AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 10, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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J.L. FRENCH AUTOMOTIVE CASTINGS, INC.*
(Exact name of registrant as specified in its charter)
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DELAWARE 3714 13-3983670
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
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4508 IDS CENTER, MINNEAPOLIS, MINNESOTA 55402
TELEPHONE: (612) 332-2335
(Address, including zip code, and telephone number,
including area code, of Registrants' principal offices)
THOMAS C. DINOLFO
TREASURER AND CHIEF FINANCIAL OFFICER
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
3101 S. TAYLOR, P.O. BOX 1024, SHEBOYGAN, WI 53082
TELEPHONE: (920) 458-7724
(Address, including zip code, and telephone number, including area code, of
Agent for Service)
Copy to:
CARTER W. EMERSON, P.C.
KIRKLAND & ELLIS
200 EAST RANDOLPH DRIVE, CHICAGO, IL 60601
TELEPHONE: (312) 861-2000
*The companies that are listed on the next page are also included in this Form
S-4 Registration Statement as additional Registrants.
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: The
exchange will occur as soon as practicable after the effective date of this
Registration Statement.
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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, please 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, please 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(c)
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. / /
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CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PRICE PER UNIT FEE(1)
11 1/2% Senior Subordinated Notes due 2009, Series B........... $175,000,000 100% $48,650
Guarantees on Senior Subordinated Notes (2) -- -- (3)
(1) Calculated in accordance with Rule 457 under the Securities Act of 1933, as
amended.
(2) All subsidiary guarantors are wholly owned subsidiaries of the Registrant
and have each guaranteed the Notes being registered.
(3) Pursuant to Rule 457(n), no separate fee is payable with respect to the
guaranties being registered hereby.
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
WILL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT BECOMES EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
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JURISDICTION I.R.S. EMPLOYER
OF IDENTIFICATION
EXACT NAME OF ADDITIONAL REGISTRANTS* FORMATION NO.
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French Holdings, Inc................................................................. Delaware 39-1850518
J.L. French Corporation.............................................................. Wisconsin 39-1098901
Allotech International, Inc.......................................................... Wisconsin 39-1595832
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* The address for each of the additional Registrants is c/o J.L. French
Automotive Castings, Inc., 4508 IDS Center, Minneapolis, Minnesota 55402 and
the primary standard industrial classification code number for each of the
additional Registrants is 3714.
SUBJECT TO COMPLETION, DATED AUGUST 10, 1999
THIS INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE SEC
IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT AN OFFER TO BUY
THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS [LOGO]
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
EXCHANGE OFFER FOR
$175,000,000
11 1/2% SENIOR SUBORDINATED NOTES DUE 2009
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WE ARE OFFERING TO EXCHANGE:
- UP TO $175,000,000 OF OUR NEW 11 1/2% SENIOR SUBORDINATED NOTES DUE 2009,
SERIES B
FOR
- A LIKE AMOUNT OF OUR OUTSTANDING 11 1/2% SENIOR SUBORDINATED NOTES.
MATERIAL TERMS OF EXCHANGE OFFER
- - Expires 5:00 p.m., New York City time, , 1999, unless extended.
- - Not subject to any condition other than that the exchange offer not violate
applicable law or any applicable interpretation of the Staff of the SEC.
- - All outstanding notes that are validly tendered and not validly withdrawn will
be exchanged.
- - Tenders of outstanding notes may be withdrawn any time prior to the expiration
of the exchange offer.
- - The exchange of notes will not be a taxable event for U.S. federal income tax
purposes.
- - We will not receive any proceeds from the exchange offer.
- - The terms of the notes to be issued in the exchange offer are substantially
identical to the outstanding notes, except that the transfer restrictions and
registration rights relating to the outstanding notes will not apply to the
exchange notes.
- - We believe that, subject to some exceptions, the exchange notes may be offered
for sale, resold or otherwise transferred by you without compliance with the
registration and prospectus delivery provisions of the Securities Act.
- - There is no existing public market for the outstanding notes or the exchange
notes. We do not intend to list the exchange notes on any securities exchange
or seek approval for quotation through any automated trading system.
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FOR A DISCUSSION OF THE MATERIAL RISKS THAT YOU SHOULD CONSIDER BEFORE
PARTICIPATING IN THIS EXCHANGE OFFER, SEE "RISK FACTORS" BEGINNING ON PAGE 10 OF
THIS PROSPECTUS.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE NOTES
OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
, 1999
YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS, ANY
SUPPLEMENT TO THIS PROSPECTUS AND THE INFORMATION SET FORTH IN THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS.
WE ARE MAKING THIS EXCHANGE OFFER ONLY IN JURISDICTIONS WHERE OFFERS AND SALES
ARE PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR
ANY SUPPLEMENT TO THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE
ON THE FRONT OF THOSE DOCUMENTS.
IN THIS PROSPECTUS, UNLESS OTHERWISE NOTED, REFERENCES TO "FRENCH
AUTOMOTIVE," "WE," "US" AND "OUR" REFER TO J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
AND ITS SUBSIDIARIES, UNLESS THE CONTEXT SUGGESTS OTHERWISE. ANY REFERENCES TO
"J.L. FRENCH" REFER TO FRENCH HOLDINGS, INC. AND IT SUBSIDIARIES, ANY REFERENCES
TO "MORRIS ASHBY" REFER TO MORRIS ASHBY LTD. AND ITS SUBSIDIARIES AND ANY
REFERENCES TO "ANSOLA" REFER TO FUNDICIONES VIUDA DE ANSOLA, S.A. J.L. FRENCH,
MORRIS ASHBY AND ANSOLA ARE WHOLLY OWNED SUBSIDIARIES OF FRENCH AUTOMOTIVE.
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TABLE OF CONTENTS
PAGE
----
Prospectus Summary................ 1
Risk Factors...................... 10
Forward-Looking Statements May
Prove Inaccurate................ 17
The Exchange Offer................ 18
Use of Proceeds................... 27
Capitalization.................... 28
Selected Financial Data........... 29
Management's Discussion and
Analysis of Results of
Operations and Financial
Condition....................... 31
Business.......................... 37
Management........................ 51
Security Ownership of Certain
Beneficial Owners and
Management...................... 56
PAGE
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Certain Relationships and Related
Transactions.................... 58
Description of Senior Credit
Facility........................ 61
Description of Notes.............. 63
Certain United States Federal Tax
Considerations.................. 109
Plan of Distribution.............. 112
Legal Matters..................... 113
Independent Public Accountants.... 113
Available Information............. 113
Unaudited Pro Forma Financial
Statements...................... 114
Index to Financial Statements..... F-1
Until , 1999, all dealers that buy, sell or trade the exchange
notes, whether or not participating in this offering, may be required to deliver
a prospectus. This requirement is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
i
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY CONTAINS THE BASIC INFORMATION ABOUT OUR COMPANY AND
THIS EXCHANGE OFFER. IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU IN DECIDING WHETHER TO PARTICIPATE IN THE EXCHANGE OFFER. WE
ENCOURAGE YOU TO READ THIS PROSPECTUS IT ITS ENTIRETY.
SUMMARY OF THE EXCHANGE OFFER
The Initial Offering of
Outstanding Notes............... We sold the outstanding notes on May 25, 1999 to Banc of
America Securities LLC and Chase Securities Inc. We
collectively refer to these parties in this prospectus
as the initial purchasers. The initial purchasers
subsequently resold the outstanding notes to:
- qualified institutional buyers pursuant to Rule 144A
under the Securities Act and
- qualified buyers outside the United States in reliance
upon Regulation S under the Securities Act.
Registration Rights Agreement..... Simultaneously with the initial sale of the outstanding
notes, we entered into a registration rights agreement
for the exchange offer. In the registration rights
agreement, we agreed, among other things, to use our
reasonable best efforts to file a registration statement
with the SEC and to complete this exchange offer within
180 days of issuing the outstanding notes. The exchange
offer is intended to satisfy your rights under the
registration rights agreement. After the exchange offer
is complete, you will no longer be entitled to any
exchange or registration rights with respect to your
outstanding notes.
The Exchange Offer................ We are offering to exchange the exchange notes, which
have been registered under the Securities Act, for your
outstanding notes, which were issued on May 25, 1999 in
the initial offering. In order to be exchanged, an
outstanding note must be properly tendered and accepted.
All outstanding notes that are validly tendered and not
validly withdrawn will be exchanged. We will issue
exchange notes promptly after the expiration of the
exchange offer.
Resales........................... We believe that the exchange notes issued in the
exchange offer may be offered for resale, resold and
otherwise transferred by you without compliance with the
registration and prospectus delivery provisions of the
Securities Act, provided that:
- the exchange notes are being acquired in the ordinary
course of your business;
- you are not participating, do not intend to
participate, and have no arrangement or understanding
with any person to participate, in the distribution of
the exchange notes issued to you in the exchange
offer; and
- you are not an affiliate of ours.
1
If any of these conditions are not satisfied and you
transfer any exchange notes issued to you in the
exchange offer without delivering a prospectus meeting
the requirements of the Securities Act or without an
exemption from registration of your exchange notes from
such requirements, you may incur liability under the
Securities Act. We will not assume, nor will we
indemnify you against, any such liability.
Each broker-dealer that is issued exchange notes in the
exchange offer for its own account in exchange for
outstanding notes that were acquired by such
broker-dealer as a result of market-making or other
trading activities, must acknowledge that it will
deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of the
exchange notes. A broker-dealer may use this prospectus
for an offer to resell, resale or other retransfer of
the exchange notes issued to it in the exchange offer.
Record Date....................... We mailed this prospectus and the related exchange offer
documents to registered holders of outstanding notes on
, 1999.
Expiration Date................... The exchange offer will expire at 5:00 p.m., New York
City time, on , 1999, unless we decide to
extend the expiration date.
Conditions to the Exchange
Offer........................... The exchange offer is not subject to any condition other
than that the exchange offer not violate applicable law
or any applicable interpretation of the Staff of the
SEC.
Procedures for Tendering
Outstanding Notes............... We issued the outstanding notes as global securities.
When the outstanding notes were issued, we deposited the
global notes representing the outstanding notes with
U.S. Bank Trust National Association, as book-entry
depositary. U.S. Bank issued a certificateless
depositary interest in each global note we deposited
with it, which represents a 100% interest in the notes,
to The Depositary Trust Company, known as DTC.
Beneficial interests in the outstanding notes, which are
held by direct or indirect participants in DTC through
the certificateless depositary interest, are shown on
records maintained in book-entry form by DTC.
2
You may tender your outstanding notes through book-entry
transfer in accordance with DTC's Automated Tender Offer
Program, known as ATOP. To tender your outstanding notes
by a means other than book-entry transfer, a letter of
transmittal must be completed and signed according to
the instructions contained in the letter. The letter of
transmittal and any other documents required by the
letter of transmittal must be delivered to the exchange
agent by mail, facsimile, hand delivery or overnight
carrier. In addition, you must deliver the outstanding
notes to the exchange agent or comply with the
procedures for guaranteed delivery. See "The Exchange
Offer--Procedures for Tendering Outstanding Notes" for
more information.
Do not send letters of transmittal and certificates
representing outstanding notes to us. Send these
documents only to the exchange agent. See "The Exchange
Offer--Exchange Agent" for more information.
Special Procedures for Beneficial
Owners.......................... If you are the beneficial owner of book-entry interests
and your name does not appear on a security position
listing of DTC as the holder of such book-entry
interests or if you are a beneficial owner of
outstanding notes that are registered in the name of a
broker, dealer, commercial bank, trust company or other
nominee and you wish to tender such book-entry interest
or outstanding notes in the exchange offer, you should
contact such person in whose name your book-entry
interests or outstanding notes are registered promptly
and instruct such person to tender on your behalf.
Withdrawal Rights................. You may withdraw the tender of your outstanding notes at
any time prior to 5:00 p.m., New York City time on
, 1999.
Federal Income Tax
Considerations.................. The exchange of outstanding notes will not be a taxable
event for United States federal income tax purposes.
Use of Proceeds................... We will not receive any proceeds from the issuance of
exchange notes pursuant to the exchange offer. We will
pay all of our expenses incident to the exchange offer.
Exchange Agent.................... U.S. Bank is serving as the exchange agent in connection
with the exchange offer.
3
SUMMARY OF TERMS OF THE EXCHANGE NOTES
THE FORM AND TERMS OF THE EXCHANGE NOTES ARE THE SAME AS THE FORM AND TERMS
OF THE OUTSTANDING NOTES, EXCEPT THAT THE EXCHANGE NOTES WILL BE REGISTERED
UNDER THE SECURITIES ACT. AS A RESULT, THE EXCHANGE NOTES WILL NOT BEAR THE
LEGENDS RESTRICTING THEIR TRANSFER AND WILL NOT CONTAIN THE REGISTRATION RIGHTS
AND LIQUIDATED DAMAGE PROVISIONS CONTAINED IN THE OUTSTANDING NOTES. THE
EXCHANGE NOTES REPRESENT THE SAME DEBT AS THE OUTSTANDING NOTES. BOTH THE
OUTSTANDING NOTES AND THE EXCHANGE NOTES ARE GOVERNED BY THE SAME INDENTURE. WE
USE THE TERM NOTES IN THIS PROSPECTUS TO REFER COLLECTIVELY TO THE OUTSTANDING
NOTES AND THE EXCHANGE NOTES.
Issuer............................ J.L. French Automotive Castings, Inc., a Delaware
corporation.
Securities........................ $175 million in principal amount of 11 1/2% senior
subordinated notes due 2009, series B.
Maturity.......................... June 1, 2009.
Interest.......................... Annual rate: 11 1/2%.
Payment frequency--every six months on June 1 and
December 1.
First payment December 1, 1999.
Ranking........................... The exchange notes are senior subordinated debt.
Accordingly, they will rank:
- behind all of our senior debt;
- equally with all of our existing and future
subordinated, unsecured debt that does not expressly
provide that it is subordinated to the exchange
notes;
- ahead of all of our future debt that expressly
provides that it is subordinated to the exchange notes;
and
- behind all of the liabilities of our foreign
subsidiaries.
As of June 30, 1999, the exchange notes were
subordinated to approximately $296.5 million of our
senior debt and were effectively subordinated to an
additional $28.6 million of liabilities of our foreign
subsidiaries.
Guaranties........................ The exchange notes will be unconditionally guaranteed on
a senior subordinated basis by each of our existing and
certain of our future domestic subsidiaries. We refer to
these subsidiaries in this prospectus as the subsidiary
guarantors.
Optional Redemption............... On or after June 1, 2004, we may redeem some or all of
the exchange notes at any time at the redemption prices
described in the section "Description of Notes--Optional
Redemption."
Prior to June 1, 2002, we may redeem up to 35% of the
exchange notes with the proceeds of certain equity
offerings at the price listed in the section
"Description of Notes--Optional Redemption."
4
Mandatory Offer to Repurchase..... If we sell some types or amounts of assets or experience
specific kinds of changes in control, we must offer to
repurchase the exchange notes at the prices listed in
the section "Description of Notes--Repurchase at the
Option of Holders."
Basic Covenants of Indenture...... The indenture under which the outstanding notes were
issued will govern the exchange notes. This indenture
contains restrictions which, among other things,
restrict our ability to:
- borrow money;
- pay dividends on stock or repurchase stock;
- make investments;
- use assets as security in other transactions; and
- sell some types and amounts assets or merge with or
into other companies.
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
We are one of the world's largest independent designers and manufacturers of
automotive aluminum die cast components and assemblies. Our principal products
are highly engineered, value-added assemblies, consisting of machined aluminum
die cast components and various fastened parts. Our primary product offerings
include engine and drivetrain components and assemblies such as:
- - oil pans - ladderframes
- - engine front covers - timing chain housings
- - transmission cases - water pump housings
- - cam covers
For the year ended December 31, 1998, we had sales of $295.7 million.
We primarily sell to original equipment manufacturers, who are known as
OEMs, with Ford and General Motors accounting for approximately 58% and 20% of
our 1998 sales, respectively. We are a supplier on more than 20 Ford models,
including many of its highest volume vehicles, such as the F-Series and Ranger
trucks, Explorer and Taurus/Sable. We are also a supplier on many of GM's
highest volume vehicles, such as the Silverado and S-10 trucks, Blazer,
Cavalier/Sunfire and Malibu/ Intrigue. In addition, we sell to Tier 1 automotive
suppliers such as Robert Bosch, Delphi Automotive Systems and LucasVarity.
We are one of only a few major suppliers of automotive aluminum die castings
with manufacturing operations in both North America and Europe. We established
our European operations, diversified our customer base and expanded our product
capabilities through our acquisitions of Morris Ashby in January 1998 and Ansola
in April 1998. Morris Ashby, headquartered in the U.K., designs and manufactures
aluminum die cast components and tooling for customers primarily in the U.K. and
Germany. Ansola, headquartered in Spain, designs and manufactures aluminum die
cast components for customers in Germany, Spain, Portugal, Hungary and France.
Both Morris Ashby and Ansola generally manufacture smaller aluminum die castings
than J.L. French, which manufactures medium to large aluminum die castings
ranging in weight from three to nearly 50 pounds.
5
COMPETITIVE STRENGTHS
We possess a number of competitive strengths that have enabled us to meet
the demands of OEMs for fewer, global suppliers and to benefit from aluminum's
continued replacement of other metals in vehicles.
- LOW COST, VERTICALLY-INTEGRATED MANUFACTURER: We are the only independent
automotive aluminum die caster in North America with captive aluminum
smelting capabilities, and we have in-house tool and die making
capabilities which support our manufacturing operations.
- VALUE-ADDED MANUFACTURING SERVICES: We believe that we have the most
extensive machining and assembly capabilities among independent automotive
aluminum die casters.
- BROAD RANGE OF GLOBAL MANUFACTURING CAPABILITIES: The breadth of our
global manufacturing capabilities enables us to compete for virtually any
automotive aluminum die casting business in the world.
- ADVANCED PRODUCT DESIGN AND ENGINEERING CAPABILITIES: Our extensive design
and engineering capabilities have resulted in strong, collaborative
customer relationships.
- WELL POSITIONED ON HIGH VOLUME PRODUCT PLATFORMS: We are a supplier on
many of the highest volume product platforms, including the top three and
12 of the top 20 selling vehicles in the U.S. in 1998.
- INDUSTRY LEADING PRODUCT QUALITY: During 1998, we produced finished
aluminum die cast components and assemblies with less than 44 defective
parts per million, which we believe is among the lowest defect rates in
the automotive aluminum die casting industry.
- PROVEN MANAGEMENT TEAM: The 18 most senior members of our management
average over 20 years of experience in the automotive industry and our
chief executive officer, Charles M. Waldon, has over 30 years of
experience in the automotive aluminum die casting industry.
BUSINESS STRATEGY
Our strategic objective is to become the leading global supplier of aluminum
die castings to OEMs. With the acquisitions of Morris Ashby and Ansola, we have
the capability to globally manufacture a complete range of automotive aluminum
die cast engine and drivetrain components and assemblies. Key elements of our
strategy include the following:
- Continuing to increase our large aluminum casting business
- Maximizing the profitability of Morris Ashby and Ansola
- Pursuing continuous operating improvements
- Diversifying our customer base
- Designing and engineering high value-added assemblies
- Continuing to develop global supply capabilities by expanding into new
geographic markets
- Pursuing strategic acquisitions
Our principal executive offices are located at 4508 IDS Center, Minneapolis,
Minnesota 55402, and our telephone number is (612) 332-2335.
6
RECENT DEVELOPMENTS
In March 1999, we entered into a non-binding letter of intent to acquire a
Mexican supplier of aluminum die castings to DaimlerChrysler and GM for
approximately $13 million. Completion of this acquisition is subject to our
satisfactory completion of due diligence, negotiation of a definitive agreement,
regulatory approval and the approval of our senior lenders. If we complete this
acquisition, we would expect closing to occur in the third quarter of 1999. We
expect that we would finance this acquisition with cash on hand and available
borrowings under our revolving credit facility.
THE RECAPITALIZATION
On April 21, 1999, we completed a recapitalization in which a group of
equity investors, including affiliates of Onex Corporation and J2R Corporation,
acquired approximately 87% of our common stock for $156.0 million in cash. Our
stockholders prior to the recapitalization retained approximately 13% of our
common stock and, together with holders of outstanding options, received an
aggregate of $370.3 million in cash in connection with our redemption of their
other equity interest, plus an additional $5.9 million based upon a post-closing
determination of our total working capital as of the closing date of the
recapitalization. As part of the recapitalization, we:
- borrowed $295.0 million under a new secured senior credit facility and
$130.0 million under a new senior subordinated credit facility;
- repaid $184.0 million of our existing indebtedness;
- paid $6.9 million in fees and expenses incurred in connection with the
recapitalization; and
- retained approximately $10.9 million of borrowing proceeds for working
capital purposes.
We collectively refer to these transactions in this prospectus as the
recapitalization. See "Certain Relationships and Related Transactions--The
Recapitalization" for additional information.
THE EQUITY INVESTORS
Hidden Creek is a private industrial management company that focuses
exclusively on the automotive and heavy truck parts supply industries. Hidden
Creek is a partnership comprised of Onex and J2R and is based in Minneapolis,
Minnesota. Onex is a publicly owned holding company based in Canada with annual
revenues of approximately $6.0 billion. Hidden Creek provides strategic,
financial and acquisition functions for its affiliated companies.
7
SUMMARY HISTORICAL FINANCIAL DATA
We derived the following historical financial information from the
consolidated financial statements of French Automotive for the nine months ended
December 31, 1996 and for the years ended December 31, 1997 and 1998 and the six
months ended June 30, 1998 and 1999. The unaudited financial data at June 30,
1999, for the six months ended June 30, 1998 and 1999 include adjustments, all
of which are normal recurring adjustments, which our management considers
necessary for a fair presentation of our results for these unaudited periods.
The results of operations for the six months ended June 30, 1999 are not
necessarily indicative of the results of operations which we expect for the full
1999 calendar year.
