- ------------------------
Steven A. Flyer
II-27
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on September 17, 2004.
JAII MANAGEMENT COMPANY
By: /s/ Kenneth M. Tallering
-------------------------------
Name: Kenneth M. Tallering
Title:
II-28
JAII MANAGEMENT COMPANY
POWER OF ATTORNEY
We, the undersigned directors and officers of JAII Management Company,
do hereby constitute and appoint Mark D. Dalton, Kenneth M. Tallering and Andrew
M. Weller, and each and any of them, our true and lawful attorneys-in-fact and
agents to do any and all acts and things in our names and our behalf in our
capacities as directors and officers and to execute any and all instruments for
us and in our name in the capacities indicated below, which said attorneys and
agents, or any of them, may deem necessary or advisable to enable JAII
Management Company to comply with the Securities Act of 1933 and any rules,
regulations and requirements of the Securities and Exchange Commission in
connection with this registration statement or any registration statement for
this offering of securities that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, including specifically, but without
limitation, any and all amendments (including post-effective amendments) hereto,
and we hereby ratify and confirm all that said attorneys and agents, or any of
them, shall do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on the 17th day of September, 2004.
Signature Title
/s/ Andrew M. Weller President, Chief Executive Officer and Director
- ------------------------ (Principal Executive Officer)
Andrew M. Weller
/s/ Donald C. Mueller Vice President, Treasurer and Chief Financial Officer
- ------------------------ (Principal Accounting Officer)
Donald C. Mueller
/s/ Thomas M. Begel Chairman
- ------------------------
Thomas M. Begel
/s/ James D. Cirar Director
- ------------------------
James D. Cirar
/s/ Mark D. Dalton Director
- ------------------------
Mark D. Dalton
/s/ Steven A. Flyer Director
- ------------------------
Steven A. Flyer
II-29