You should read the following summary together with the "Management's
Discussion and Analysis of Results of Operations and Financial Condition" for
French Automotive and the audited and unaudited financial statements and the
related notes and the unaudited pro forma financial statements and related notes
contained elsewhere in this prospectus.
NINE MONTHS YEAR ENDED SIX MONTHS ENDED
ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------- --------------------
1996 1997 1998(1) 1998(1) 1999
------------ --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Sales................................................. $ 106,941 $ 169,510 $ 295,690 $ 145,563 $ 165,689
Cost of sales......................................... 75,697 116,522 221,040 108,467 123,406
------------ --------- --------- --------- ---------
Gross profit........................................ 31,244 52,988 74,650 37,096 42,283
Selling, general and administrative expenses.......... 3,359 5,649 16,802 8,882 10,228
Recapitalization expenses............................. -- -- -- -- 21,151
Amortization of intangible assets..................... 18,692 20,680 16,861 8,484 5,505
------------ --------- --------- --------- ---------
Operating income.................................... 9,193 26,659 40,987 19,730 5,399
Interest expense...................................... 11,973 13,981 20,533 8,844 13,823
------------ --------- --------- --------- ---------
Income (loss) before income taxes and extraordinary
loss.............................................. (2,780) 12,678 20,454 10,886 (8,424)
Provision (benefit) for income taxes.................. (1,126) 4,954 8,299 4,376 (3,369)
------------ --------- --------- --------- ---------
Income (loss) before extraordinary loss............. (1,654) 7,724 12,155 6,510 (5,055)
Extraordinary loss.................................... -- -- 805 805 8,112
------------ --------- --------- --------- ---------
Net income (loss)..................................... $ (1,654) $ 7,724 $ 11,350 $ 5,705 $ (13,167)
------------ --------- --------- --------- ---------
------------ --------- --------- --------- ---------
OTHER FINANCIAL DATA:
Depreciation.......................................... $ 7,188 $ 10,357 $ 19,176 $ 9,051 $ 11,060
Amortization.......................................... 18,692 20,680 16,861 8,484 5,505
Capital expenditures.................................. 2,995 24,530 34,640 16,815 10,727
EBITDA(2)............................................. 35,073 57,696 77,024 37,265 21,964
EBITDA margin......................................... 32.8% 34.0% 26.0% 25.6% 13.3%
Net cash provided by (used in):
Operating activities................................ 26,721 29,629 39,055 11,378 (8,927)
Investing activities................................ (230,760) (24,530) (109,418) (88,555) (12,157)
Financing activities................................ 225,665 (12,287) 59,871 70,971 43,296
Ratio of earnings to fixed charges(3)................. 0.8x 1.8x 1.9x 2.1x 0.4x
8
AS OF JUNE
30, 1999
-------------
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents.......................................................................... $ 27,357
Working capital.................................................................................... 74,643
Total assets....................................................................................... 438,708
Total debt......................................................................................... 471,476
Total stockholders' deficit........................................................................ (78,335)
- ------------------------------
(1) Includes the results of operations of (i) Morris Ashby from January 12, 1998
and (ii) Ansola from April 30, 1998, their respective dates of acquisition.
(2) EBITDA is operating income plus depreciation and amortization. EBITDA does
not represent and should not be considered as an alternative to net income
or cash flow from operations as determined by generally accepted accounting
principles, and our calculation thereof may not be comparable to that
reported by other companies. We believe that it is widely accepted that
EBITDA provides useful information regarding a company's ability to service
and/or incur indebtedness. This belief is based, in part, on our
negotiations with our lenders who have required that the interest payable
under our senior credit facility be based, in part, on our ratio of
consolidated senior funded indebtedness to EBITDA. EBITDA does not take into
account our working capital requirements, debt service requirements and
other commitments and, accordingly, is not necessarily indicative of amounts
that may be available for discretionary use.
(3) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges. Fixed charges consist of
interest expense, amortization of debt issuance costs and one-third of
rental expense, deemed representative of that portion of rental expense
estimated to be attributable to interest. The pro forma ratio of earnings to
fixed charges for the year ended December 31, 1998 and the six months ended
June 30, 1999 would have been 0.9x and 1.3x, respectively.
9
RISK FACTORS
YOU SHOULD READ AND CONSIDER CAREFULLY EACH OF THE FOLLOWING FACTORS, AS
WELL AS THE OTHER INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE INTO
THIS PROSPECTUS, BEFORE MAKING A DECISION TO PARTICIPATE IN THE EXCHANGE OFFER.
RISKS ASSOCIATED WITH THE EXCHANGE OFFER
THERE IS NO PUBLIC MARKET FOR THE EXCHANGE NOTES--YOU MAY NOT BE ABLE TO SELL
YOUR EXCHANGE NOTES
The exchange notes will be registered under the Securities Act, but will
constitute a new issue of securities with no established trading market, and
there can be no assurance as to:
- the liquidity of any such market that may develop;
- the ability of holders to sell their exchange notes; or
- the price at which the holders would be able to sell their exchange notes.
If such a market were to exist, the exchange notes may trade at higher or lower
prices than their principal amount or purchase price, depending on many factors,
including prevailing interest rates, the market for similar debentures and our
financial performance.
We understand that the initial purchasers presently intend to make a market
in the notes. However, they are not obligated to do so, and any market-making
activity with respect to the notes may be discontinued at any time without
notice. In addition, such market-making activity will be subject to the limits
imposed by the Securities Act and the Securities Exchange Act, and may be
limited during the exchange offer or the pendency of an applicable shelf
registration statement. There can be no assurance that an active trading market
will exist for the exchange notes or that such trading market will be liquid.
IF YOU DO NOT EXCHANGE YOUR OUTSTANDING NOTES, YOUR OUTSTANDING NOTES WILL
CONTINUE TO BE SUBJECT TO THE EXISTING TRANSFER RESTRICTIONS AND YOU MAY BE
UNABLE TO SELL YOUR OUTSTANDING NOTES
We did not register the outstanding notes, nor do we intend to do so
following the exchange offer. Outstanding notes that are not tendered will
therefore continue to be subject to the existing transfer restrictions and may
be transferred only in limited circumstances under the securities laws. If you
do not exchange your outstanding notes, you will lose your right to have your
outstanding notes registered under the federal securities laws. As a result, if
you hold outstanding notes after the exchange offer, you may be unable to sell
your outstanding notes.
YOUR OUTSTANDING NOTES WILL NOT BE ACCEPTED FOR EXCHANGE IF YOU FAIL TO FOLLOW
THE EXCHANGE OFFER PROCEDURES
We will issue exchange notes pursuant to this exchange offer only after a
timely receipt of your outstanding notes, a properly completed and duly executed
letter of transmittal and all other required documents. Therefore, if you want
to tender your outstanding notes, please allow sufficient time to ensure timely
delivery. We are under no duty to give notification of defects or irregularities
with respect to the tenders of outstanding notes for exchange.
In addition, if you tender your outstanding notes in the exchange offer for
the purpose of participating in a distribution of the exchange notes, you may be
deemed to have received restricted securities, and if so, you will be required
to comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
10
RISKS RELATED TO THE NOTES
OUR BUSINESS MAY BE ADVERSELY IMPACTED AS A RESULT OF OUR SUBSTANTIAL LEVERAGE
We have a significant amount of indebtedness. As of June 30, 1999, we had
approximately $471.5 million of outstanding debt and approximately $78.3 million
of stockholders' deficit. In addition, we will be able to incur substantial
additional indebtedness in the future. The terms of the indenture do not fully
prohibit us from doing so. We are permitted to incur additional borrowings of up
to $67.8 million less outstanding letters of credit, subject to certain
financial covenants, under our senior credit facility.
Our indebtedness could have several important consequences for you,
including but not limited to the following:
- it may be difficult for us to satisfy our obligations with respect to the
notes;
- our ability to obtain additional financing in the future for working
capital, capital expenditures, potential acquisition opportunities,
general corporate purposes or other purposes may be impaired;
- a substantial portion of our cash flow from operations must be dedicated
to the payment of principal and interest on our indebtedness;
- we may be more vulnerable to economic downturns, may be limited in our
ability to withstand competitive pressures and may have reduced
flexibility in responding to changing business, regulatory and economic
conditions; and
- fluctuations in market interest rates will affect the cost of our
borrowings to the extent not covered by interest rate hedge agreements
because a portion of our indebtedness is payable at variable rates.
WE MAY BE UNABLE TO GENERATE SUFFICIENT CASH TO SERVICE OUR INDEBTEDNESS
Our ability to service our indebtedness will depend on our future
performance, which will be affected by prevailing economic conditions and
financial, business, regulatory and other factors. Certain of these factors are
beyond our control. We believe that, based upon current levels of operations, we
will be able to meet our debt service obligations when due. Significant
assumptions underlie this belief, including, among other things, that we will
continue to be successful in implementing our business strategy and that there
will be no material adverse developments in our business, liquidity or capital
requirements. If we cannot generate sufficient cash flow from operations to
service our indebtedness and to meet our other obligations and commitments, we
might be required to refinance our debt or to dispose of assets to obtain funds
for such purpose. There is no assurance that refinancings or asset dispositions
could be effected on a timely basis or on satisfactory terms, if at all, or
would be permitted by the terms of the indenture or our senior credit facility.
In the event that we are unable to refinance our senior credit facility or raise
funds through asset sales, sales of equity or otherwise, our ability to pay
principal of, and interest on, the notes would be impaired.
WE ARE SUBJECT TO SUBSTANTIAL RESTRICTIONS AND COVENANTS UNDER OUR SENIOR CREDIT
FACILITY
Our senior credit facility contains numerous restrictive covenants,
including, but not limited to, covenants that restrict our ability to incur
indebtedness, pay dividends, create liens, sell assets, engage in certain
mergers and acquisitions and refinance indebtedness. In addition, our senior
credit facility also requires us to maintain certain financial ratios. Our
ability to comply with the covenants and other terms of the senior credit
facility, to satisfy our other debt obligations and to make cash payments with
respect to the notes will depend on our future operating performance. In the
event that we fail to comply with the various covenants contained in our senior
credit facility, we would be in default
11
thereunder, and in any such case, the maturity of substantially all of our
long-term indebtedness could be accelerated.
A default under the indenture would also constitute an event of default
under our senior credit facility. In addition, the lenders under the senior
credit facility could elect to declare all amounts borrowed thereunder, together
with accrued interest, to be due and payable. If we were unable to repay such
borrowings, such lenders could proceed against our assets, which secure our
borrowings under the senior credit facility. If the indebtedness under the
senior credit facility were to be accelerated, there can be no assurance that
our assets would be sufficient to repay such indebtedness and the notes in full.
The senior credit facility prohibits the repayment, purchase, redemption,
defeasance or other payment of any of the principal of the notes at any time
prior to their stated maturity. See "Description of Senior Credit Facility" and
"Description of Notes."
THE NOTES AND GUARANTIES ARE UNSECURED SUBORDINATED OBLIGATIONS
The indebtedness evidenced by the notes will be an unsecured obligation of
French Automotive, and the indebtedness evidenced by the subsidiary guaranties
will be unsecured obligations of the subsidiary guarantors. The payment of
principal of, premium (if any), and interest on the notes will be subordinated
in right of payment to all of our senior indebtedness, including the payment of
the senior credit facility, and the payment of the subsidiary guaranties will be
subordinated in right of payment to all senior indebtedness of the subsidiary
guarantors, including the subsidiary guarantors' respective guarantees of the
senior credit facility. As of June 30, 1999, our senior indebtedness was
approximately $296.5 million.
By reason of the subordination provisions of the indenture, in the event of
insolvency, liquidation, reorganization, dissolution or other winding-up of
French Automotive, or any of the subsidiary guarantors, holders of our senior
indebtedness, or of any of the subsidiary guarantors, as the case may be, will
have to be paid in full before we make payments in respect of the notes or
before any of the subsidiary guarantors make payment in respect of the
subsidiary guaranties. In addition, no payment will be able to be made in
respect of the notes during the continuance of a payment default on senior debt
and may be prohibited for up to 179 consecutive days in the event of some
specified non-payment defaults on senior debt. See "Description of
Notes--Subordination."
WE CONDUCT ALL OF OUR OPERATIONS THROUGH SUBSIDIARIES AND NOT ALL OF OUR
SUBSIDIARIES ARE SUBSIDIARY GUARANTORS
We conduct all of our operations through subsidiaries. Distributions and
intercompany transfers from our subsidiaries to us may be restricted by
covenants contained in debt agreements and other agreements to which our
subsidiaries may be subject and may be restricted by other agreements entered
into in the future and by applicable law. There can be no assurance that the
operating results of our subsidiaries at any given time will be sufficient to
make distributions to us.
The subsidiary guarantors include only our existing and certain future
domestic subsidiaries. Therefore, the notes are effectively subordinated to all
existing and future liabilities, including trade payables, of our foreign
subsidiaries. As a result, our right, and consequently any right of the holders
of the notes, to participate in any distribution of assets of our foreign
subsidiaries upon the liquidation, reorganization or insolvency of any such
subsidiary will be subject to the prior claims of such subsidiaries' creditors.
For certain financial data regarding our non-guarantor subsidiaries, see
footnote 14 to our consolidated financial statements.
12
THERE IS NO ASSURANCE THAT WE WILL BE ABLE TO PURCHASE THE NOTES UPON A CHANGE
OF CONTROL
We will be required to offer to repurchase all notes that are outstanding at
a price equal to 101% of the notes' principal amount plus accrued and unpaid
interest upon the occurrence of the following change-of-control events:
- a person other than Onex or J2R and their affiliates gains 50% of the
voting power of our common stock;
- all or substantially all of our assets are sold to a person other than
Onex or J2R and their affiliates;
- we adopt a plan of liquidation or dissolution;
- the first date on which the members of our board of directors at the time
the indenture was adopted, and persons elected by such directors, cease to
constitute a majority of our board of directors; or
- a merger in which our common stock is converted into property other than
voting stock and the holders of our common stock immediately prior to such
transaction cease to hold a majority of the common stock of the surviving
corporation.
We would fund any repurchase obligation with our available cash, cash generated
from other sources such as borrowings, sales of equity or funds provided by a
new controlling person. However, we cannot assure you that there will be
sufficient funds available for any required repurchases of the notes if a change
of control occurs.
In addition, our senior credit facility prohibits us from repurchasing the
notes after a change of control until we first repay our debt under the senior
credit facility in full. If we fail to repurchase the notes in that
circumstance, we will go into default under both the notes and the senior credit
facility. Any future debt that we incur may also contain restrictions on
repayment which come into effect upon a change of control. If a change of
control occurs, we cannot assure you that we will have sufficient funds to
satisfy all of our debt obligations. These buyback requirements may also delay
or make it harder for others to obtain control of French Automotive. In
addition, certain important corporate events, such as leveraged
recapitalizations, that would increase the level of our indebtedness, would not
necessarily constitute a change of control under the indenture. See "Description
of Notes--Repurchase at the Option of Holders--Change of Control" for additional
information.
IF A COURT WERE TO FIND THAT THE ISSUANCE OF THE NOTES OR THE SUBSIDIARY
GUARANTIES CONSTITUTED A FRAUDULENT CONVEYANCE, SUCH COURT COULD AVOID OUR
OBLIGATIONS UNDER THE NOTES OR THE SUBSIDIARY GUARANTORS' OBLIGATIONS UNDER
THE SUBSIDIARY GUARANTIES
A significant portion of the net proceeds of the initial offering of the
outstanding notes was used to repay indebtedness incurred in connection with the
recapitalization. If a bankruptcy case or lawsuit is initiated by our unpaid
creditors, the debt which we incurred to finance the recapitalization and the
debt represented by the notes may be reviewed under federal bankruptcy law and
comparable provisions of state fraudulent transfer laws. Under these laws, the
debt could be voided, or claims in respect of the debt could be subordinated to
all of our other debts or of the subsidiary guarantors if, among other things,
we or the subsidiary guarantors, at the time we incurred the indebtedness:
- received less than reasonably equivalent value or fair consideration for
the incurrence of such debt; and
- were insolvent or rendered insolvent by reason of such incurrence; or
- were engaged in a business or transaction for which their remaining assets
constituted unreasonably small capital; or
13
- intended to incur, or believed that they would incur, debts beyond their
ability to pay such debts as they mature.
In addition, any payment by us or a subsidiary guarantor could be voided and
required to be returned to us or the subsidiary guarantor, as the case may be,
or to a fund for the benefit of us or the subsidiary 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 debtor would be
considered insolvent if:
- the sum of its debts, including contingent liabilities, was greater than
the fair saleable value of all of its assets; or
- if the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
- it could not pay its debts as they became due.
We believe that we received fair market value for the indebtedness incurred
in connection with the recapitalization and for the notes. On the basis of
historical financial information, recent operating history and other factors, we
believe that, following the recapitalization and the initial offering of the
outstanding notes, we were not insolvent, did not have unreasonably small
capital for the business in which we were engaged and did not incur debts beyond
our ability to pay such debts as they mature. There can be no assurance,
however, as to what standard a court would apply in making such determinations
or that a court would agree with our conclusions in this regard.
RISKS RELATING TO FRENCH AUTOMOTIVE AND THE AUTOMOTIVE SUPPLY INDUSTRY
WE ARE DEPENDENT ON FORD AND GM AS OUR LARGEST CUSTOMERS
Our sales to Ford and GM represented approximately 58% and 20%,
respectively, of our 1998 sales. The loss of Ford or GM as a customer would have
a material adverse effect on us. The contracts we have entered into with many of
our customers provide for supplying the customers' requirements for a particular
platform, rather than for manufacturing a specific quantity of units. Such
contracts range from one year to the life of the platform, usually three to
seven years, and do not require the purchase by the customer of any minimum
number of units. Therefore, the loss of any one of such customers or a
significant decrease in demand for certain key platforms sold by any of our
major customers could have a material adverse effect on us.
There is substantial and continuing pressure from OEMs to reduce costs,
including the cost of products purchased from outside suppliers such as French
Automotive. If we are unable to generate sufficient production cost savings in
the future to offset price reductions, our gross margin could be adversely
affected.
WE ARE SUBJECT TO CERTAIN RISKS ASSOCIATED WITH OUR FOREIGN OPERATIONS
We generate a significant portion of our sales and incur a significant
portion of our expenses in currencies other than dollars. To the extent that we
are unable to match sales received in foreign currencies with costs paid in the
same currency, exchange rate fluctuations could have an adverse effect on our
financial results. Certain additional risks are inherent in international
operations, including:
- foreign customers may have longer payment cycles than customers in the
United States;
14
- tax rates in certain foreign countries may exceed those in the United
States and foreign earnings may be subject to withholding requirements or
the imposition of tariffs, exchange controls or other restrictions; and
- large organizations spread throughout various countries are more difficult
to manage.
As we continue to expand our business globally, our success will be
dependent, in part, on our ability to anticipate and effectively manage these
and other risks. We cannot assure you that these and other factors will not have
a material adverse effect on our international operations or our business as a
whole.
WE MAY BE ADVERSELY IMPACTED BY WORK STOPPAGES AND OTHER LABOR MATTERS
Many OEMs and their suppliers have unionized work forces. Work stoppages or
slow-downs experienced by OEMs or their suppliers could result in slow-downs or
closures of assembly plants where our products are included in assembled
vehicles. For example, strikes by the United Auto Workers led to the shut down
of most of GM's North American assembly plants in June and July 1998. We
estimate that this work stoppage at GM's facilities had an unfavorable impact of
approximately $4.6 million and $1.4 million on our 1998 sales and EBITDA,
respectively. In the event that one or more of our customers experiences a
material work stoppage, such work stoppage could have a material adverse effect
on our business. In addition, although none of our North American employees and
few of our European employees are members of unions, we cannot assure you that
we will not encounter unionization efforts or other types of conflicts with our
employees in the future.
WE MAY BE ADVERSELY AFFECTED BY THE IMPACT OF ENVIRONMENTAL AND SAFETY
REGULATIONS TO WHICH WE ARE SUBJECT
We are subject to the requirements of federal, state, local and foreign
environmental and occupational health and safety laws and regulations. We cannot
assure you that we are at all times in complete compliance with all such
requirements. We have made and will continue to make capital and other
expenditures to comply with environmental regulations. If a release of hazardous
substances occurs on or from one of our properties or any associated offsite
disposal location, or if contamination is discovered at any of our current or
former properties, we may be held liable, and the amount of such liability could
be material. We are currently addressing environmental contamination matters at
our Presteigne, U.K.; Cheshunt, U.K.; and San Andres de Echevarria, Spain
facilities. See "Business-- Environmental Matters."
ONEX CURRENTLY CONTROLS ALL MATTERS SUBMITTED TO A STOCKHOLDER VOTE
As a result of the terms of a stockholders agreement, Onex currently
controls 87% of the voting power of our outstanding common stock. Therefore,
Onex is able to control the vote on all matters submitted to a stockholder vote,
including the election of directors, amendments to our certificate of
incorporation and our by-laws and approval of significant corporate mergers. See
"Certain Relationships and Related Transactions--Investor Stockholders
Agreement." Some decisions about our operations or financial structure may
present conflicts of interests between Onex and the holders of the notes. For
example, Onex may be willing to approve acquisitions, divestitures or
transactions undertaken by us that it believes could increase the value of its
equity investment in French Automotive. These kinds of transactions, however,
may increase the financial risk to note holders.
CYCLICALITY AND SEASONALITY COULD ADVERSELY AFFECT US
The automotive market is highly cyclical and is dependent on consumer
spending. The most recent industry downturn was in the early 1990s. Economic
factors adversely affecting automotive production and consumer spending could
adversely impact us. In addition, our business is somewhat seasonal. We
typically experience decreased sales and operating income during the third
calendar quarter of each
15
year due to the impact of scheduled OEM plant shutdowns in July and August for
vacations and new model changeovers.
WE OPERATE IN THE HIGHLY COMPETITIVE AUTOMOTIVE SUPPLY INDUSTRY
The automotive supply industry is highly competitive. Some of our
competitors are companies, or divisions or subsidiaries of companies, that are
larger and have greater financial and other resources than we do. In addition,
with respect to certain of our products, some of our competitors are divisions
of our OEM customers. There can be no assurance that our products will be able
to compete successfully with the products of these other companies.
We principally compete for new business both at the beginning of the
development of new platforms and upon the redesign of existing platforms by our
major customers. New platform development generally begins two to five years
prior to the marketing of such platforms to the public. The failure to obtain
new business on new platforms or to retain or increase business on redesigned
existing platforms could adversely affect our business. In addition, as a result
of the relatively long lead times required for many of our complex castings, it
may be difficult in the short term for us to obtain new sales to replace any
unexpected decline in sales of existing products. We may incur significant
expense in preparing to meet anticipated customer requirements which may not be
recovered.
WE MAY EXPERIENCE DIFFICULTIES IN INTEGRATING ACQUIRED BUSINESSES
As part of our business strategy, we intend to pursue strategic
acquisitions. We currently have executed non-binding letters of intent with
respect to two possible acquisitions. We cannot assure you that we will succeed
in consummating any such acquisitions. If any such acquisitions are consummated,
we cannot assure you that such acquisitions will be successfully integrated or
operated profitably. Acquisitions can present significant challenges to
management due to the increased time and resources required to properly
integrate management, employees, accounting controls, personnel and
administrative functions. We cannot assure you that we will not encounter such
difficulties or that we will be able to realize the benefits that we hope to
achieve from future strategic acquisitions.
WE MAY BE ADVERSELY IMPACTED BY THE YEAR 2000 ISSUE
We are currently working to resolve the potential impact of the year 2000 on
the processing of time-sensitive information by our computerized information
systems. Any of our programs that have time-sensitive software may recognize
"00" as the year 1900 rather than the year 2000. This could result in
miscalculations, classification errors or system failures.
While our various operations are at different stages of Year 2000 readiness,
we have completed our global compliance review and, based on the information
available to date, we do not anticipate any significant readiness problems with
respect to our systems. The most reasonably likely worst case scenario that we
currently anticipate with respect to Year 2000 is the failure of some of our
suppliers, including utilities suppliers, to be ready. This could cause a
temporary interruption of materials or services that we need to make our
products, which could result in delayed shipments to customers and lost sales
and profits for us. We have completed an assessment of our critical suppliers
and have made plans to assure that we will have an adequate supply of materials
on hand to cover contingencies.
The outcome of our Year 2000 program is subject to a number of risks and
uncertainties, some of which (such as the availability of qualified computer
personnel and the Year 2000 responses of third parties) are beyond our control.
Therefore, there can be no assurances that we will not incur material
remediation costs beyond the above anticipated future costs, or that our
business, financial condition or results of operations will not be significantly
impacted if Year 2000 problems with our systems, or with the products or systems
of other parties with whom we do business, are not resolved in a timely manner.
16
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This prospectus contains forward-looking statements that are subject to
risks and uncertainties. You should not place undue reliance on those statements
because they only speak as of the date of this prospectus. Forward-looking
statements include information concerning our possible or assumed future results
of operations, including descriptions of our business strategy. These statements
often include words such as "believe," "expect," "anticipate," "intend," "plan,"
"estimate" or similar expressions. These statements are based on certain
assumptions that we have made in light of our experience in the industry as well
as our perceptions of historical trends, current conditions, expected future
developments and other factors we believe are appropriate in the circumstances.
As you read and consider this prospectus, you should understand that these
statements are not guarantees of performance or results. They involve risks,
uncertainties and assumptions. Although we believe that these forward-looking
statements are based on reasonable assumptions, you should be aware that many
factors could affect our actual financial results or results of operations and
could cause actual results to differ materially from those in the
forward-looking statements. These factors include:
- general economic or business conditions affecting the automotive industry
(which is dependent on consumer spending) being less favorable than
expected;
- our failure to develop or successfully introduce new products;
- increased competition in the automotive components supply market;
- unforeseen problems associated with international sales, including gains
and losses from foreign currency exchange;
- implementation of or changes in the laws, regulations or policies
governing the automotive industry that could negatively affect the
automotive components supply industry;
- our failure to complete or successfully integrate additional strategic
acquisitions; and
- various other factors beyond our control.
All future written and oral forward-looking statements by us or persons
acting on our behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to above. Except for our ongoing obligations to
disclose material information as required by the federal securities laws, we do
not have any obligation or intention to release publicly any revisions to any
forward-looking statements to reflect events or circumstances in the future or
to reflect the occurrence of unanticipated events. YOU SHOULD ALSO READ
CAREFULLY THE FACTORS DESCRIBED IN THE "RISK FACTORS" SECTION OF THIS
PROSPECTUS.
17
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We originally sold the outstanding notes on May 25, 1999 to the initial
purchasers pursuant to the purchase agreement. The initial purchasers
subsequently placed the outstanding notes with (1) qualified institutional
buyers in reliance on Rule 144A under the Securities Act and (2) qualified
buyers outside the United States in reliance upon Regulation S under the
Securities Act.
As a condition of the purchase agreement, we entered into the registration
rights agreement. The registration rights agreement provides that:
(1) we will file a registration statement relating to the exchange offer
(the "exchange offer registration statement") with the SEC on or prior to
90 days after the closing date of the initial offering of the outstanding
notes;
(2) we will use our best efforts to have the exchange offer registration
statement declared effective by the SEC on or prior to 180 days after the
closing date of the initial offering of the outstanding notes; and
(3) unless the exchange offer would not be permitted by applicable law or
SEC policy, we will commence the exchange offer and use our best
reasonable efforts to issue on or prior to 30 business days after the
date on which the exchange offer registration statement was declared
effective by the SEC, exchange notes in exchange for all outstanding
notes tendered prior thereto in the exchange offer.
For each outstanding note surrendered to us in the exchange offer, the holder of
such outstanding note will receive an exchange note having a principal amount
equal to that of the surrendered note. Interest on each outstanding note will
accrue from the last interest payment date on which interest was paid on the
outstanding note surrendered in exchange therefor or, if no interest has been
paid on such outstanding note, from the date of its original issue. Interest on
each exchange note will accrue from the date of its original issue.
Under existing interpretations of the Staff of the SEC contained in several
no-action letters to third parties, the exchange notes will in general be freely
tradeable after the exchange offer without further registration under the
Securities Act. However, any purchaser of outstanding notes who is our affiliate
or who intends to participate in the exchange offer for the purpose of
distributing the exchange notes:
(1) will not be able to rely on the interpretation of the Staff of the SEC;
(2) will not be able to tender its 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 sale or transfer of the
exchange notes, unless such sale or transfer is made pursuant to an
exemption from such requirements.
As contemplated by these no-action letters and the registration rights
agreement, each holder accepting the exchange offer is required to represent to
us in the letter of transmittal or agent's message that:
(1) the exchange notes are to be acquired by the holder or the person
receiving such exchange notes, whether or not such person is the holder,
in the ordinary course of business;
(2) the holder or any such other person (other than a broker-dealer referred
to in the next sentence) is not engaging and does not intend to engage,
in distribution of the exchange notes;
18
(3) the holder or any such other person has no arrangement or understanding
with any person to participate in the distribution of the exchange notes;
(4) neither the holder nor any such other person is our affiliate within the
meaning of Rule 405 under the Securities Act; and
(5) the holder or any such other person acknowledges that if such holder or
any other person participates in the exchange offer for the purpose of
distributing the exchange notes it must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with
any resale of the exchange notes and cannot rely on those no-action
letters.
As indicated above, each broker-dealer that receives an exchange note for its
own account in exchange for outstanding notes must acknowledge that it (A)
acquired the outstanding notes for its own account as a result of market-making
activities or other trading activities, (B) has not entered into any arrangement
or understanding with us or any of our affiliates within the meaning of Rule 405
under the Securities Act to distribute the exchange notes to be received in the
exchange offer and (C) will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such exchange notes. For a
description of the procedures for resales by these broker-dealers, see "Plan of
Distribution."
In the event that changes in the law or the applicable interpretations of
the Staff of the SEC do not permit us to effect an exchange offer, or if for any
other reason we do not meet the time periods set forth in the second paragraph
of this section, we will:
(1) file a shelf registration statement covering resales of the outstanding
notes;
(2) use our reasonable best efforts to cause the shelf registration
statement to be declared effective under the Securities Act; and
(3) use our reasonable best efforts to keep effective the shelf registration
statement until two years after the closing date of the initial offering.
We will, in the event of the filing of the shelf registration statement, provide
to each applicable 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 has become effective and take certain
other actions as are required to permit unrestricted resale of the outstanding
notes. A holder of the outstanding notes that sells such outstanding notes
pursuant to the shelf registration statement generally will be required to be
named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the registration rights agreement that are applicable
to such a 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 within the time periods set forth
in the registration rights agreement in order to have its outstanding notes
included in the shelf registration statement and to benefit from the provisions
set forth in the following paragraph.
If:
(1) we fail to file any of the registration statements required by the
registration rights agreement on or before the date specified for such
filing;
(2) any of such registration statements is not declared effective by the SEC
on or prior to the date specified for such effectiveness; or
(3) we fail to consummate the exchange offer within 30 business days after
the registration statement becomes effective; or
19
(4) the shelf registration statement or the exchange offer registration
statement is declared effective but thereafter ceases to be effective or
usable in connection with resales of any notes that are subject to
transfer restrictions under the Securities Act during the periods
specified in the registration rights agreement (each such event referred
to in clauses (a) through (d) above a "registration default"),
then we will pay additional interest, to each holder of notes, with respect to
the first 90-day period immediately following the occurrence of the first
registration default in an amount equal to $.05 per week per $1,000 principal
amount of notes held by such holder. The amount of the additional interest will
increase by an additional $.05 per week per $1,000 principal amount of notes
with respect to each subsequent 90-day period until all registration defaults
have been cured, up to a maximum amount of additional interest, if any, for all
registration defaults of $.50 per week per $1,000 principal amount of notes. We
will pay all accrued additional interest on each interest payment date to the
global note holder by wire transfer of immediately available funds or by federal
funds check and to holders of certificated securities by wire transfer to the
accounts specified by them or by mailing checks to their registered addresses if
no such accounts have been specified. Following the cure of all registration
defaults, the accrual of additional interest will cease.
Following the consummation of the exchange offer, holders of the outstanding
notes who were eligible to participate in the exchange offer but who did not
tender their outstanding notes will not have any further registration rights and
such outstanding notes will continue to be subject to restrictions on transfer
under the securities laws. Accordingly, the liquidity of the market for such
outstanding notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all outstanding notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the expiration date of the exchange offer. 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. 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 form and terms of the exchange notes are the same as the form and terms
of the outstanding notes except that:
(1) the exchange notes bear a Series B designation and a different CUSIP
Number from the outstanding notes;
(2) the exchange notes have been registered under the Securities Act and
hence will not bear legends restricting their transfer; and
(3) the holders of the exchange notes will not be entitled to the rights
under the registration rights agreement, including the provisions
providing for an increase in the interest rate on the outstanding notes
in certain circumstances relating to the timing of the exchange offer,
all of which rights will terminate when the exchange offer is terminated.
The exchange notes will evidence the same debt as the outstanding notes and will
be entitled to the benefits of the indenture.
As of the date of this prospectus, $175,000,000 aggregate principal amount
of the outstanding notes were outstanding. We have fixed the close of business
on , 1999 as the record date for the exchange offer for purposes of
determining the persons to whom this prospectus and the letter of transmittal
will be mailed initially.
Holders of outstanding notes do not have any appraisal or dissenters' rights
under the General Corporation Law of Delaware or the indenture in connection
with the exchange offer. We intend to
20
conduct the exchange offer in accordance with the applicable requirements of the
Exchange Act and the rules and regulations of the SEC thereunder.
We will be deemed to have accepted validly tendered outstanding notes when,
as and if we have given oral or written notice thereof to the exchange agent.
The exchange agent will act as agent for the tendering holders for the purpose
of receiving the exchange notes from us.
If any tendered outstanding notes are not accepted for exchange because of
an invalid tender, the occurrence of certain other events set forth in this
prospectus or otherwise, the certificates for any such unaccepted outstanding
notes will be returned, without expense, to the tendering holder thereof as
promptly as practicable after the expiration of the exchange offer.
Holders who tender outstanding notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
outstanding notes pursuant to the exchange offer. We will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection with
the exchange offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" will mean 5:00 p.m., New York City time, on
, 1999, unless we, in our sole discretion, extend the exchange offer,
in which case the term "expiration date" will mean the latest date and time to
which the exchange offer is extended.
In order to extend the exchange offer, we will file with the SEC a
post-effective amendment to the registration statement. We will also notify the
exchange agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each 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, to extend the exchange offer or to terminate the exchange
offer if any of the conditions set forth below under "--Conditions" will not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the exchange agent or (2) to amend the terms of the exchange
offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will bear interest from their date of issuance. Holders
of outstanding notes that are accepted for exchange will receive, in cash,
accrued interest thereon to, but not including, the date of issuance of the
exchange notes. Such interest will be paid with the first interest payment on
the exchange notes on December 1, 1999. Interest on the outstanding notes
accepted for exchange will cease to accrue upon issuance of the exchange notes.
Interest on the exchange notes is payable semi-annually on each June 1 and
December 1, commencing on December 1, 1999.
PROCEDURES FOR TENDERING
Only a holder of outstanding notes may tender such outstanding notes in the
exchange offer. To tender in the exchange offer, a holder must complete, sign
and date the letter of transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the letter of transmittal or cause The
Depository Trust Company to transmit an agent's message (as defined below) in
connection with a book-entry transfer, and mail or otherwise deliver such letter
of transmittal or such facsimile, together with the outstanding notes and any
other required documents, to the exchange agent prior to 5:00 p.m., New York
City time, on the expiration date. To be tendered effectively, the outstanding
21
notes, letter of transmittal or an agent's message and other required documents
must be completed and received by the exchange agent at the address set forth
below under "Exchange Agent" prior to 5:00 p.m., New York City time, on the
expiration date. Delivery of the outstanding notes may be made by book-entry
transfer in accordance with the procedures described below. Confirmation of such
book-entry transfer must be received by the exchange agent prior to the
expiration date.
The term "agent's message" means a message, transmitted by DTC to, and
received by, the exchange agent forming a part of a confirmation of a
book-entry, which states that DTC has received an express acknowledgment from
the participant in DTC tendering the outstanding notes that such participant has
received and agrees: (1) to participate in ATOP; (2) to be bound by the terms of
the letter of transmittal; and (3) that we may enforce such agreement against
such participant.
By executing the letter of transmittal, each holder will make to us the
representations set forth above in the third paragraph under the heading "--
Purpose and Effect of the Exchange Offer."
The tender by a holder and our acceptance thereof will constitute agreement
between such holder and us in accordance with the terms and subject to the
conditions set forth in this prospectus and in the letter of transmittal or
agent's message.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES AND THE LETTER OF TRANSMITTAL OR
AGENT'S MESSAGE AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND SOLE RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL,
HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT
TO US. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose outstanding notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See "Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner" included with the letter of transmittal.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of the Medallion System unless the
outstanding notes tendered pursuant thereto are tendered (1) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the letter of transmittal or
(2) for the account of an eligible institution. In the event that signatures on
a letter of transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of the
Medallion System.
If the letter of transmittal is signed by a person other than the registered
holder of any outstanding notes listed in this prospectus, such outstanding
notes must be endorsed or accompanied by a properly completed bond power, signed
by such registered holder as such registered holder's name appears on such
outstanding notes with the signature thereon guaranteed by an eligible
institution.
If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
offices of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and evidence
satisfactory to us of its authority to so act must be submitted with the letter
of transmittal.
We understand that the exchange agent will make a request promptly after the
date of this prospectus to establish accounts with respect to the outstanding
notes at DTC for the purpose of facilitating the exchange offer, and subject to
the establishment thereof, any financial institution that is a participant in
DTC may make book-entry delivery of outstanding notes by causing DTC to transfer
such outstanding notes into the exchange agent's account with respect to the
outstanding notes in
22
accordance with DTC's procedures for such transfer. Although delivery of the
outstanding notes may be effected through book-entry transfer into the exchange
agent's account at DTC, unless an agent's message is received by the exchange
agent in compliance with ATOP, an appropriate letter of transmittal properly
completed and duly executed with any required signature guarantee and all other
required documents must in each case be transmitted to and received or confirmed
by the exchange agent at its address set forth below on or prior to the
expiration date, or, if the guaranteed delivery procedures described below are
complied with, within the time period provided under such procedures. Delivery
of documents to DTC does not constitute delivery to the exchange agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered outstanding notes and withdrawal of tendered
outstanding notes will be determined by us in our sole discretion, which
determination will be final and binding. We reserve the absolute right to reject
any and all outstanding notes not properly tendered or any outstanding notes our
acceptance of which would, in the opinion of our counsel, be unlawful. We also
reserve the right in our sole discretion to waive any defects, 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 on all parties. Unless
waived, any defects or irregularities in connection with tenders of outstanding
notes must be cured within such time as we will determine. Although we intend to
notify holders of defects or irregularities with respect to tenders of
outstanding notes, neither we, the exchange agent nor any other person will
incur any liability for failure to give such notification. Tenders of
outstanding notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any outstanding notes received by the
exchange agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the exchange
agent to the tendering holders, unless otherwise provided in the letter of
transmittal, as soon as practicable following the expiration date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their outstanding notes and (1) whose outstanding
notes are not immediately available, (2) who cannot deliver their outstanding
notes, the letter of transmittal or any other required documents to the exchange
agent or (3) who cannot complete the procedures for book-entry transfer, prior
to the expiration date, may effect a tender if:
(A) the tender is made through a member firm of the Medallion System;
(B) prior to the expiration date, the exchange agent receives from a member
firm of the Medallion System a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the holder, the
certificate number(s) of such outstanding notes and the principal amount
of outstanding notes tendered, stating that the tender is being made
thereby and guaranteeing that, within three New York Stock Exchange
trading days after the expiration date, the letter of transmittal (or
facsimile thereof) together with the certificate(s) representing the
outstanding notes (or a confirmation of book-entry transfer of such
outstanding notes into the exchange agent's account at DTC), and any
other documents required by the letter of transmittal will be deposited
by the eligible institution with the exchange agent; and
(C) such properly completed and executed letter of transmittal (of facsimile
thereof), as well as the certificate(s) representing all tendered
outstanding notes in proper form for transfer (or a confirmation of
book-entry transfer of such outstanding notes into the exchange agent's
account at DTC), and all other documents required by the letter of
transmittal are received by the exchange agent upon five New York Stock
Exchange trading days after the expiration date.
Upon request to the exchange agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their outstanding notes according to the
guaranteed delivery procedures set forth above.
23
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, tenders of outstanding
notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the expiration date.
To withdraw a tender of outstanding notes in the exchange offer, a telegram,
telex, letter or facsimile transmission notice of withdrawal must be received by
the exchange agent at its address set forth in this prospectus prior to 5:00
p.m., New York City time, on the expiration date. Any such notice of withdrawal
must:
(1) specify the name of the person who deposited the outstanding notes to be
withdrawn;
(2) identify the outstanding notes to be withdrawn, including the
certificate number(s) and principal amount of such outstanding notes, or,
in the case of outstanding notes transferred by book-entry transfer, the
name and number of the account at DTC to be credited;
(3) be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such outstanding notes were tendered
(including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the
outstanding notes register the transfer of such outstanding notes into
the name of the person withdrawing the tender; and
(4) specify the name in which any such outstanding notes are to be
registered, if different from that of the person who deposited the
outstanding notes to be withdrawn.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by us and our determination will be
final and binding on all parties. Any outstanding notes so withdrawn will be
deemed not to have been validly tendered for purposes of the exchange offer and
no exchange notes will be issued with respect thereto unless the outstanding
notes so withdrawn are validly retendered. Any outstanding notes which have been
tendered but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the exchange offer. Properly withdrawn
outstanding notes may be retendered by following one of the procedures described
above under "--Procedures for Tendering" at any time prior to the expiration
date.
CONDITIONS
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or exchange notes for, any outstanding notes,
and may terminate or amend the exchange offer as provided in this prospectus
before the acceptance of such outstanding notes, if:
(1) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the exchange offer
which, in our sole judgment, might materially impair our ability to
proceed with the exchange offer or any material adverse development has
occurred in any existing action or proceeding with respect to us or any
of our subsidiaries; or
(2) any law, statute, rule, regulation or interpretation by the Staff of the
SEC is proposed, adopted or enacted, which, in our sole judgment, might
materially impair our ability to proceed with the exchange offer or
materially impair the contemplated benefits of the exchange offer to us;
or
(3) any governmental approval has not been obtained, which approval we will,
in our sole discretion, deem necessary for the consummation of the
exchange offer as contemplated hereby.
If we determine in our sole discretion that any of the conditions are not
satisfied, we may:
24
(1) refuse to accept any outstanding notes and return all tendered
outstanding notes to the tendering holders;
(2) extend the exchange offer and retain all outstanding notes tendered
prior to the expiration of the exchange offer, subject, however, to the
rights of holders to withdraw such outstanding notes (see "--Withdrawal
of Tenders"); or
(3) waive such unsatisfied conditions with respect to the exchange offer and
accept all properly tendered outstanding notes which have not been
withdrawn.
EXCHANGE AGENT
U.S. Bank Trust National Association has been appointed as exchange agent
for the exchange offer. Questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal and
requests for Notice of Guaranteed Delivery should be directed to the exchange
agent addressed as follows:
U.S. BANK TRUST NATIONAL ASSOCIATION
180 EAST FIFTH STREET
ST. PAUL MINNESOTA 55101
ATTN: SPECIALIZED FINANCE DEPARTMENT
BY FACSIMILE:
(ELIGIBLE INSTITUTIONS ONLY)
(651) 244-1537
FOR INFORMATION OR CONFIRMATION BY TELEPHONE:
(651) 244-1572
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, additional solicitation may be made by
telegraph, telecopy, telephone or in person our and our affiliates' officers and
regular employees.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers, or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith.
We will pay the cash expenses to be incurred in connection with the exchange
offer. Such expenses include fees and expenses of the exchange agent and
trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the
outstanding notes, which is face value, as reflected in our accounting records
on the date of exchange. Accordingly, we will not recognize any gain or loss for
accounting purposes as a result of the exchange offer. The expenses of the
exchange offer will be deferred and charged to expense over the term of the
exchange notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The outstanding notes that are not exchanged for exchange notes pursuant to
the exchange offer will remain restricted securities. Accordingly, such
outstanding notes may be resold only:
25
(1) to us (upon redemption thereof or otherwise);
(2) so long as the outstanding notes are eligible for resale pursuant to
Rule 144A, to a person inside the United States whom the seller
reasonably believes is a qualified institutional buyer within the meaning
of Rule 144A under the Securities Act in a transaction meeting the
requirements of Rule 144A, in accordance with Rule 144 under the
Securities Act, or pursuant to another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel
reasonably acceptable to us);
(3) outside the United States to a foreign person in a transaction meeting
the requirements of Rule 904 under the Securities Act; or
(4) pursuant to an effective registration statement under the Securities
Act, in each case in accordance with any applicable securities laws of
any state of the United States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of exchange notes, based on interpretations by the
Staff of the SEC set forth in no-action letters issued to third parties, we
believe that a holder or other person who receives exchange notes, whether or
not such person is the holder, other than a person that is our affiliate within
the meaning of Rule 405 under the Securities Act, in exchange for outstanding
notes in the ordinary course of business and who is not participating, does not
intend to participate, and has no arrangement or understanding with any person
to participate, in the distribution of the exchange notes, will be allowed to
resell the exchange notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the exchange notes a
prospectus that satisfies the requirements of Section 10 of the Securities Act.
However, if any holder acquires exchange notes in the exchange offer for the
purpose of distributing or participating in a distribution of the exchange
notes, such holder cannot rely on the position of the Staff of the SEC expressed
in such no-action letters or any similar interpretive letters, and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction, unless an exemption from registration
is otherwise available. Further, each broker-dealer that receives exchange notes
for its own account 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, must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes.
26
USE OF PROCEEDS
This exchange offer is intended to satisfy certain of our obligations under
the registration rights agreement. We will not receive any cash proceeds from
the issuance of the exchange notes. In consideration for issuing the exchange
notes, we will receive the outstanding notes, which have the same principal
amount and the same form and terms, except as otherwise described in this
prospectus.
We received approximately $169.6 million in net proceeds from the initial
sale of the outstanding notes. We used these proceeds together with $0.4 million
of cash on hand to repay the $130.0 million outstanding under the subordinated
financing facility and to repay approximately $2.5 million of the tranche A term
loan outstanding and approximately $37.5 million of the tranche B term loan
outstanding under our senior credit facility. See "Capitalization" and
"Description of Senior Credit Facility." Affiliates of the initial purchasers
were lenders under the subordinated financing facility and are lenders under the
senior credit facility.
27
CAPITALIZATION
The following table sets forth as of June 30, 1999 the consolidated
capitalization of French Automotive. This table should be read in conjunction
with the financial statements and related notes appearing elsewhere in this
prospectus.
AS OF JUNE 30, 1999
--------------------
(DOLLARS IN
THOUSANDS)
Cash and cash equivalents.................................................................... $ 27,357
--------
--------
Long-term debt, including current maturities:
Senior credit facility:
Revolving credit facility(1)............................................................. $ 7,231
Tranche A term loan...................................................................... 102,059
Tranche B term loan...................................................................... 152,105
--------
Total under senior credit facility................................................... 261,395
--------
Other senior indebtedness.................................................................. 35,081
--------
Total senior debt.................................................................... 296,476
--------
Notes...................................................................................... 175,000
--------
Total debt........................................................................... 471,476
Total stockholders' deficit.................................................................. (78,335)
--------
Total capitalization................................................................. $ 393,141
--------
--------
- ------------------------------
(1) Our revolving credit facility provides for borrowings of up to $75.0 million
less outstanding letters of credit.
28
SELECTED FINANCIAL DATA
The following table sets forth selected financial data with respect to
French Automotive and its predecessor J.L. French Corporation for each of the
periods indicated. The selected historical financial data for French
Automotive's predecessor for the year ended December 31, 1994 have been derived
from its unaudited combined financial statements and, for the year ended
December 31, 1995, from its audited combined financial statements. The selected
historical financial data for French Automotive's predecessor for the three
months ended March 31, 1996 have been derived from its unaudited combined
financial statements. The selected historical financial data for French
Automotive for the nine months ended December 31, 1996 and for the years ended
December 31, 1997 and 1998 have been derived from French Automotive's audited
consolidated financial statements. The unaudited consolidated financial data at
June 30, 1999 and for the six months ended June 30, 1998 and 1999 include
adjustments, all of which are normal recurring adjustments, which our management
considers necessary for a fair presentation of our results for these unaudited
periods. The results of operations for the six months ended June 30, 1999 are
not necessarily indicative of the results of operations which we expect for the
full 1999 calendar year. The selected historical consolidated financial data
should be read in conjunction with "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and the consolidated financial
statements and notes thereto all included elsewhere in this prospectus.
PREDECESSOR
----------------------------------- FRENCH AUTOMOTIVE
---------------------------------------------------------
YEARS ENDED THREE MONTHS NINE MONTHS YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, ENDED ENDED DECEMBER 31, JUNE 30,
-------------------- MARCH 31, DECEMBER 31, -------------------- --------------------
1994 1995 1996 1996 1997 1998(1) 1998(1) 1999
--------- --------- ------------- ------------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Sales............................ $ 114,087 $ 136,061 $ 36,062 $ 106,941 $ 169,510 $ 295,690 $ 145,563 $ 165,689
Cost of sales.................... 78,290 102,706 27,314 75,697 116,522 221,040 108,467 123,406
--------- --------- ------------- ------------- --------- --------- --------- ---------
Gross profit................... 35,797 33,355 8,748 31,244 52,988 74,650 37,096 42,283
Selling, general and
administrative expenses........ 4,468 4,227 2,610 3,359 5,649 16,802 8,882 10,228
Recapitalization expenses........ -- -- -- -- -- -- -- 21,151
Amortization of intangible
assets......................... -- -- -- 18,692 20,680 16,861 8,484 5,505
--------- --------- ------------- ------------- --------- --------- --------- ---------
Operating income............... 31,329 29,128 6,138 9,193 26,659 40,987 19,730 5,399
Interest expense................. 330 1,885 350 11,973 13,981 20,533 8,844 13,823
--------- --------- ------------- ------------- --------- --------- --------- ---------
Income (loss) before income
taxes and extraordinary
item......................... 30,999 27,243 5,788 (2,780) 12,678 20,454 10,886 (8,424)
Provision (benefit) for income
taxes.......................... 73 108 27 (1,126) 4,954 8,299 4,376 (3,369)
--------- --------- ------------- ------------- --------- --------- --------- ---------
Income (loss) before
extraordinary item........... 30,926 27,135 5,761 (1,654) 7,724 12,155 6,510 (5,055)
Extraordinary item............... -- -- -- -- -- 805 805 8,112
--------- --------- ------------- ------------- --------- --------- --------- ---------
Net income (loss)................ $ 30,926 $ 27,135 $ 5,761 $ (1,654) $ 7,724 $ 11,350 $ 5,705 $ (13,167)
--------- --------- ------------- ------------- --------- --------- --------- ---------
--------- --------- ------------- ------------- --------- --------- --------- ---------
OTHER FINANCIAL DATA:
Depreciation..................... $ 5,706 $ 8,231 $ 2,715 $ 7,188 $ 10,357 $ 19,176 $ 9,051 $ 11,060
Amortization..................... -- -- -- 18,692 20,680 16,861 8,484 5,505
Capital expenditures............. 18,424 13,114 3,615 2,995 24,530 34,640 16,815 10,727
EBITDA(2)........................ 37,035 37,359 8,853 35,073 57,696 77,024 37,265 21,964
Net cash provided by (used in):
Operating activities........... 21,502 39,533 12,726 26,721 29,629 39,055 11,378 (8,927)
Investing activities........... (18,424) (13,114) (3,615) (230,760) (24,530) (109,418) (88,555) (12,157)
Financing activities........... (4,553) (20,374) (12,089) 225,665 (12,287) 59,871 70,971 43,296
Ratio of earnings to fixed
charges(3)..................... 94.9x 15.5x 16.7x 0.8x 1.8x 1.9x 2.1x 0.4x
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents........ $ 1,430 $ 7,479 $ 4,494 $ 21,626 $ 14,438 $ 4,128 $ 5,146 $ 27,357
Working capital.................. 28,176 23,672 20,162 23,698 23,894 22,233 24,471 74,643
Total assets..................... 77,262 81,037 74,041 240,872 235,202 404,793 403,447 438,708
Total debt....................... 26,765 28,691 25,602 144,669 134,391 211,580 221,400 471,476
Total stockholders' investment
(deficit)...................... 36,956 40,259 37,755 72,640 76,807 124,688 119,155 (78,335)
29
- ------------------------------
(1) Includes the results of operations of (i) Morris Ashby from January 12, 1998
and (ii) Ansola from April 30, 1998.
(2) EBITDA is operating income plus depreciation and amortization. EBITDA does
not represent and should not be considered as an alternative to net income
or cash flow from operations as determined by generally accepted accounting
principles, and our calculation thereof may not be comparable to that
reported by other companies. We believe that it is widely accepted that
EBITDA provides useful information regarding a company's ability to service
and/or incur indebtedness. This belief is based, in part, on our
negotiations with our lenders who have required that the interest payable
under our senior credit facility be based, in part, on our ratio of
consolidated senior debt to EBITDA. EBITDA does not take into account our
working capital requirements, debt service requirements and other
commitments and, accordingly, is not necessarily indicative of amounts that
may be available for discretionary use.
(3) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges. Fixed charges consist of
interest expense, amortization of debt issuance costs and one-third of
rental expense, deemed representative of that portion of rental expense
estimated to be attributable to interest. The pro forma ratio of earnings to
fixed charges for the year ended December 31, 1998 and the six months ended
June 30, 1999 would have been 0.9x and 1.3x, respectively.
30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
We ordinarily begin working on products awarded for new or redesigned
platforms two to five years prior to initial vehicle production. During such
period, we incur (1) costs related to the design and engineering of such
products, (2) costs related to production of the tools and dies used to
manufacture the products and (3) start-up costs associated with the initial
production of such product. In general, design and engineering costs are
expensed in the period in which they are incurred. Costs incurred in the
production of the tools and dies are generally capitalized and reimbursed by the
customer prior to production. Start-up costs, which are generally incurred 30 to
60 days immediately prior to and immediately after production, are expensed as
incurred.
The contracts we enter into typically: (1) range from one year to the life
of the platform, (2) are on a sole-source basis, (3) do not require the purchase
by the customer of any minimum number of units, (4) are at fixed prices subject
to annual price reductions or renegotiation and (5) provide for price
adjustments related to changes in the cost of aluminum.
ACQUISITIONS
We acquired Morris Ashby in January 1998 and Ansola in April 1998. Both
acquisitions were accounted for using the purchase method of accounting and
their operating results have been included in our consolidated operating results
since their respective date of acquisition.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain items
to sales for French Automotive for the periods indicated:
NINE MONTHS SIX MONTHS
ENDED DECEMBER YEAR ENDED DECEMBER ENDED
31, 31, JUNE 30,
-------------------- --------------------
1996 1997 1998 1998 1999
--------------- --------- --------- --------- ---------
Sales...................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.............................................. 70.8 68.7 74.8 74.5 74.5
----- --------- --------- --------- ---------
Gross profit............................................. 29.2 31.3 25.2 25.5 25.5
Selling, general and administrative expenses............... 3.1 3.3 5.7 6.1 6.2
Recapitalization expenses.................................. -- -- -- -- 12.8
Amortization of intangible assets.......................... 17.5 12.3 5.7 5.8 3.3
----- --------- --------- --------- ---------
Operating income......................................... 8.6 15.7 13.8 13.6 3.2
Interest expense........................................... 11.2 8.2 6.9 6.1 8.3
----- --------- --------- --------- ---------
Income (loss) before provision for income taxes.......... (2.6) 7.5 6.9 7.5 (5.1)
Provision (benefit) for income taxes....................... (1.1) 2.9 2.8 3.0 (2.0)
----- --------- --------- --------- ---------
Income (loss) before extraordinary item................ (1.5)% 4.6% 4.1% 4.5% (3.1)%
----- --------- --------- --------- ---------
----- --------- --------- --------- ---------
Our gross margins declined from 1997 to 1998 primarily due to: (1) costs
associated with the accelerated launch of the Ford F-Series truck transmission
case; (2) the effects of the GM strike; and (3) the acquisitions of Morris Ashby
and Ansola. Launch costs associated with the F-Series truck transmission case
were approximately $7.1 million in 1998 and we estimate the GM strike reduced
gross profit by approximately $1.4 million during 1998. Morris Ashby and Ansola
have historically generated lower gross margins than J.L. French, primarily due
to their product mix and their non-automotive business. Major initiatives
currently underway at Morris Ashby and Ansola aimed at operating improvements
include: (1) improving cycle times to levels more consistent with J.L. French;
31
(2) increasing machining and assembly operations; and (3) manufacturing products
for new European business.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1999 TO SIX MONTHS ENDED JUNE 30,
1998
SALES. Sales for the first half of 1999 increased by $20.1 million, or
13.8%, to $165.7 million from $145.6 million for the prior period. Approximately
$6.7 million of the increase was the result of the acquisition of Ansola in
April 1998. The remaining increase was due to new business that began during
1998, principally transmission cases for Ford.
COST OF SALES. Cost of sales for the first half of 1999 increased by $14.9
million, or 13.8%, to $123.4 million from $108.5 million for the prior period.
Cost of sales as a percentage of sales was 74.5% for both periods. Gross margins
for the first half of 1999 showed improvements primarily as a result of
manufacturing process improvements, including increased productivity levels and
reduced scrap rates. These improvements were partially offset by (1) a decline
in the European economy and related automotive production, (2) historically
lower margins at Ansola and Morris Ashby which were included in the full six
month results for 1999, and (3) a change in our product mix to produce more
parts with slightly lower margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $1.3 million to $10.2 million for the first
half of 1999 from $8.9 million for the prior period. The increase was due
primarily to selling, general and administrative expenses associated with the
expanded scope of operations, including expenses related to the acquisition of
Ansola, which was acquired in April 1998. As a percentage of sales, selling,
general and administrative expenses were 6.2% for the first half of 1999
compared to 6.1% for the prior period.
RECAPITALIZATION EXPENSES. The recapitalization expenses of $21.2 million
recorded during the second quarter of 1999 represent payments made to option
holders in excess of the exercise price. The options were repurchased in
connection with the recapitalization.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization expense decreased from $8.5
million for the first half of 1998 to $5.5 million for the first half of 1999,
as a result of reduced amortization of capitalized customer relationships,
partially offset by an increase in goodwill amortization from the acquisition of
Ansola and increased amortization of deferred debt costs related to borrowings
under our senior credit facility and the outstanding notes. Goodwill is being
amortized on a straight-line basis over 40 years.
INTEREST EXPENSE. Interest expense for the six months ended June 30, 1999
was $13.8 million compared to $8.8 million for the same period in 1998. The
increase was due principally to borrowings incurred in connection with the
recapitalization.
PROVISION (BENEFIT) FOR INCOME TAXES. The effective income tax rate was
40.0% for the tax benefit arising in the six months ended June 30, 1999 compared
to 40.2% for the same period in 1998. The increase in the effective income tax
rate related primarily to higher state income taxes and the effect of non
deductible goodwill amortization.
EXTRAORDINARY LOSS. We recorded an extraordinary loss of $0.8 million and
$8.1 million for the six months ended June 30, 1998 and 1999, respectively.
These losses were the result of the write-off of deferred financing fees
associated with certain credit facilities that were repaid during such periods.
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997
SALES. Sales for 1998 increased by $126.2 million, or 74.4%, to $295.7
million from $169.5 million for 1997. Approximately $87.7 million of the
increase in sales related to the acquisitions of Morris Ashby and Ansola.
Approximately $43.1 million of the increase was the result of new business,
32
principally transmission cases for Ford. These increases were partially offset
by the effects of the strike at GM in June and July 1998 which decreased sales
by approximately $4.6 million for 1998.
COST OF SALES. Cost of sales for 1998 increased by $104.5 million, or
89.7%, to $221.0 million from $116.5 million for 1997. Cost of sales as a
percentage of sales for 1998 was 74.8% compared to 68.7% for 1997. The decline
in gross margin was the result of non-recurring costs of approximately $7.1
million associated with the launch of the Ford transmission cases during 1998,
approximately $1.4 million related to the effects of the GM strike in June and
July 1998 and the lower gross margins at Morris Ashby and Ansola.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $11.2 million to $16.8 million for 1998
from $5.6 million for 1997. As a percentage of sales, selling, general and
administrative expenses were 5.7% for 1998 compared to 3.3% for 1997. The
increase in selling, general and administrative expenses is due primarily to
incremental expenses associated with Morris Ashby and Ansola, costs related to
developing global engineering and design capabilities, such as increased
personnel and travel expenses, and non-capitalizable professional fees related
to the acquisitions of Morris Ashby and Ansola.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization expense decreased from
$20.7 million for 1997 to $16.9 million for 1998, as a result of reduced
amortization on capitalized customer relationships, partially offset by
increases in goodwill amortization from the acquisitions of Morris Ashby and
Ansola.
INTEREST EXPENSE. Interest expense for 1998 was $20.5 million compared to
$14.0 million for 1997. The increase was due principally to borrowings incurred
related to the acquisitions of Morris Ashby and Ansola.
PROVISION FOR INCOME TAXES. The effective income tax rate was 40.6% for
1998 compared to 39.1% for 1997. The effective rates differed from the statutory
rates primarily as a result of higher foreign tax rates, state taxes and
non-deductible goodwill amortization associated with the Morris Ashby
acquisition.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO NINE MONTHS ENDED DECEMBER 31,
1996
SALES. Sales for 1997 increased by 58.6% to $169.5 million from $106.9
million for 1996. The increase is due to increased production on models served
by French Automotive, principally light trucks, new program awards, including
the Ford F-Series truck and GM S-10 truck, and the negative impact of the GM
strike on 1996 sales.
COST OF SALES. Cost of sales for 1997 increased by 53.9% to $116.5 million
from $75.7 million for 1996. As a percentage of sales, cost of sales decreased
to 68.7% for 1997 from 70.8% for 1996, resulting in an improved gross margin.
The higher margin in 1997 was a result of continued cost reduction efforts,
including manufacturing productivity improvements at our Gateway facility, and
the non-recurring, negative impact of the GM strike on 1996 gross margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by 64.7% to $5.6 million for 1997 from $3.4
million for 1996. As a percentage of sales, selling, general and administrative
expenses increased to 3.3% for 1997 from 3.1% for 1996. This increase was due
principally due to an increase in management and directors' fees.
INTEREST EXPENSE. Interest expense for 1997 increased by 16.7% to $14.0
million from $12.0 million for 1996. The increase was due principally to
borrowings incurred related to the acquisition of J.L. French by Windward.
PROVISION (BENEFIT) FOR INCOME TAXES. The effective income tax rate for
1997 was 39.1% for 1997 compared to a tax benefit of 40.5% for 1996.
33
LIQUIDITY AND CAPITAL RESOURCES
During the first half of 1999, we used cash from operations of $8.9 million,
compared to the cash flow generated of $11.4 million for the first half of 1998.
Cash generated from operations before changes in working capital items was $14.1
million for the first half of 1999 compared to $25.0 million for the same period
in 1998. Increases in working capital used cash of $23.0 million during the
first half of 1999 compared to $13.6 million in the same period in 1998. The
increases in working capital are primarily the result of the timing of cash
receipts and cash payments.
Net cash used in investing activities was $12.2 million during the first
half of 1999 as compared to $88.6 million for the same period in 1998. Capital
expenditures totaled $12.2 million in the first half of 1999 and $16.8 million
in the first half of 1998 and were primarily for equipment and dedicated tooling
purchases related to new or replacement programs.
Net cash provided by financing activities totaled $43.3 million for the
first half of 1999 compared with $71.0 million for the same period in 1998. The
1999 financing activities represent cash provided through net borrowings. The
1998 financing activities represent $35.7 million of cash provided from the sale
of common stock to certain of the then existing stockholders and $14.3 million
of borrowings associated with the acquisition of Morris Ashby.
On April 21, 1999, we completed a recapitalization in which a group of
equity investors, including affiliates of Onex and J2R, acquired approximately
87% of our common stock for $156.0 million in cash. Stockholders prior to the
recapitalization retained approximately 13% of our common stock and, together
with holders of outstanding options, received an aggregate of $370.3 million in
cash in connection with our redemption of their other equity interest, plus an
additional $5.9 million based upon a post-closing determination of our total
working capital as of the closing date of the recapitalization.
In connection with the recapitalization, French Automotive and certain of
our direct and indirect subsidiaries entered into the senior credit facility.
The senior credit facility provides for aggregate borrowings of approximately
$370.0 million, including (a) approximately $105.0 million of term loans,
consisting of (1) a $70.0 million U.S. dollar-denominated term loan to French
Automotive, (2) a pound sterling-denominated term loan to French Automotive in
an amount equal to the pound sterling equivalent (determined as of the date such
loan was made) of U.S. $17.5 million and (3) a pound sterling-denominated term
loan to Morris Ashby in an amount equal to the pound sterling equivalent
(determined as of the date such loan was made) of U.S. $17.5 million
(collectively, the "tranche A term loan"); (b) a $190.0 million tranche B term
loan; and (c) a $75.0 million revolving credit facility. In connection with the
recapitalization, we borrowed $295.0 million under the senior credit facility.
As of June 30, 1999, we had available borrowings under the senior credit
facility of approximately $42.3 million.
As of June 30, 1999, rates on borrowings under the senior credit facility
varied from 7.5% to 7.9%. Borrowings under the tranche A term loan are due and
payable April 21, 2005 and borrowings under the tranche B term loan are due and
payable on October 21, 2006. The revolving credit facility is available until
April 21, 2005. The senior credit facility is secured by all of the assets of
and guaranteed by all of our material present and future subsidiaries, in each
case with exceptions for certain foreign subsidiaries and to the extent
permitted by applicable law. We used approximately $2.5 million of the proceeds
of the offering to repay a portion of the tranche A term loan and approximately
$37.5 million of the net proceeds of the offering to repay a portion of the
tranche B term loan under the senior credit facility. See "Use of Proceeds."
In addition, in connection with the recapitalization, we also entered into a
subordinated financing facility providing for borrowings of $130.0 million,
which was fully drawn in connection with the recapitalization. The subordinated
financing facility had a final maturity of October 21, 2008. We used
approximately $129.6 million of the net proceeds of the initial offering of the
outstanding notes plus $0.4 million of cash to fully repay the subordinated
financing facility.
34
Our principal source of liquidity is cash flow generated from operations and
borrowings under our $75.0 million revolving credit facility. Our principal use
of liquidity is to meet debt service requirements, finance our capital
expenditures and provide working capital. We expect that capital expenditures in
1999 will be approximately $26 million, of which approximately $8 million will
be used for maintenance purposes. The balance of the 1999 capital expenditures
will be used for equipment purchases and facility improvements to support new
business awards. Our debt service obligations could have important consequences
to you as a holder of the notes. See "Risk Factors--Our Business May Be
Adversely Impacted as a Result of Our Substantial Leverage."
Our ability to service our indebtedness will depend on our future
performance, which will be affected by prevailing economic conditions and
financial, business, regulatory and other factors. Some of these factors are
beyond our control. We believe that, based upon current levels of operations, we
will be able to meet our debt service obligations when due. Significant
assumptions underlie this belief, including, among other things, that we will
continue to be successful in implementing our business strategy and that there
will be no material adverse developments in our business, liquidity or capital
requirements. If we cannot generate sufficient cash flow from operations to
service our indebtedness and to meet our other obligations and commitments, we
might be required to refinance our debt or to dispose of assets to obtain funds
for such purpose. There is no assurance that refinancings or asset dispositions
could be effected on a timely basis or on satisfactory terms, if at all, or
would be permitted by the terms of the indenture or the senior credit facility.
In the event that we are unable to refinance the senior credit facility or raise
funds through asset sales, sales of equity or otherwise, our ability to pay
principal of, and interest on, the notes would be impaired.
SEASONALITY
French Automotive typically experiences decreased sales and operating income
during the third calendar quarter of each year due to production shutdowns at
OEMs for model changeovers and vacations.
EFFECTS OF INFLATION
Inflation potentially affects us in two principal ways. First, a portion of
our debt is tied to prevailing short-term interest rates which may change as a
result of inflation rates, translating into changes in interest expense. Second,
general inflation can impact material purchases, labor and other costs. While
the contracts with our customers allow us to pass through increases in the price
of aluminum, we do not have the ability to pass through inflation-related cost
increases for labor and other costs. In the past few years, however, inflation
has not been a significant factor.
MARKET RISK
We are exposed to various market risks arising from adverse changes in
market rates and prices, such as foreign currency exchange and interest rates.
We do not enter into derivatives or other financial instruments for trading or
speculative purposes. Our strategy for management of currency risk relies
primarily upon conducting our operations in such countries' respective currency
and we may, from time to time, engage in hedging programs intended to reduce our
exposure to currency fluctuations. The counterparties are major financial
institutions.
We manage our interest rate risk by balancing the amount of our fixed and
variable debt. For fixed rate debt, interest rate changes affect the fair market
value of such debt but do not impact earnings or cash flows. Conversely for
variable rate debt, interest rate changes generally do not affect the fair
market value of such debt, but do impact future earnings and cash flows,
assuming other factors are held constant. At June 30, 1999, all of our debt
other than the outstanding notes was variable rate debt. Holding other variables
constant (such as foreign exchange rates and debt levels), a one percentage
point increase in interest rates would be expected to have an estimated impact
on pre-tax earnings and cash flows for the remainder of the year of
approximately $1.5 million.
35
FOREIGN CURRENCY TRANSACTIONS
A portion of our sales is derived from manufacturing operations in the U.K.
and Spain. The results of operations and the financial position of our
operations in these countries are principally measured in their respective
currency and translated into U.S. dollars. The effects of foreign currency
fluctuations in such countries are somewhat mitigated by the fact that expenses
are generally incurred in the same currencies in which sales are generated. The
reported income of these operations will be higher or lower depending on a
weakening or strengthening of the U.S. dollar against the respective foreign
currency.
Some of our assets are located in foreign countries and are translated into
U.S. dollars at currency exchange rates in effect as of the end of each period,
with the effect of such translation reflected as a separate component of
stockholders' investment. Accordingly, our consolidated stockholders' investment
will fluctuate depending upon the weakening or strengthening of the U.S. dollar
against the respective foreign currency.
YEAR 2000
We are currently working to resolve the potential impact of the year 2000 on
the processing of time-sensitive information by our computerized information
systems. Any of our programs that have time-sensitive software may recognize
"00" as the year 1900 rather than the year 2000. This could result in
miscalculations, classification errors or system failures.
While our various operations are at different stages of Year 2000 readiness,
we have completed our global compliance review. Because we have already made
substantial investments in computerized systems that are Year 2000 compliant, we
do not anticipate any significant readiness problems with respect to our systems
and believe that future costs associated with Year 2000 compliance will be less
than $200,000.
All of our facilities have completed the inventory and assessment of their
internal information technology ("IT") and non-IT systems (including business,
operating and factory floor systems) and are working on remediation, as
appropriate, for these systems. The remediation may include repair, replacement,
or upgrading of specific systems and components, with priorities based on a
business risk assessment. Remediation activities for our internal systems are
substantially complete and contingency plans, as needed, will be completed
before the end of the year.
The most reasonably likely worst case scenario that we currently anticipate
with respect to Year 2000 is the failure of some of our suppliers, including
utilities suppliers, to be ready. This could cause a temporary interruption of
materials or services that we need to make our products, which could result in
delayed shipments to customers and lost sales and profits to us. We have
completed an assessment of our critical suppliers and have made plans to assure
that we will have an adequate supply of materials on hand to cover
contingencies.
The outcome of our Year 2000 program is subject to a number of risks and
uncertainties, some of which (such as the availability of qualified computer
personnel and the Year 2000 responses of third parties) are beyond our control.
Therefore, there can be no assurances that we will not incur material
remediation costs beyond the above anticipated future costs, or that our
business, financial condition, or results of operations will not be
significantly impacted if Year 2000 problems with our systems, or with the
products or systems of other parties with whom we do business, are not resolved
in a timely manner.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," becomes effective for years beginning after June 15, 2000. SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments embedded in
other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge criteria are met. Special accounting for qualifying hedges allow a
derivative's gains or losses to offset related results on the hedged item in the
income statement and requires that a company must formally document, designate
and assess the effectiveness of transactions that receive hedge accounting. We
have not yet quantified the impact of adopting SFAS No. 133 and have not yet
determined the timing or method of adoption.
36
BUSINESS
GENERAL
We are one of the world's largest independent designers and manufacturers of
aluminum die cast components and assemblies for OEMs. Our principal products are
highly-engineered, value-added assemblies, consisting of machined aluminum die
cast components and various fastened parts. Our primary product offerings
include engine and drivetrain components and assemblies such as:
- - oil pans - ladderframes
- - engine front covers - timing chain housings
- - transmission cases - water pump housings
- - cam covers
Our world-class design and manufacturing operations in the United States, the
U.K. and Spain and our sales and service offices throughout the world position
us as a premier full-service global supplier.
We primarily sell to OEMs, with Ford and GM accounting for approximately 58%
and 20% of our 1998 sales, respectively. We are a supplier on more than 20 Ford
models, including many of its highest volume vehicles, such as the F-Series and
Ranger trucks, Explorer and Taurus/Sable, its top four selling vehicles, and the
Expedition, Windstar and Contour/Mystique. We are also a supplier on many of
GM's highest volume vehicles, such as the Silverado and S-10 trucks, Blazer,
Cavalier/Sunfire and Malibu/ Intrigue. In addition, we sell to Tier 1 automotive
suppliers such as Robert Bosch, Delphi Automotive Systems and LucasVarity. We
supply substantially all of the products we sell to our automotive customers on
sole-source basis.
We believe that we are among the lowest cost, most efficient producers of
automotive aluminum die cast components and assemblies in the world. Our low
cost structure and high level of efficiency is driven by our investment in
highly customized equipment, our continuous focus on process improvements and
our vertically-integrated manufacturing operations. The majority of the products
we manufacture require annual volumes in excess of 100,000 units over production
lives as long as seven years. As a result, we are able to continuously modify
our equipment and production processes in order to increase efficiency, while
maintaining high quality standards. We believe that our productivity levels for
high volume castings are among the highest in our industry. In addition, we are
vertically-integrated, possessing the only captive aluminum smelting
capabilities among independent aluminum die casters in North America, which
reduces our material costs, increases our supply base and provides us greater
control over quality. We also possess a broad range of capabilities that include
design and engineering, tool and die making, precision machining, engineered
assembly and testing operations. We believe that we have the most extensive
machining capabilities among independent automotive aluminum die casters,
allowing us to supply highly-engineered, value-added assemblies.
INDUSTRY TRENDS
Our performance and growth is directly related to certain trends within the
automotive market, including increases in aluminum content per vehicle, the
growth of outsourcing, consolidation of the component supply industry and
increases in global sourcing.
INCREASING ALUMINUM CONTENT PER VEHICLE. The average aluminum content per
vehicle in North America increased from 97 pounds in 1977 to 224 pounds in 1998.
The increase in aluminum content per vehicle has created significant
opportunities for the automotive aluminum die casting industry. The factors
driving the growth in demand for cast aluminum parts in the automotive sector
include: (1) the light weight of aluminum; (2) favorable strength-to-weight
ratio of an aluminum cast versus ferrous cast or stamped metal parts; and (3)
aluminum's styling characteristics versus other materials, as seen in products
such as the aluminum wheels introduced over the last five years. However, the
primary driving
37
force behind the growth in aluminum applications in the automotive sector is
vehicle weight reduction. OEMs are replacing ferrous metals, such as iron and
steel, with aluminum as a means of reducing vehicle weight and increasing fuel
efficiency in order to satisfy government mandated fuel economy standards.
OUTSOURCING. In order to improve the efficiency of their core operations of
vehicle assembly, marketing and distribution, OEMs are increasing the percentage
of outsourced components in their manufacturing processes. This outsourcing
trend is evident in the die casting area where the in-house die casting
operations of the OEMs are often inefficient and utilize outdated technology.
OEMs increasingly look to their suppliers to assume the production of parts that
were previously manufactured internally and to perform the additional machining
and assembly functions necessary to make these parts production-line-ready.
SUPPLIER CONSOLIDATION. During the 1990s, OEMs have continued to reduce
their supplier base in certain product segments, awarding sole-source contracts
to full-service suppliers. As a result, OEMs currently work with a smaller
number of full-service suppliers each of which supplies a greater proportion of
the total vehicle. Suppliers with sufficient size, geographic scope and
financial resources are best positioned to be these full service suppliers. For
full-service suppliers such as us, this environment provides an opportunity to
grow by obtaining business previously provided by non full-service suppliers and
by acquiring suppliers that further enhance product, manufacturing and service
capabilities. OEMs rigorously evaluate suppliers on the basis of product
quality, cost control, reliability of delivery, product design capability,
financial strength, new technology implementation, quality and condition of
facilities and overall management. Suppliers that obtain superior ratings are
considered for sourcing new business; while those that do not generally continue
their existing contracts, but normally do not receive additional business.
Although these factors have already resulted in consolidation of component
suppliers in certain segments, we believe that the aluminum die casting industry
is in the early stages of consolidation, providing opportunities for further
consolidation. This is particularly true of the aluminum die casting industry in
Europe, where there are many suppliers in this segment with relatively small
market shares.
GLOBAL SOURCING. Regions such as Asia, Latin America and Eastern Europe are
expected to experience significant growth in vehicle demand over the next ten
years. OEMs are positioning themselves to reach these emerging markets in a
cost-effective manner by seeking to design and produce "world cars" which can be
designed in one vehicle center but produced and sold in many different
geographic markets, thereby allowing OEMs to reduce design costs and take full
advantage of low-cost manufacturing locations. OEMs increasingly are requiring
their suppliers to have the capability to design and manufacture their products
in multiple geographic markets.
LARGE ALUMINUM CASTING CAPABILITY
In response to customer demand, we have expanded our capabilities to include
the production of large die cast components. In December 1996, we were awarded a
contract from Ford to manufacture transmission cases for its F-Series trucks,
the highest volume vehicle sold in North America. The transmission cases weigh
over 45 pounds and are the largest components we manufacture. In order to
produce these large castings, we invested approximately $40 million to expand
our Gateway facility in Sheboygan, Wisconsin by adding 120,000 square feet of
production space and purchasing six new 3,500 ton die casting machines.
We produced our first transmission case for the F-Series truck in November
1997 and reached full production for this component in the second half of 1998,
meeting an accelerated launch schedule established by Ford. In 1998, we produced
approximately 308,000 transmission cases and in 1999 we expect to produce
approximately 580,000 units. As a result of our success with the F-Series truck
transmission case and available capacity at our Gateway facility, Ford awarded
us a contract to supply a
38
portion of the transmission cases for the Ford Ranger truck and Explorer. We are
currently ramping up production for this component and expect to produce
approximately 180,000 units in 1999 and approximately 270,000 units in 2000.
Our demonstrated ability to manufacture large castings solidified our
position as a key supplier to Ford and positioned us for significant new
business with Ford and other OEMs in transmission cases and other large castings
such as engine blocks. We believe only four other independent manufacturers have
the capability to produce these large castings. To accommodate full production
of the Ford Ranger and Explorer transmission cases and other anticipated new
business from Ford and GM, we recently acquired three additional 3,500 ton die
casting machines.
COMPETITIVE STRENGTHS
We possess a number of competitive strengths that have enabled us to meet
the demands of OEMs for fewer, global suppliers and to benefit from aluminum's
continued replacement of other metals in vehicles.
- LOW COST, VERTICALLY-INTEGRATED MANUFACTURER: We believe that our
vertically-integrated operations and highly efficient manufacturing
processes make us the lowest cost manufacturer of high volume, long
production run automotive aluminum die cast components and assemblies in
North America. We are the only independent automotive aluminum die caster
in North America with captive aluminum smelting capabilities, reducing our
material costs. In addition, we have in-house tool and die making
capabilities which support our manufacturing operations. We work closely
with our equipment vendors to design robust, highly customized equipment,
which is specifically adapted to our manufacturing processes. Given our
focus on high volume, long production run products, we are able to
continuously enhance the efficiency of our equipment and improve our
manufacturing processes, which has resulted in industry leading
productivity, as measured by factors such as faster cycle times and
reduced scrap rates and equipment down time.
- VALUE-ADDED MANUFACTURING SERVICES: We believe that we have the most
extensive machining and assembly capabilities among independent automotive
aluminum die casters. These services increase the value-added content of
our products and allow us to deliver production-line-ready components and
assemblies, which are increasingly required by OEMs. We machined and
assembled approximately 80% of the products we manufactured in North
America in 1998. Since many of our competitors have limited machining and
assembly capabilities, our capabilities provide us with a competitive
advantage with respect to service and quality and enhance our
profitability.
- BROAD RANGE OF GLOBAL MANUFACTURING CAPABILITIES: The breadth of our
global manufacturing capabilities enables us to compete for virtually any
automotive aluminum die casting business in the world. We produce
components and assemblies ranging in weight from 0.5 to nearly 50 pounds
with aluminum die casting machines that range in size, as measured in
lock-up force, from 120 to 3,500 tons. With the acquisitions of Morris
Ashby and Ansola, we now have the capability to design, engineer and
manufacture in Europe as well as North America. Our global manufacturing
capabilities represent a competitive advantage, as only a few suppliers
can meet the full aluminum die casting requirements of OEMs and only one
other independent supplier can meet these requirements globally.
- ADVANCED PRODUCT DESIGN AND ENGINEERING CAPABILITIES: Our extensive design
and engineering capabilities have resulted in strong, collaborative
customer relationships that typically begin when we provide input on the
engineering of new or redesigned products. In 1997, Ford awarded us its
Full-Service Supplier Status, which acknowledged our contribution to
Ford's design and engineering process and solidified our continued
involvement in design-stage engineering
39
projects. Our Full-Service Supplier Status contributed to our selection by
Ford to participate in the design process for the new I4/I5 world engine
platform for Ford and Mazda. Over the last five years, we have not lost a
production order relating to any product for which we were the design
source.
- WELL POSITIONED ON HIGH VOLUME PRODUCT PLATFORMS: We are a supplier on
many of the highest volume product platforms, including the top three and
12 of the top 20 selling vehicles in the U.S. in 1998. In addition, we
believe that approximately half of our 1998 North American sales were
derived from products manufactured for light vehicles. In recent years,
light vehicles have experienced greater sales growth than passenger cars.
High volume light vehicle platforms and models on which we have content
include the Ford F-Series and Ranger trucks, Explorer, Expedition and
Windstar and the GM Silverado and S-10 trucks and Blazer. We also supply
products for high volume passenger cars including Ford's Taurus/Sable and
Contour/Mystique and GM's Cavalier/Sunfire and Malibu/Intrigue.
- INDUSTRY LEADING PRODUCT QUALITY: Our customers recognize us for our high
product quality and low levels of defective parts. Quality control begins
during the smelting process with metallurgic analysis and continues
through the manufacturing, machining and assembly processes through visual
and automated quality inspections. During 1998, we produced finished
aluminum die cast components and assemblies with less than 44 defective
parts per million, which we believe is among the lowest defect rates in
the automotive aluminum die casting industry. Our facilities in the United
States are ISO 9001 and QS-9000 certified and our facilities in the U.K.
and Spain are ISO 9000 and QS-9000 certified. We are a Ford Q1 supplier
and a GM S.P.E.A.R.1 supplier.
- PROVEN MANAGEMENT TEAM: Our management has a proven track record of
achieving profitable growth and significant industry experience. Our sales
increased from $114.1 million in 1994 to $295.7 million in 1998,
representing a 26.9% compound annual growth rate. Over the same period, we
have consistently maintained EBITDA margins above 26%. The 18 most senior
members of our management average over 20 years of experience in the
automotive industry and our chief executive officer, Charles M. Waldon,
has over 30 years of experience in the automotive aluminum die casting
industry.
BUSINESS STRATEGY
Our strategic objective is to become the leading global supplier of aluminum
die castings to OEMs. With the acquisitions of Morris Ashby and Ansola, we have
the capability to globally manufacture a complete range of automotive aluminum
die cast engine and drivetrain components and assemblies. Key elements of our
strategy include the following:
- CONTINUE TO INCREASE LARGE ALUMINUM CASTING BUSINESS: We invested
approximately $40 million in our Gateway facility over the past two years
in order to meet Ford's need for a high quality, reliable supplier of
transmission cases for its F-Series trucks. As a result of our success in
meeting Ford's accelerated launch schedule for these transmission cases,
we were awarded transmission case business for the Ford Ranger and
Explorer. We believe that we are well positioned to meet the demands of
Ford, GM and other OEMs for larger aluminum castings, including additional
transmission cases and engine blocks.
- MAXIMIZE PROFITABILITY OF ACQUIRED OPERATIONS: We believe that significant
operating improvements remain to be realized at Morris Ashby and Ansola
and we have implemented several initiatives to maximize the profitability
of these operations. In order to concentrate on our core, higher margin
automotive business, we are phasing out the non-automotive aluminum die
castings
40
manufactured at Morris Ashby and Ansola, which represented approximately
6% of our 1998 sales. Other major initiatives currently underway at Morris
Ashby and Ansola include:
- Improving cycle times to levels currently experienced at J.L. French,
which would represent an estimated 30% improvement from current levels;
- Increasing machining and assembly operations to levels currently
performed at J.L. French, which will increase the value-added content
of their products; and
- Manufacturing products for new European business, which historically
would have been produced at J.L. French, at Morris Ashby and Ansola,
which is expected to increase capacity utilization at their operations.
- PURSUE CONTINUOUS OPERATING IMPROVEMENTS: We continuously seek to enhance
our manufacturing equipment and processes to maximize throughput, product
quality and timeliness of delivery and to minimize scrap and equipment
down time. Utilizing the expertise of our manufacturing and engineering
personnel, we regularly upgrade our production equipment and processes
through substantial investments in both new equipment and modifications of
existing equipment. The machinery used throughout our manufacturing
processes is robust and highly customized and, in conjunction with our
maintenance program, allows us to operate with faster cycle times and to
reduce scrap rates and equipment down time. This operating philosophy has
allowed J.L. French to achieve productivity levels across all product
lines that we believe are significantly higher than those of our
competitors.
- ESTABLISH RELATIONSHIPS WITH NEW CUSTOMERS: We seek to diversify our
customer base and increase volume by selectively pursuing relationships
with new customers. Historically we have focused on strengthening our
relationships with Ford and GM. As we continue to expand globally and
increase the range of castings we produce, we actively pursue
relationships with other global OEMs. For example, we recently obtained
our first firm order from Audi.
- DESIGN AND ENGINEER HIGH VALUE-ADDED ASSEMBLIES: Our technical design and
engineering capabilities and our efficient manufacturing operations enable
us to secure sole-source relationships for large, highly-engineered
products, primarily assemblies that require machining and attachment of
various parts. These products typically represent higher dollar content
per vehicle and generate higher margins than non-machined or assembled
components.
- CONTINUE TO DEVELOP GLOBAL SUPPLY CAPABILITIES: In 1998, over 70% of total
worldwide passenger vehicle production occurred outside North America. To
meet OEMs' increasing preference for full-service suppliers with global
capabilities, we expanded our manufacturing operations into new geographic
markets through our strategic acquisitions of Morris Ashby and Ansola.
Continued global expansion is fundamental to our strategy of becoming the
leading supplier of aluminum die cast assemblies for OEMs world-wide. We
anticipate that our future international expansion will occur in Latin
America, the Asia-Pacific region and Europe.
- PURSUE STRATEGIC ACQUISITIONS: We compete in a growing, highly fragmented,
worldwide market that provides numerous potential acquisition
opportunities. Together with Hidden Creek, we have substantial experience
in completing and integrating acquisitions within the automotive supply
industry and believe that this experience helps us select and pursue
acquisition opportunities that meet our criteria of: (1) broadening our
geographic coverage and strengthening our ability to supply products on a
global basis; (2) adding new customers; (3) increasing both the number of
models for which we supply products and the content level on existing
models; and (4) providing additional and complementary product,
manufacturing and technical capabilities.
41
PRODUCTS
The following table sets forth the percentage of sales derived from the sale
of certain products in 1998:
PERCENTAGE OF SALES BY PRODUCT CATEGORY
YEAR ENDED
PRODUCT CATEGORY DECEMBER 31, 1998
- --------------------------------------------------------------------------- ---------------------
Medium to Large Automotive Aluminum Die Castings
Oil Pans................................................................. 33%
Engine Front Covers...................................................... 14%
Transmission Cases....................................................... 8%
Ladderframes............................................................. 2%
Timing Chain Housings.................................................... 2%
Cam Covers............................................................... 2%
Water Pump Housings...................................................... 1%
Small Automotive Aluminum Die Castings..................................... 17%
Tooling.................................................................... 15%
Other Products............................................................. 6%
---
Total.................................................................... 100%
---
---
Set forth below is a brief description of our principal products and their
applications:
OIL PANS. An aluminum oil pan is attached to the engine block for the
primary purpose of serving as a reservoir for oil used in the lubrication of
engine galleries and bearings. The oil pan is an example of a product that was
at one time inexpensively stamped from steel but has been converted to a higher
cost aluminum casting due to the multiple benefits provided by aluminum.
Aluminum oil pans offer several significant benefits which offset their higher
cost, including: (1) better sealing characteristics; (2) greater structural
integrity; (3) better harmonics resulting in reduced vibration and a quieter
engine; and (4) better heat dissipation characteristics. In 1998, we produced,
on average, over 14,000 oil pans per day. Oil pans range in weight from five to
12 pounds.
ENGINE FRONT COVERS. The engine front cover bolts over the crankshaft
snout, holding the oil seal at the front of the crankshaft in place. In 1998, we
produced, on average, over 9,500 engine front covers per day. Engine front
covers range in weight from four to eight pounds.
TRANSMISSION CASES. The transmission case houses the clutches, bands,
gearsets and inner ends of the transmission shafts. We began producing
transmission cases in November 1997 and reached our current level of production
in the second half of 1998. In 1999, we expect to produce, on average, over
2,000 transmission cases per day. Such transmission cases weigh over 45 pounds.
LADDERFRAMES. The ladderframe is an intermediate structure between the
engine block and a stamped-steel oil pan. It provides similar structural
integrity and harmonics characteristics as an aluminum oil pan. Its design
incorporates a windage baffle which protects the lubrication of the crankshaft,
replacing a stamped steel component. We began production of ladderframes in
1998. In 1998, we produced, on average, 500 ladderframes per day. Ladderframes
weigh approximately 11 pounds.
TIMING CHAIN HOUSINGS. The timing chain housing bolts over the crankshaft
snout, holding in place the oil seal at the front of the crankshaft. The timing
chain housing is similar to an engine front cover, except that it is used in
engines that have a gear or chain type crankshaft drive. In 1998, we
42
produced, on average, over 1,000 timing chain housings per day. Timing chain
housings weigh approximately six pounds.
CAM COVERS. The cam cover is the overhead housing for the camshaft. In
1998, we produced, on average, over 500 units per day. Cam covers range in
weight from seven to eight pounds.
WATER PUMP HOUSINGS. The water pump housing forms the main body of the
water pump, a mechanism that forces water through the engine block, cylinder
head, intake manifold, hoses and radiator. In 1998, we produced, on average,
over 2,000 water pump housings per day. Water pump housings weigh approximately
three pounds.
SMALL AUTOMOTIVE ALUMINUM DIE CASTINGS. As a result of our acquisitions of
Morris Ashby and Ansola, we generated approximately 17% of our 1998 sales from
production of over 150 small automotive aluminum die cast components (generally
weighing less than three pounds).
TOOLING. We generated approximately 15% of our 1998 sales from aluminum die
cast tooling in connection with our sales of aluminum die castings, as well as
directly to third parties.
OTHER PRODUCTS. Also as a result of our acquisitions of Morris Ashby and
Ansola, we generated approximately 6% of our 1998 sales from non-automotive
aluminum die cast components, primarily small home appliances and white goods
parts. We intend to phase-out all non-automotive product offerings over the next
two to three years.
CUSTOMERS AND MARKETING
The North American automotive market is dominated by GM, Ford and
DaimlerChrysler, with Japanese and other foreign manufacturers accounting for
approximately 20% of the market. Our principal customers include OEMs, Tier 1
automotive suppliers and, to a lesser extent, European white good manufacturers.
Approximately 78% of our 1998 sales were derived from OEMs, largely Ford and GM,
which we supply on a global basis. Our second largest category of customers is
Tier 1 automotive suppliers, such as ACD Trident, Boge, Robert Bosch, Breed
Technologies, Continental, Delphi Automotive Systems, Happich, LucasVarity,
Knorr Brense, Nastech and Phoenix. Sales to these customers are made principally
through our European operations and represented approximately 16% of our 1998
sales.
The following is a summary of our significant customers for each of our last
three years:
YEAR ENDED DECEMBER 31,
-------------------------------------
CUSTOMER 1996 1997 1998
- ------------------------------------------------------------------------- ----- ----- -----
Ford..................................................................... 58% 60% 58%
GM....................................................................... 42% 39% 20%
Tier 1 Suppliers......................................................... -- -- 16%
Other.................................................................... -- 1% 6%
--- --- ---
Total.................................................................. 100% 100% 100%
--- --- ---
--- --- ---
43
In 1998, more than 70% of total worldwide passenger vehicle production
occurred outside of North America. Largely as a result of our acquisitions of
Morris Ashby and Ansola, we derive a significant amount of our sales from
outside of North America. Set forth below is a summary of our 1998 sales to
customers located in the following geographic regions:
YEAR ENDED
REGION DECEMBER 31, 1998
- --------------------------------------------------------------------------- ---------------------
North America.............................................................. 63%
Europe..................................................................... 36%
Other...................................................................... 1%
---
Total.................................................................... 100%
---
---
Our customers award contracts for a particular car or truck platform, which
may include more than one model. Such contracts range from one year to the life
of the platform, which is generally three to seven years, and do not require the
purchase by the customer of any minimum number of units.
The following table presents an overview of the major models for which we
have orders to supply products on current vehicles:
CUSTOMER COMPONENT OR ASSEMBLY VEHICLE
- ---------------------------- ------------------------------- -------------------------------
OEMS:
Ford...................... Oil Pan Escort/Tracer
2.5L Modular Oil Pan Contour/Mystique, Ranger, Mazda
3.8/4.2L Oil Pan Mustang, F-Series, Windstar
4.6L 4V Cam Cover Mustang, Continental
3.8/4.2L Front Cover Mustang, F-Series, Windstar
3.0L Front Cover Taurus/Sable
3.8/4.2L Water Pump Housing Mustang, F-Series, Windstar
3.0L Oil Pan Taurus/Sable
4.6/5.4/6.8L Front Cover Mustang, Town Car, Grand
Marquis/Crown Victoria, F-
Series
Transmission Case F-Series
Transmission Case Ranger/Explorer
Zeta Oil Pan Mondeo, Contour/ Mystique,
Fiesta/Ka
Sigma Oil Pan Fiesta/Ka
1.3L HCS Oil Pan Escort, Fiesta/Ka
Zetec Ladderframe Mondeo, Contour/ Mystique,
Fiesta/Ka
2.0/2.4/3.0L Cam Carrier Light truck diesel engine
Brackets Various
Bearing Caps Various
Ford (Hungary, Brazil).... Housing for 1.1-2.9 KW starter Various
motors
44
CUSTOMER COMPONENT OR ASSEMBLY VEHICLE
- ---------------------------- ------------------------------- -------------------------------
Ford (Portugal)........... Housing for airbag electronic Various
control units
Ford (Spain).............. Bottom covers and heatsinks for Various
electronic systems
Ford (Jaguar)............. Cam covers Various
Fascia panels (ashtrays) Various
GM........................ 3.1L Oil Pan Century, Regal, Skylark,
Lumina, Cutlass, Achieva, Grand
Prix, Grand Am, Malibu, Monte
Carlo, Intrigue
2.4L Timing Chain Housing Cavalier, Achieva, Skylark,
Grand Am, Sunfire
4.3L Oil Pan Van, Sports Van, Blazer, Astro,
GMT800, S-10, GMC Jimmy,
Vandura, Safari, Bravada
3.8L Oil Pan Camaro, Firebird, Riviera, Park
Avenue, Century, Regal
TIER 1 SUPPLIERS:
ACD Trident............... Motor subassembly components Various
Boge...................... Vibration control cast mounts Various
for engines
Breed Technologies........ Self-return safety belt Various
spoolers
Delphi Automotive Steering system housings and Various GM
Systems................. engine covers
Happich................... Roof rack center brackets Various Opel and Mercedes
Knorr Brense.............. Braking systems Various heavy trucks
LucasVarity............... Housings Various
Nastech................... Steering column components Various Volkswagen
Phoenix................... Drive-shaft control mounts Various
Phoenix, Continental...... Vibration-control cast mounts Opel Astra
for engines and gear boxes
Robert Bosch.............. Electronic circuit housings Various
(ABS, Airbag, etc.)
We typically pursue new business opportunities that have the three key
characteristics summarized below:
- HIGH VOLUME PRODUCTION, LONG PRODUCTION RUNS. Production runs for our
targeted parts typically last seven years with desired production ranging
from 16 to 24 hours a day, five to six days a week.
45
- HIGHLY-ENGINEERED COMPONENTS WITH EXTENSIVE MACHINING AND ASSEMBLY
REQUIREMENTS. Components requiring extensive machining operations and
engineered assembly provide the opportunity for enhanced profitability
because of the strength and efficiency of our machining and assembly
operations. Our ability to deliver production-line-ready components
enhances our role in the production process while increasing our
importance to OEMs.
- SOLE SOURCE SUPPLY RELATIONSHIPS. We typically do not pursue contracts
which involve more than one supplier or internal OEM competition.
DESIGN AND ENGINEERING SUPPORT
We work with our customers' engineering and development teams at the
beginning of the design process for new components and assemblies or the
redesign process for existing components and assemblies in order to maximize
production efficiency and quality. These processes may take place from one to
five years prior to the commencement of production. On average, development of a
new component takes 12 to 24 months during the design phase, while the
re-engineering of an existing part may take from one to six months, depending on
the extent of the redesign. Early design involvement can result in a product
that meets or exceeds the customer's design and performance requirements and is
more efficient to manufacture. In addition, our involvement enhances our
position for bidding on such business.
Consistent with our value-added engineering focus, we have developed strong
relationships with the engineering departments of our customers. These
relationships not only help identify new business opportunities, but also enable
us to compete based on the quality of our products and services, rather than
exclusively on price.
We are currently involved in the design stage of several products for our
customers and will begin production of these products in the years 2000 to 2002.
For example, we are presently working with engineers at Ford and Mazda to design
the new I4/I5 world engine platform. Following full ramp up, we expect our sales
from this engine platform to be nearly $20.0 million per year.
MANUFACTURING
The entire production process from aluminum scrap or ingot to
production-line-ready aluminum die cast product typically takes under four
hours, depending upon the amount of machining and assembly associated with the
particular component. Although our production facilities currently utilize
slightly different processes, we are establishing uniform processes to elevate
the efficiency of Morris Ashby and Ansola to that of J.L. French.
OPERATIONS MANAGEMENT. We are in the process of implementing operations
management systems at Morris Ashby and Ansola which will closely resemble the
systems utilized by our North American operations. J.L. French uses a system
which enables management to track its production and costs every two hours.
Inefficiencies in production are detected and remedied quickly. Similarly,
factory workers are highly incentivized to operate efficiently. Workers are
evaluated based on their production rate for completed salable components and
are monitored for inefficient production or the production of defective
components.
Morris Ashby and Ansola use cellular manufacturing techniques. This
product-specific method enables the operator to obtain timely information about
components being produced in the machine cell, leading to rapid responses to
problems. Production at Morris Ashby is controlled through the use of
proprietary software programs, which monitor each production operation. This
PC-based system monitors up to 25 critical parameters during each cycle,
compares the results to preset parameters and instructs the robotic extractor to
segregate any castings that are produced outside the process
46
parameters for further analysis. Information on parameters is accumulated for
future use to correct problems, improve efficiency and implement process
designs.
ALUMINUM SMELTING. J.L. French's manufacturing process begins with the
smelting of aluminum. Smelting is the process of refining metal and altering its
chemical composition by adding or removing elements. By having this expertise
in-house, J.L. French is able to purchase lower grade, less expensive, scrap
aluminum and refine it to a level suitable for high quality aluminum die
castings. The potential financial benefit of adding secondary smelting
capabilities at Morris Ashby and Ansola is currently being reviewed. These
operations currently melt purchased 380 grade aluminum for use in manufacturing.
CASTING PROCESS. Once the aluminum has been melted and properly formulated,
die cast products are made primarily by using the high pressure die casting
process, which is most commonly used for high volume, thin-wall applications. In
this process, molten aluminum alloy is "shot" into a mold. Pressure of up to
20,000 pounds per square inch is applied to the aluminum within the die to
maximize consistency and to eliminate air pockets. The aluminum is then quickly
cooled and solidified. The casting is then removed from the die and the process
is repeated. This process from molten aluminum to solidified casting represents
one cycle.
Once the castings have cooled, excess aluminum is trimmed from the
component's edges and recycled for remelting and use in another casting. The
"cast and trimmed" component is then visually inspected. If the component passes
this test, it is ready for shot blasting, a process whereby the exterior
surfaces of the component are blasted with steel shot to remove any sharp edges.
Cast and trimmed components are gauged and leak tested prior to shipment. We
sell some cast and trimmed components, but generally seek to perform additional
machining and assembly to yield a higher profit margin.
The large casting operations at J.L. French and a significant portion of the
operations at Morris Ashby and Ansola use robotics. The benefits of robotics
include: (1) the ability to operate in a high temperature or otherwise inclement
environment; (2) the ability to handle larger castings without fatigue; (3)
consistency of performance; and (4) labor savings. Management selectively
determines which operations should incorporate robotics based on a cost/benefit
analysis.
MACHINING. We utilize a mix of specially designed dedicated machining
centers and computer numerically controlled ("CNC") machines in our machining
operations. Because of its concentration on high volume programs, J.L. French
uses mostly dedicated machining centers while Morris Ashby and Ansola use CNC
machines, some of which are dedicated to a specific product. Machining
capabilities differ by facility, but generally our machining capabilities
include: face milling; bore and ream; drill and ream; drill and tap; drill, ream
and burnish; hollow milling; contour milling; slit sawing; rotary grinding and
routing.
TESTING. Most of our machined parts are subjected to a pressurized leak
test and measured on a virtual condition gauge to determine functionality on key
features. On a sample basis, some parts undergo destructive testing to determine
mechanical strength at critical points.
ASSEMBLY. During 1998, we performed machining and assembly operations on
approximately 80% of our products manufactured in North America. In addition,
our European operations are increasingly performing assembly operations on
manufactured components. During the assembly process, purchased parts such as
drain plugs, screws, helicoils and gaskets are assembled onto the cast part.
Once assembled, all parts are again visually inspected. Part numbers and bar
codes are then applied before the part is shipped to the customer. Management
believes that our extensive and efficient machining and assembly capabilities
are a core competency which provides us with an advantage over our competitors,
many of which do not offer machining and assembly services.
47
PRODUCT DELIVERY. As a Tier 1 supplier, we are responsible for
manufacturing our products on a just-in-time basis. Shipments are generally made
by common carrier, as arranged by the customer. To facilitate this delivery
system, we utilize direct computer links to our customers. This on-line, real
time capability enables us to meet just-in-time manufacturing requirements and
to minimize inventories, carrying costs and fixed costs for OEMs and ourselves.
QUALITY. We believe that we are one of the highest quality manufacturers in
the automotive aluminum die casting industry and that the number of defective
parts per million pieces shipped to our customers is among the lowest in the
industry. The strength of our overall design, production and delivery
capabilities is reflected in the supplier quality ratings received from our
major customers. J.L. French holds Ford's Q1 award and GM's S.P.E.A.R.1. Since
receiving these initial awards, we have successfully maintained our quality
ratings, which are subject to annual review, by meeting our customers' specific
standards and performance parameters, including maximum allowable defective
parts per million. Retention of Q1 and S.P.E.A.R.1 status is instrumental in
obtaining new business and maintaining existing programs with our customers. In
addition to customer quality recognition, each of our operations are ISO and QS
certified, which is required to be a Tier 1 supplier.
COMPETITION
The aluminum die casting industry is highly competitive and fragmented. We
principally compete for new business at the beginning of the development of new
models and upon the redesign of existing models. New model development generally
begins two to five years before marketing of such models to the public. Once a
producer has been designated to supply parts for a new program, an OEM usually
will continue to purchase those parts from the designated producer for the life
of the program. Competitive factors in the market for our products include
product quality and reliability, cost, timely delivery, technical expertise and
development capability, new product innovation and customer service. Our major
competitors are Ryobi Die Casting (USA), Inc., Nelson Metal Products, Global
Technologies, Amcan, Toralcast, Bocar/Auma and Ganton Technologies, as well as
the internal aluminum casting operations of GM and DaimlerChrysler.
RAW MATERIALS AND SUPPLIERS
Our principal raw material is aluminum. We deal with a number of aluminum
suppliers and brokers and limit our dealings to parties who have consistently
delivered aluminum which meets specified levels of quality and grade. As
commodities, aluminum scrap and ingot can be purchased from any of a number of
sources with relatively small differences in price between suppliers.
Due to its large production volume, J.L. French has the necessary scale to
economically operate a captive secondary aluminum processing operation at each
of its two plants. We purchase less costly scrap aluminum and off-grade aluminum
ingot and refine the metal to the required specifications. Unlike our
competitors who lack the ability to upgrade aluminum alloy, J.L. French's
secondary aluminum smelting capability enables it to lower raw material costs
and to control the quality of its processed aluminum. J.L. French has the
capacity to process and upgrade up to 110 million pounds of aluminum per year,
which currently exceeds its production requirements.
Our contracts with customers typically provide for price adjustments related
to changes in the cost of aluminum alloy, as quoted on the London Metals
Exchange. With respect to Ford and GM, these adjustments are made every two and
three months, respectively. As a result, we have limited exposure to aluminum
market price fluctuations. In late 1997, Ford implemented an initiative in the
United States whereby it seeks to reduce its exposure to aluminum price
volatility through forward purchases on behalf of its suppliers. Since March
1998, J.L. French has sourced approximately half of its aluminum scrap
requirements for Ford at a fixed price from a source selected by Ford.
48
In the process of manufacturing production-line-ready parts, we must
purchase certain sub-components from manufacturers specified by our OEM
customers, including helicoils, drain plugs and gaskets. We seek competitive
bids on the parts we purchase if two potential Tier 2 manufacturers of the part
are each approved as a supplier to the OEM.
We employ just-in-time manufacturing and sourcing systems to meet customer
requirements for faster deliveries and to minimize our need to carry significant
inventory levels. We have not experienced any significant shortages of raw
materials and normally do not carry inventories of raw materials or finished
products in excess of those reasonably required to meet production and shipping
schedules.
EMPLOYEES
As of June 30, 1999, we had approximately 2,000 employees. Overall,
approximately 11% of our employees are salaried and the balance are hourly.
While none of the employees at our J.L. French operations are unionized, several
of Morris Ashby's and Ansola's operations either recognize a union or have
employees that are members of unions as individuals.
PROPERTIES
Our corporate office is located in Minneapolis, Minnesota and our operating
headquarters is located at the Taylor Drive facility in Sheboygan, Wisconsin.
The following table provides information regarding our principal facilities:
APPROXIMATE
LOCATION TYPE SQUARE FOOTAGE INTEREST
- -------------------------------------------------- ----------------------------------- -------------- ---------
Sheboygan, Wisconsin.............................. Operating Headquarters/Die Casting 260,000 Owned
Plant (Taylor Drive)
Sheboygan, Wisconsin.............................. Die Casting Plant (Gateway) 240,000 Owned
Witham, England................................... Administrative/Die Casting Plant 125,000 Leased
Presteigne, Wales................................. Die Casting Plant 55,000 Owned
Cheshunt, England................................. Die Casting Plant 45,000 Leased
Birmingham, England............................... Die Casting Plant 8,000 Owned
Brighouse, England................................ Toolmaking Plant 4,000 Owned
San Andres de Echevarria, Spain................... Administrative/Die Casting Plant 54,000 Owned
We also have sales and service offices located in Ashland, Ohio; Dearborn,
Michigan; Chihuahua and Ramos, Mexico; Sao Paulo, Brazil; Bridgend, England;
Valencia, Spain; Cologne and Dusseldorf, Germany; and Hiroshima, Japan.
We believe that substantially all of our property and equipment is in good
condition and that we have sufficient capacity to meet our current manufacturing
needs. Utilization of our facilities varies with North American and European
light vehicle production and general economic conditions in such regions. All of
our properties in the United States and the U.K. are pledged as collateral to
secure the repayment of our senior credit facility.
LEGAL PROCEEDINGS
From time to time, we are involved in various disputes and litigation
matters that arise in the ordinary course of business. The litigation process is
inherently uncertain and it is possible that the resolution of these disputes
and lawsuits could have a material adverse effect on us. We believe,
49
however, that the ultimate resolution of any pending litigation, individually or
in the aggregate, will not have a material adverse effect on us.
ENVIRONMENTAL MATTERS
We are subject to the requirements of federal, state, local and foreign
environmental and occupational health and safety laws and regulations. We cannot
assure you that we are at all times in complete compliance with all such
requirements. Although we have made and will continue to make capital and other
expenditures to comply with environmental requirements, we do not expect to
incur material capital expenditures for environmental controls in 1999 or 2000.
Certain of our operations generate hazardous substances and wastes. If a release
of hazardous substances occurs on or from our properties or any associated
offsite disposal location, or if contamination is discovered at any of our
current or former properties, we may be held liable, and the amount of such
liability could be material.
We plan to remove an underground storage tank and address associated
contamination at our Presteigne, U.K. facility. We are also studying how to
upgrade the drainage systems at our Cheshunt, U.K. facility and address
petroleum contamination that may be associated with past drainage. The cost of
these matters is currently not expected to be material, unless contamination is
discovered that is much more extensive than has been estimated by our
environmental consultants.
As part of our acquisition of Ansola, the sellers of Ansola agreed to
indemnify us, subject to certain limitations, for environmental liabilities
resulting from the sellers' operation of Ansola, including a specific indemnity
for clean up of certain areas of contamination identified at the San Andres de
Echevarria, Spain facility during our due diligence. An escrow was established
in the amount of 230 million pesetas (about $1.6 million) to secure the sellers'
environmental and other indemnification obligations. The escrow decreases in
steps beginning in April 1999 and expires in July 2003. In light of the
decreasing escrow, we plan to address the areas of contamination in 1999 and
obtain indemnification from the sellers. We cannot assure you that the sellers
will have the ability to indemnify us for amounts exceeding the escrow.
50
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to our
directors, executive officers and key employees as of June 30, 1999:
NAME AGE PRINCIPAL POSITION(S)
- ----------------------------------------------------- --- -----------------------------------------------------
S. A. ("Tony") Johnson............................... 59 Chairman and Director
Charles M. Waldon.................................... 50 President, Chief Executive Officer and Director
Thomas C. Dinolfo.................................... 49 Treasurer and Chief Financial Officer
Paul Buckley......................................... 54 Managing Director of Morris Ashby
Juan Manuel Orbea.................................... 47 General Manager of Ansola
Donald W. Porritt.................................... 50 Director of Corporate Business Development
Lowell Shoaf......................................... 55 Technical Director
Stephen Southern..................................... 52 Director of Worldwide Sales and Marketing
Robert H. Barton III................................. 66 Director
Dugald K. Campbell................................... 52 Director
A. Kipp Koester...................................... 61 Director
John E. Lindahl...................................... 54 Director
Carl E. Nelson....................................... 39 Vice President, Secretary and Director
Eric J. Rosen........................................ 38 Director
Karl F. Storrie...................................... 61 Director
S. A. ("TONY") JOHNSON has served as Chairman and a Director of French
Automotive since the recapitalization. Mr. Johnson is the founder, Chief
Executive Officer and President of Hidden Creek. Mr. Johnson is also a general
partner of J2R Partners III. Prior to forming Hidden Creek, Mr. Johnson served
from 1985 to 1989 as Chief Operating Officer of Pentair, Inc., a diversified
industrial company. Mr. Johnson served as Chairman and a director of Automotive
Industries Holding, Inc., a supplier of interior trim components to the
automotive industry, from May 1990 to August 1995. Mr. Johnson is also Chairman
and a director of Tower Automotive, Inc., a leading designer and producer of
structural components and assemblies for the global automotive industry, and
Dura Automotive Systems, Inc., a manufacturer of driver control systems, window
systems and door systems for the global automotive industry.
CHARLES M. WALDON has served as President, Chief Executive Officer and a
Director of French Automotive since April 1996. Mr. Waldon joined J.L. French in
1983 and became Executive Vice President--Manufacturing in 1987. Prior to
joining J.L. French, Mr. Waldon was employed for 16 years by GM in its aluminum
die castings operations in Bedford, Indiana.
THOMAS C. DINOLFO has served as Treasurer and Chief Financial Officer of
French Automotive since April 1996. Before joining J.L. French, Mr. Dinolfo was
associated with Crucible Materials Corporation for ten years as Corporate
Controller and, prior to that time, was employed by KPMG Peat Marwick.
PAUL BUCKLEY has served as the Managing Director of Morris Ashby since 1996.
Mr. Buckley joined Morris Ashby in 1976 as an assistant to the General Manager.
Prior to joining Morris Ashby, Mr. Buckley was the service manager for USI
Engineering, a manufacturer of the Vertacast die casting machine. He has served
as National President of the Die Casting Society, and is currently serving as
the National Executive of the Light Metal Founders Association, the trade body
of die casting in the United Kingdom.
JUAN MANUEL ORBEA has served as the General Manager of Ansola since 1977.
From 1993 until 1998, Mr. Orbea served as Chairman of the Spanish Technical
Association for the Development of Pressure Casting.
51
DONALD W. PORRITT has served as Director of Corporate Business Development
of French Automotive since October 1998. From 1993 through October 1998, Mr.
Porritt served as Vice President of Operations at Nelson Metal Products. From
1984 through 1993, Mr. Porritt was Secondary Operations Manager at J.L. French.
Prior thereto, Mr. Porritt was employed for 10 years by GM in its aluminum die
castings operations in Bedford, Indiana.
LOWELL SHOAF has served as Technical Director of French Automotive since
June 1998. Before joining J.L. French, Mr. Shoaf was the International
Engineering Manager for Bocar S.A. de C.V., Mexico from 1991 to 1997. Prior to
that time, Mr. Shoaf served as Vice President of Engineering at J.L. French from
1989 to January 1991.
STEPHEN SOUTHERN has held the position of Director of Worldwide Sales and
Marketing of French Automotive since he joined J.L. French in 1986. Previously,
Mr. Southern worked for Madison-Kipp Corporation for four years, and for GM in
its aluminum die castings operations in Bedford, Indiana for 17 years.
DUGALD K. CAMPBELL has served as a Director of French Automotive since May
1999. Mr. Campbell has also served as President, Chief Executive Officer and a
Director of Tower Automotive since December 1993. From 1991 to 1993, Mr.
Campbell served as a consultant to Hidden Creek. From 1988 to 1991, he served as
Vice President and General Manager of the Sensor Systems Division of Siemens
Automotive, a manufacturer of engine management systems and components. From
1972 to 1988, Mr. Campbell held various executive, engineering and marketing
positions with Allied Automotive, a manufacturer of vehicle systems and
components and a subsidiary of AlliedSignal, Inc.
ROBERT H. BARTON III has served as a Director of French Automotive since
1996. Mr. Barton was elected Chairman of French Holdings, Inc. in October 1996
and Chairman and Chief Executive Officer of American Bumper & Mfg. Co. in April
1997. Mr. Barton was Chief Executive Officer of Alcoa Fujikura Ltd. from May
1984 to December 1996. He currently serves on the Board of Directors of and as
senior advisor of Alcoa Fujikura Ltd., and serves on the Board of Directors of
HCC Industries, Inc. and American Bumper & Mfg. Co.
A. KIPP KOESTER has served as a Director of French Automotive since the
recapitalization. Mr. Koester has served as a Managing Director of Northwestern
Investment Management Company (a Northwestern Mutual Company) since January
1998. From July 1987 through December 1997, Mr. Koester was a vice president at
The Northwestern Mutual Life Insurance Company.
JOHN E. LINDAHL has served as a Director of French Automotive since the
recapitalization. Mr. Lindahl is the Managing General Partner of Norwest Equity
Partners. Prior to joining Norwest Equity Partners in 1984, Mr. Lindahl was with
Norwest Bank for 15 years, where he managed the bank's manufacturing and
electronics group, natural resources group and was a senior vice president in
charge of middle market lending activities.
CARL E. NELSON has served as a Director, Secretary and Vice President of
French Automotive since the recapitalization. Mr. Nelson has served as a Vice
President of Hidden Creek since 1995 and as the Controller of Hidden Creek since
June 1992. Mr. Nelson is also a general partner of J2R Partners III. From 1982
to 1992, Mr. Nelson was employed by Arthur Andersen LLP. Mr. Nelson is also a
Vice President of Tower Automotive, Inc. and Dura Automotive Systems, Inc.
ERIC J. ROSEN has served as a Director of French Automotive since the
recapitalization. Mr. Rosen is Managing Director of Onex Investment Corp., a
diversified industrial corporation and an affiliate of Onex, and served as a
Vice President of Onex Investment Corp. from 1989 to February 1994. Prior
thereto, Mr. Rosen was employed in the merchant banking group at Kidder, Peabody
& Co. Incorporated from 1987 to 1989. Mr. Rosen is also a director of Tower
Automotive, Inc. and Dura Automotive Systems, Inc.
52
KARL F. STORRIE has served as a Director of French Automotive since May
1999. Mr. Storrie has also served as President, Chief Executive Officer and a
Director of Dura Automotive Systems, Inc. since March 1991. Prior to joining
Dura Automotive Systems, Inc. and from 1986, Mr. Storrie was Group President of
a number of aerospace manufacturing companies owned by Coltec Industries, a
multi-divisional public corporation. From 1981 to 1986 and prior to becoming a
Group President, Mr. Storrie was a Division President of two aerospace design
and manufacturing companies for Coltec Industries. During his thirty-five year
career, Mr. Storrie has held a variety of positions in technical and operations
management. Mr. Storrie is also a director of Argo-Tech Corporation, a
manufacturer of aircraft fuel, boost and transfer pumps.
Each director is elected to serve until the next annual meeting of
stockholders or until a successor is duly elected and qualified. Each of the
current directors was elected to the board pursuant to the terms of a
stockholders agreement. See "Certain Relationships and Related
Transactions--Investor Stockholders Agreement." Executive officers of French
Automotive are duly elected by the board to serve until their respective
successors are elected and qualified. There are no family relationships between
any of the directors or executive officers of French Automotive.
EXECUTIVE COMPENSATION
The following table sets forth compensation information for 1998 for French
Automotive's chief executive officer and the four other executive officers of
French Automotive who were its most highly compensated executive officers for
that year. We refer to these officers in this prospectus as the "named executive
officers".
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-------------------------------
SALARY BONUS OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION ($)(1) ($)(1) COMPENSATION ($)(2) COMPENSATION ($)(3)
- ----------------------------------------------- ---------- ---------- ------------------- -------------------
Charles M. Waldon.............................. $ 350,000 $ 350,000 $ 2,217 $ 1,768
President and Chief Executive Officer
Thomas C. Dinolfo.............................. 171,417 55,339 3,716 1,768
Treasurer and Chief Financial Officer
Stephen Southern............................... 123,846 40,339 2,725 1,768
Director of Worldwide Sales and Marketing
Paul Buckley................................... 212,018 299,688 10,303 51,990
Managing Director of Morris Ashby
Juan Manuel Orbea.............................. 179,876 33,333(4) 5,000 35,767
General Manager of Ansola
- ------------------------------
(1) Includes amounts deferred by employees under French Automotive's 401(k)
employee savings plan, pursuant to Section 401(k) of the Internal Revenue
Code.
(2) Includes the value of personal benefits and perquisites.
(3) The amounts disclosed in this column include amounts contributed by French
Automotive to its 401(k) employees savings plan and profit sharing plan and
dollar value of premiums paid by French Automotive for term life insurance
on behalf of the Named Executive Officers.
(4) Mr. Orbea received a bonus of $33,333 in connection with the acquisition of
Ansola in April 1998.
53
OPTION GRANT TABLE
The following table shows all grants of stock options to the named executive
officers during the year ended December 31, 1998 under our former stock option
plan, which was terminated in connection with the recapitalization. Each of the
outstanding options was terminated in exchange for an amount equal to the
difference between the per share price paid to the existing stockholders and the
exercise price of each such option. In connection therewith, Messrs. Waldon,
Dinolfo, Southern, Buckley and Orbea received $5.6 million, $1.6 million, $1.0
million, $0.3 million and $0.2 million, respectively. See "Certain Relationships
and Related Transactions--The Recapitalization."
OPTION GRANTS IN LAST FISCAL YEAR
NUMBER OF % OF TOTAL OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING OPTIONS EMPLOYEES IN FISCAL PRICE (PER
NAME GRANTED(#) YEAR SHARE) EXPIRATION DATE
- ------------------------------------------ ------------------- ------------------- ----------- ------------------
Charles M. Waldon......................... 180.645 48.6% $2,767.24 December 2008
1,350.000 1,000.00 April 2005
Thomas C. Dinolfo......................... 54.334 1.7 2,767.24 December 2008
Stephen Southern.......................... 39.923 1.3 2,767.24 December 2008
Paul Buckley.............................. -- -- -- --
Juan Manuel Orbea......................... -- -- -- --
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table shows aggregate exercises of options in the year ended
December 31, 1998 by the named executive officers and the aggregate value of
unexercised options held by each named executive officer as of December 31,
1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND YEAR-END OPTION VALUES
YEAR-END(#) YEAR-END($)
SHARES ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE VALUE REALIZED ($) UNEXERCISABLE(1) UNEXERCISABLE(1)(2)
- --------------------------------- ------------------- --------------------- ------------------- ----------------------
Charles M. Waldon................ -- -- 108.387/1,783.548 $ 328,943/$5,332,727
Thomas C. Dinolfo................ -- -- 32.600/130.402 98,939/299,733
Stephen Southern................. -- -- 23.954/79.846 72,697/197,163
Paul Buckley..................... -- -- --/-- --
Juan Manuel Orbea................ -- -- --/-- --
- ------------------------
(1) All options became vested and were exercised in connection with the
recapitalization.
(2) Calculated based on the price paid for redemption of shares in the
recapitalization of $4,212 per share less the exercise price of the option.
EMPLOYMENT AGREEMENTS
We intend to enter into an employment agreement with Mr. Waldon pursuant to
which he will serve as President and Chief Executive Officer of French
Automotive and will devote his full business time and attention to the business
and affairs of French Automotive. The specific terms of the agreement are still
being negotiated between the parties.
54
Mr. Buckley and Morris Ashby are parties to an employment agreement which
provides that Mr. Buckley shall serve as Chief Executive Officer of Morris Ashby
and shall devote his full time and attention to the affairs of Morris Ashby. The
agreement provides for an annual salary and an annual bonus, based on Morris
Ashby's financial performance. The agreement is terminable by either Mr. Buckley
or Morris Ashby upon two years' written notice. Morris Ashby may terminate Mr.
Buckley immediately without cause by paying Mr. Buckley an amount equal to two
years' salary. In the event Mr. Buckley is terminated because he has (1)
breached his employment agreement, (2) committed any act of gross negligence or
serious incompetence in the performance of his duties, (3) committed a criminal
act involving dishonesty, (4) become bankrupt, (5) become of unsound mind or
otherwise incapacitated or (6) become prohibited by law from serving as a
director of Morris Ashby, Mr. Buckley would not be entitled to any compensation.
Mr. Buckley has agreed that for a period of twelve months following the
termination of his employment he will not compete within the United Kingdom or
Northern Ireland with Morris Ashby or any of its affiliates over which he has
had supervisory or managerial control. The agreement automatically terminates
upon Mr. Buckley's 60th birthday.
Mr. Orbea is a party to employment agreements with each of Ansola and Ansola
Acquisition Corp., Ansola's parent company, which agreements provide that Mr.
Orbea shall serve as General Manager of both companies in exchange for an annual
salary and, in the case of Ansola, an annual bonus based on Ansola's financial
performance. The agreements are terminable by Ansola or Ansola Acquisition Corp,
as the case may be, with or without cause upon three months' written notice. If
Mr. Orbea's employment is terminated for any reason other than death, disability
or disciplinary reasons based on a serious breach of the employment agreement,
Mr. Orbea will be entitled to receive an amount equal to his salary for
twenty-one months. In addition, Mr. Orbea would be entitled to such amount in
the event that he terminates his employment on the ground that: (1) there has
been a substantial modification in his working conditions, (2) there has been a
serious breach by Ansola or Ansola Acquisition Corp. of their respective
obligations under the employment agreements, or (3) there has been a significant
change in the ownership of either of the companies and he terminates his
employment within three months thereafter. Mr. Orbea has agreed that for two
years from the date of the termination of his employment he will not compete
with Ansola and will receive in exchange a non-compete payment equal to one year
of his base salary under each of his employment agreements.
COMPENSATION OF DIRECTORS
French Automotive does not currently compensate directors for serving as a
director or on committees of the board or pay directors any fees for attendance
at meetings of the board, although French Automotive may elect to compensate
directors in the future. All directors are reimbursed for reasonable
out-of-pocket expenses incurred in connection with their attendance at board and
committee meetings.
55
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Issuer's authorized capital stock consists of six classes of common
stock designated as class A common stock, class B common stock, class C common
stock, class D-1 common stock, class D-2 common stock and class E common stock.
As of June 30, 1999, we had the following shares issued and outstanding (in each
case, rounded to the nearest share): 6,998 shares of class A common stock,
17,100 shares of class B common stock, 4,275 shares of class C common stock,
5,510 shares of class D-1 common stock, 5,700 shares of class D-2 common stock
and 2,802 shares of class E common stock. Our outstanding classes of common
stock generally differ with respect to dividend, liquidation preference and
voting rights. The holders of each of our outstanding classes of common stock
are entitled to receive distributions, whether as a dividend, liquidating
distribution or otherwise and whether in cash, property or securities, based on
the aggregate number of shares of such class outstanding as a percentage of the
total number of shares of common stock outstanding. These distributions will be
allocated between the various classes as set forth in our certificate of
incorporation. Each outstanding share of common stock (other than shares of
class D-2 common stock, which are non-voting) is entitled to one vote on all
matters submitted to a vote of stockholders. Except as otherwise required by our
certificate of incorporation or applicable law, all of our classes of voting
common stock (other than the class D-2 common stock) vote together as a single
class on all matters submitted to a vote of the stockholders, including the
election of directors.
The table below sets forth certain information regarding the equity
ownership of French Automotive as of June 30, 1999 by: (1) each person or entity
known by us to beneficially own five percent or more of a class of our voting
common stock, (2) each director and named executive officer and (3) all of our
directors and executive officers as a group. Unless otherwise stated, each of
the persons named in the table has sole voting and investment power with respect
to the securities beneficially owned by it or him as set forth opposite its or
his name. Beneficial ownership of the common stock listed in the table has been
determined in accordance with the applicable rules and regulations promulgated
under the Securities Exchange Act of 1934.
PERCENT OF
NUMBER OF PERCENT OF VOTING
DIRECTORS, OFFICERS AND 5% STOCKHOLDERS CLASS SHARES CLASS POWER(1)
- ------------------------------------------------------------------- --------- ----------- ----------- -------------
ONEX American Holdings LLC(2)(3)................................... Class B 17,100 100% 87%
J2R Partners III(4)................................................ Class C 4,275 100% (3)
Class E 2,802 100%
Windward Entities(5)............................................... Class A 4,748 68% 13%
The Northwestern Mutual Life Insurance Company(6).................. Class D-1 3,800 69% (3)
Robert W. Baird & Co. Entities(7).................................. Class D-1 1,520 28% (3)
S. A. Johnson(8)................................................... Class A 660 9% (3)
Class C 4,275 100%
Class E 2,802 100%
Charles M. Waldon.................................................. Class A 719 8% (3)
Thomas C. Dinolfo.................................................. Class A 142 2% (3)
Stephen Southern................................................... Class A 95 1% (3)
Paul Buckley....................................................... Class A 200 2% (3)
Juan Manuel Orbea.................................................. -- -- -- --
Robert H. Barton III............................................... -- -- -- --
Dugald K. Campbell(11)............................................. Class A 83 * (3)
Class C 4,275 100%
Class E 2,802 100%
A. Kipp Koester(9)................................................. Class D-1 3,800 69% (3)
John E. Lindahl(10)................................................ Class D-2 3,420 60% (3)
Carl E. Nelson(11)................................................. Class A 149 2% (3)
Class C 4,275 100%
Class E 2,802 100%
Eric J. Rosen(2)(3)................................................ Class B 17,100 100% 87%
Karl F. Storrie(11)................................................ Class A 83 * (3)
Class C 4,275 100%
Class E 2,802 100%
All directors and officers as a group (13 persons)................. All 33,528 -- 87%
- ------------------------------
* Denotes less than one percent.
56
(1) Except as otherwise required by our certificate of incorporation or
applicable law, all of our classes of voting common stock vote together as
a single class on all matters submitted to a vote of the stockholders,
including the election of directors.
(2) ONEX American Holdings LLC ("ONEX AH LLC") has shared voting power over
31,938 shares of common stock (see footnote (3)). Mr. Rosen, a Director of
French Automotive, is Managing Director of Onex Investment Corp. and, as a
result, may be deemed to have beneficial ownership of the shares held by
ONEX AH LLC. Mr. Rosen disclaims beneficial ownership of all shares of
class B common stock owned by ONEX AH LLC. ONEX AH LLC and Onex Investment
Corp. are both wholly owned subsidiaries of Onex. The address for ONEX AH
LLC and Mr. Rosen is c/o Onex Investment Corp., 712 Fifth Avenue, 40th
Floor, New York, New York 10019.
(3) ONEX AH LLC, J2R Partners III, The Northwestern Mutual Life Insurance
Company, Robert W. Baird & Co. Entities (as defined below), Messrs.
Johnson, Waldon and Nelson and all of French Automotive's other existing
stockholders (other than the Windward Entities (as defined below)) have
entered into a stockholders agreement pursuant to which such stockholders
agreed to vote their shares of common stock in the same manner as ONEX AH
LLC votes its shares on the election of Directors and, with the exception
of Northwestern Mutual Life, on all other matters presented to French
Automotive's stockholders for a vote and, to the extent permitted by law,
granted to ONEX AH LLC a proxy to effectuate such agreement. As a result,
ONEX AH LLC has voting control of approximately 87% of our common stock.
(4) The general partners of J2R Partners III are S.A. Johnson, Dugald K.
Campbell, Karl F. Storrie, Scott D. Rued, Robert R. Hibbs, Carl E. Nelson,
David J. Huls, Mary L. Johnson, Judith A. Vijums and Daniel F. Moorse. The
address for J2R Partners III is c/o Hidden Creek, 4508 IDS Center,
Minneapolis, Minnesota 55402.
(5) Includes 371 shares of class A common stock owned by Windward/Metropolitan,
L.L.C. and 4,377 shares of class A common stock held by Windward/Park WACI,
L.L.C. (collectively, the "Windward Entities"). The Windward Entities, due
to their common control, may be deemed to beneficially own each other's
shares, but each disclaims such beneficial ownership. The address for each
of the Windward Entities is c/o Windward Capital Partners, L.P., 1177
Avenue of the Americas, 42nd Floor, New York, New York 10036.
(6) The address for Northwestern Mutual Life is 720 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202. NML indirectly owns 64% of the outstanding
capital stock of Robert W. Baird & Co. Incorporated.
(7) Includes 380 shares of class D-1 common stock owned by Robert W. Baird &
Co., 278 shares of class D-1 common stock owned by BCP Affiliates Fund L.P.
and 862 shares of class D-1 common stock owned by BCP II Limited
Partnership (collectively, the "Robert W. Baird & Co. Entities"). The
Robert W. Baird & Co. Entities, due to their common control, may be deemed
to beneficially own each other's shares, but each disclaims such beneficial
ownership. The address for the Robert W. Baird & Co. Entities is c/o Robert
W. Baird & Co., 277 W. Monroe St., Suite 2100, Chicago, Illinois 60606.
(8) Includes 4,275 shares of class C common stock and 2,802 shares of class E
common stock owned by J2R Partners III, of which Mr. Johnson is a general
partner, and 660 shares of class A common stock owned by Mr. Johnson. The
address for Mr. Johnson is c/o Hidden Creek, 4508 IDS Center, Minneapolis,
Minnesota 55402.
(9) Includes 3,800 shares of class D-1 common stock owned by Northwestern
Mutual Life, of which Mr. Koester is a Managing Director. Mr. Koester
disclaims beneficial ownership of the shares owned by Northwestern Mutual
Life. The address for Mr. Koester is c/o Northwestern Mutual Life, 720 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202.
(10) Includes 3,420 shares of class D-2 common stock owned by Norwest Equity
Capital, L.L.C., an affiliate of Norwest Equity Partners, of which Mr.
Lindahl is Managing General Partner. The address for Mr. Lindahl is c/o
Norwest Equity Partners, 2800 Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota 55402.
(11) Includes 4,275 shares of class C common stock and 2,802 shares of class E
common stock owned by J2R Partners III, of which Messrs. Nelson, Campbell
and Storrie are general partners. Each of Messrs. Nelson, Campbell and
Storrie disclaims beneficial ownership of the shares owned by J2R Partners
III. The address for each of them is c/o Hidden Creek, 4508 IDS Center,
Minneapolis, Minnesota 55402.
57
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE RECAPITALIZATION
The recapitalization was completed on April 21, 1999 pursuant to a
recapitalization agreement dated March 29, 1999 by and among us, our
stockholders prior to the recapitalization, who are referred to in this
prospectus as the existing stockholders, and JLF Acquisition LLC, a newly formed
transitory investment entity. Subsequent to the date of the recapitalization
agreement, but prior to the date of the recapitalization, JLF Acquisition
assigned all of its rights and obligations under the recapitalization agreement
to Onex, J2R and the other equity investors.
Pursuant to the recapitalization agreement, we redeemed for $348.8 million
in cash 87% of our outstanding shares of common stock and all of our outstanding
shares of preferred stock and we paid $21.5 million in cash to the holders of
outstanding stock options in exchange for the cancellation of their options. In
addition, we made a payment of $5.9 million to those persons who were
stockholders prior to the recapitalization based on a post-closing determination
of the amount of our working capital as of the closing date of the
recapitalization. In connection with the recapitalization, the existing
stockholders converted all shares of class B common stock not redeemed into
shares of class A common stock. Included in this conversion was all of the
common stock owned by our chief executive officer, Charles M. Waldon. As a
result of the redemption and the conversion, these stockholders currently own
5,348 shares of class A common stock, representing approximately 13% of the
outstanding common stock.
As part of the recapitalization, we filed an amendment to our certificate of
incorporation, which amendment created our current capital structure, consisting
of six classes of common stock, as described under "Security Ownership of
Certain Beneficial Owners and Management." The equity investors then purchased
for an aggregate purchase price of $156.0 million an aggregate of 37,038 shares
of common stock from French Automotive. As a result of the recapitalization, the
equity investors own approximately 87% of our common stock, representing 85% of
the voting power.
As a result of the recapitalization, Windward received approximately $348.8
million in cash in connection with the redemption of its shares of common stock
and preferred stock and $85.0 million in cash in connection with the repayment
of the old subordinated notes.
Pursuant to the recapitalization agreement, the existing stockholders have
agreed to indemnify us and the equity investors for all liabilities and other
losses arising from any breach by French Automotive or any of the existing
stockholders of certain representations and warranties contained in the
recapitalization agreement. These representations relate to the capitalization
of the French Automotive and to the share ownership of the existing
stockholders, which representations survive indefinitely, and to the amount of
our existing indebtedness, which representation survives until the fourth
anniversary of the recapitalization. The existing stockholders do not have an
obligation to indemnify us and the equity investors for any losses once the
aggregate of all indemnified losses exceeds the price paid by French Automotive
to redeem the existing stockholders' capital stock.
The foregoing summary of the material terms of the recapitalization
agreement and related matters does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all of the provisions of the
recapitalization agreement, including the related exhibits and schedules. You
may obtain a copy of the recapitalization agreement from us.
INVESTOR STOCKHOLDERS AGREEMENT
French Automotive and each of its stockholders are parties to an investor
stockholders agreement, dated as of April 21, 1999. The stockholders agreement
provides that our board of directors will be established at seven directors and
will be comprised of: (1) three representatives designated by J2R, two of whom
shall initially be S.A. Johnson and Carl E. Nelson, (2) two representatives
designated by
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Onex, which representatives shall initially be Eric J. Rosen and Charles M.
Waldon, (3) one representative designated by Windward, which representative
shall initially be Robert H. Barton III and (4) one representative designated by
Northwestern Mutual Life, which representative shall initially be A. Kipp
Koester. The parties to the stockholders agreement subsequently voted to
increase the size of our board of directors to nine directors and have appointed
Karl F. Storrie and Dugald K. Campbell to fill these vacancies. In addition,
each party to the stockholders agreement has agreed to consent to a sale of
French Automotive if such sale is approved by our board of directors.
Except for Windward, each of the parties to the stockholders agreement has
also agreed to vote their common stock as directed by Onex on the election of
directors and, with the exception of Northwestern Mutual Life, on all other
matters submitted to a vote of stockholders, and has granted the person who is
at any time the president of Onex a proxy to vote its common stock. The voting
provisions of the stockholders agreement automatically terminate upon the sale
by French Automotive of at least 20% of its common stock, on a fully diluted
basis, in a underwritten public offering.
The stockholders agreement generally restricts the transfer of any shares of
common stock held by the parties to the stockholders agreement by granting
certain parties thereto rights of first offer and participation rights in
connection with any proposed transfer by any other party, with certain
exceptions. In addition, we have agreed not to issue to any person at any time
prior to an initial public offering of equity securities, any shares of common
stock or any other securities entitled to participate in distributions or to
vote (or securities convertible or exercisable for any of the foregoing) unless
the parties to the stockholders agreement are given the opportunity to purchase
their pro rata share at the same price and on the same terms, subject to certain
exceptions.
REGISTRATION AGREEMENT
In connection with the recapitalization, each of our stockholders entered
into a registration agreement. Pursuant to the registration agreement, the
holders of a majority of (1) the shares of class B common stock issued pursuant
to the recapitalization, or issued or issuable in respect of such securities,
and (2) any other shares of common stock held by persons holding any of the
foregoing may request, at any time, up to five registrations of all or any part
of their common stock on Form S-1 or any similar long-form registration
statement or, if available, an unlimited number of registrations on Form S-2 or
S-3 or any similar short-form registration statement, each at our expense. At
present, ONEX AH LLC owns all of the outstanding class B common stock. In the
event that the holders of these securities make such a demand registration
request, all other parties to the registration agreement will be entitled to
participate in such registration. In the event that none of these securities are
outstanding, the holders of a majority of (1) the common stock issued pursuant
to the recapitalization, or issued or issuable with respect thereto, and (2) any
common stock held by persons holding any of the foregoing will be entitled to
exercise these demand registration rights. The registration agreement also
grants to the parties thereto piggyback registration rights with respect to all
other registrations by us and we will pay all expenses related to such piggyback
registrations.
MANAGEMENT STOCKHOLDERS AGREEMENT
On July 16, 1999, we, Onex and members of our management who own shares of
our common stock, including Messrs. Waldon, Dinolfo, Buckley, Porritt, Shoaf and
Southern, entered into a management stockholders agreement. At the same time, we
sold to 32 of our managers 1,653 shares of our class A common stock,
representing approximately 3.8% of our outstanding common stock. The amount of
management stock held by each of our executive officers is as set forth in
"Security Ownership of Certain Beneficial Owners and Management." Each
management stockholder purchased such stock at a price of $4,212 per share,
which is the per share amount paid by the equity investors in connection with
the recapitalization. The agreement permits the management stockholders to
borrow
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up to half of the purchase price of their stock, with such stock being pledged
to secure repayment of the loan.
Pursuant to this agreement, each management stockholder granted a right of
first refusal to us, and, if we do not exercise such right, to Onex, to purchase
such management stockholder's stock. In the event neither we nor Onex exercises
our respective rights of first refusal, at any time after we have become a
public company, a management stockholder desiring to sell his stock may sell up
to 5% of his stock in the public market during any 90-day period, up to a
maximum of one-third of the stock acquired by the management stockholder prior
to such date.
We, Onex and each of the management stockholders have agreed that either we
or Onex will purchase at book value, and each management stockholder will sell,
the stock held by such management stockholder in the event such management
stockholder's employment is terminated for any reason at any time prior to our
initial public offering. After such time as we become a public company, a
management stockholder may sell his stock in the public market, provided that,
in the event the management stockholder's employment terminates due to: (1)
retirement, he can sell his stock so long as he does not sell more 75% of his
stock during the year following his termination; (2) his death or disability, he
may sell without restriction; and (3) in all other cases, he can sell his stock
so long as he does not sell more than half in the year following his
termination.
The agreement further provides that, in the event our board of directors
approves a sale of our company, we have a right to require each management
stockholder to sell such management stockholder's stock to the proposed
purchaser. In addition, in the event we effect a public offering, we have agreed
to include each management stockholder's stock in such offering, provided that
each management stockholder may not register a greater proportion of his stock
than the proportion of Onex's stock being registered by Onex in such offering.
The terms of the agreement govern all common stock owned or later acquired
by the management stockholders other than any stock purchased in the open market
at any time after we have consummated an initial public offering.
MANAGEMENT AGREEMENT WITH HIDDEN CREEK
Pursuant to the terms of a management agreement dated as of April 21, 1999,
Hidden Creek has agreed to provide strategic direction and management, financial
and administrative services to French Automotive. In exchange for such services,
we have agreed to pay Hidden Creek an annual management fee in the amount of
$500,000. In addition, Hidden Creek received a fee upon consummation of the
recapitalization and the offering of the outstanding notes an aggregate of
approximately $3.5 million for services provided in structuring, negotiating and
financing these transactions.
TRANSACTIONS WITH SIGNIFICANT STOCKHOLDERS
J.L. French Corporation, a wholly owned subsidiary of French Holdings, Inc.,
subleases its sales and service office in Dearborn, Michigan from American
Bumper & Mfg. Co., which is indirectly owned by Windward. Payments with respect
to this sublease aggregated approximately $68,000 in 1998.
In connection with the recapitalization, French Automotive paid Robert W.
Baird & Co. an advisory fee of $2.5 million.
Prior to the recapitalization, French Automotive made payments to Windward
for financial services in the amount of $325,000, $200,000 and $150,000 for
1998, 1997 and 1996, respectively.
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DESCRIPTION OF SENIOR CREDIT FACILITY
GENERAL. In connection with the recapitalization, we and various of our
direct and indirect wholly owned subsidiaries entered into a senior credit
facility with The Chase Manhattan Bank, Bank of America National Trust and
Savings Association, Chase Manhattan International Limited and certain other
lenders. The senior credit facility provides for aggregate borrowings by us of
approximately $330.0 million. As of June 30, 1999, there was $261.4 million of
outstanding indebtedness under the senior credit facility and approximately
$42.3 million available under the senior credit facility for working capital and
other corporate purposes. We used the proceeds of the initial offering of the
outstanding notes to repay a portion of the indebtedness under the senior credit
facility. See "Use of Proceeds."
Following the repayment of a portion of the indebtedness under the senior
credit facility with the proceeds of the initial offering of the notes, the
senior credit facility now consists of (a) approximately $102.5 million of term
loans, consisting of (1) a $70.0 million U.S. dollar-denominated term loan to
French Automotive, (2) a pound sterling-denominated term loan to French
Automotive in an amount equal to the pound sterling equivalent (determined as of
the date such loan was made) of U.S. $17.5 million and (3) a pound
sterling-denominated term loan to Morris Ashby in an amount equal to the pound
sterling equivalent (determined as of the date such loan was made) of U.S. $17.5
million (collectively, the "tranche A term loan"), (b) a $152.5 million tranche
B term loan and (c) a $75.0 million revolving credit facility. Up to $20.0
million of the revolving credit facility is available in British Pounds
Sterling, Euros and other foreign currencies for borrowings by us and certain of
our designated foreign subsidiaries.
INTEREST. Amounts outstanding under the senior credit facility bear
interest, at our option, at a rate per annum equal to either: (1) the
eurocurrency base rate (as defined in the senior credit agreement) or (2) the
base rate (as defined in the senior credit agreement), in each case, plus an
applicable margin. The applicable margin for the tranche A term loan and the
revolving credit facility is initially 2.50% for eurocurrency base rate loans
and 1.50% for base rate loans. The applicable margin for the tranche A term loan
and the revolving credit facility is subject to adjustment downward based on the
achievement of certain performance targets and provided that no event of default
has occurred and is continuing. The applicable margin for the tranche B term
loan is fixed at 2.75% for eurocurrency base rate loans and 1.75% for base rate
loans. As of June 30, 1999, our borrowings under the senior credit facility bore
interest at rates ranging from 7.5% to 7.9%.
MATURITY. Borrowings under the tranche A term loan are due and payable in
quarterly installments until April 21, 2005 and borrowings under the tranche B
term loan are due and payable in nominal quarterly installments until September
30, 2006, with the final balance due on October 21, 2006. The revolving credit
facility is available until April 21, 2005.
SECURITY AND GUARANTIES. The senior credit facility is secured by a first
priority security interest in all of our existing and after-acquired tangible
and intangible assets, including those of our direct and indirect material
subsidiaries, with the exception of certain foreign subsidiaries, including,
without limitation, real property and all of the capital stock owned us and our
direct and indirect material subsidiaries, with the exception of certain foreign
subsidiaries and to the extent permitted by applicable law. All of our
obligations under the senior credit facility are fully and unconditionally
guaranteed by all of our present and future material domestic subsidiaries. In
addition, we and each of such guarantors shall guarantee any borrowings by any
designated foreign subsidiaries permitted to borrow amounts under the senior
credit facility.
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COVENANTS. The senior credit facility requires us to meet certain financial
tests, including, without limitation, minimum interest coverage, minimum cash
retained earnings and maximum leverage tests. The senior credit facility
contains certain covenants which, among other things, limit the incurrence of
additional indebtedness, investments, dividends, transactions with affiliates,
asset sales, acquisitions, mergers and consolidations, prepayments of other
indebtedness, including the notes, liens and encumbrances.
EVENTS OF DEFAULT. The senior credit facility contains customary events of
default, including, without limitation, payment defaults, breaches of
representations and warranties, covenant defaults, cross-defaults to certain
other indebtedness, including the notes, certain events of bankruptcy and
insolvency, judgment defaults, failure of any guaranty or security document
supporting the senior credit facility to be in full force and effect and a
change of control of French Automotive.
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DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description under
the caption "--Certain Definitions."
We will issue the exchange notes under an indenture among French Automotive,
the subsidiary guarantors and U.S. Bank Trust National Association, as 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 following description is a summary of the material provisions of the
indenture and the registration rights agreement. It does not restate those
agreements in their entirety. We urge you to read the indenture and the
registration rights agreement because they, and not this description, define
your rights as a holder of the notes. Copies of the indenture and the
registration rights agreement are available as set forth below under the caption
"--Additional Information." Certain defined terms used in this description but
not defined below under the caption "--Certain Definitions" have the meanings
assigned to them in the indenture.
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTIES
THE NOTES
- are general unsecured obligations of French Automotive;
- are subordinated in right of payment to all existing and future senior
indebtedness of French Automotive;
- rank equally in right of payment with all existing and future unsecured
subordinated indebtedness of French Automotive that is not expressly
subordinated to the notes; and
- are unconditionally guarantied by the subsidiary guarantors.
THE GUARANTIES
The notes are guarantied by each domestic restricted subsidiary of French
Automotive.
Each subsidiary guaranty of the notes:
- is a general unsecured obligation of the subsidiary guarantor;
- is subordinated in right of payment to all existing and future senior debt
of the subsidiary guarantor; and
- ranks equally in right of payment with all existing and future unsecured
subordinated indebtedness of the subsidiary guarantor that is not
expressly subordinated to the subsidiary guaranty.
None of our foreign subsidiaries will guaranty the notes. In addition, under
the circumstances set forth below under the caption "--Certain
Covenants--Designation of Restricted and Unrestricted Subsidiaries," we will be
permitted to designate certain of our subsidiaries as "unrestricted
subsidiaries." Our unrestricted subsidiaries will not be subject to many of the
indenture's restrictive covenants and will not guaranty the notes.
We operate through our subsidiaries and, therefore, depend on the cash flow
of our subsidiaries to meet our obligations, including our obligations under the
notes. French Automotive's right to receive assets of any of our subsidiaries
upon the subsidiary's liquidation or reorganization, and the consequent right of
the holders of the notes to participate in those assets, will be effectively
subordinated to the claims of that subsidiary's creditors, except to the extent
that French Automotive is itself recognized as
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a creditor of the subsidiary, in which case French Automotive's claims would
still be subordinate in right of payment to any security in the assets of the
subsidiary and any indebtedness of the subsidiary senior to that held by French
Automotive. The notes will therefore be effectively subordinated in right of
payment to all indebtedness and other liabilities and commitments, including
trade payables and lease obligations, of our non-guarantor subsidiaries. In the
event of a bankruptcy, liquidation or reorganization of any of these
non-guarantor subsidiaries, these non-guarantor subsidiaries will pay the
holders of their debts and their trade creditors before they will be able to
distribute any of their assets to us. The non-guarantor subsidiaries generated
29.3% of our consolidated sales in the period ending June 30, 1999 and held
36.5% of our consolidated assets and 17.0% of our consolidated liabilities as of
June 30, 1999. See "Risk Factors--We Conduct All of Our Operations Through
Subsidiaries and Not All of Our Subsidiaries Are Subsidiary Guarantors."
PRINCIPAL, MATURITY AND INTEREST
The indenture provides for the issuance by us of notes with a maximum
aggregate principal amount of $275.0 million, of which $175.0 million was issued
in the initial offering of the outstanding notes. We may issue additional notes
from time to time. Any offering of additional notes is subject to the covenant
described below under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock." The notes and any additional
notes subsequently issued under the indenture will be treated as a single class
for all purposes under the indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase. We have issued notes in
denominations of $1,000 and integral multiples of $1,000. The notes will mature
on June 1, 2009.
Interest on the notes will accrue at the rate of 11 1/2% per annum and will
be payable semi-annually in arrears on June 1 and December 1, commencing on
December 1, 1999. We will make each interest payment to the holders of record on
the immediately preceding May 15 and November 15.
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.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a holder has given wire transfer instructions to us, we will pay all
principal, interest and premium and liquidated damages, if any, on that holder's
notes in accordance with those instructions. All other payments on notes will be
made at the office or agency of the paying agent and registrar within the City
and State of New York unless we elect to make interest payments by check mailed
to the holders at their addresses set forth in the register of holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The Trustee will initially act as paying agent and registrar. We may change
the paying agent or registrar without prior notice to the holders, and we or any
of our subsidiaries may act as paying agent or registrar.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the indenture.
The registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and we may require a
holder to pay any taxes and fees required by law or permitted by the indenture.
We are not required to transfer or exchange any note selected for redemption.
Also, we are not required to transfer or exchange any note for a period of 15
days before a selection of notes to be redeemed.
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The registered holder of a note will be treated as the owner of it for all
purposes.
SUBSIDIARY GUARANTIES
The subsidiary guarantors will jointly and severally guaranty our
obligations under the notes. Each subsidiary guaranty will be subordinated to
the prior payment in full of all senior debt of that subsidiary guarantor. The
obligations of each subsidiary guarantor under its subsidiary guaranty will be
limited as necessary to prevent that subsidiary guaranty from constituting a
fraudulent conveyance under applicable law. See "Risk Factors--If a Court Were
to Find that the Issuance of the Notes or the Subsidiary Guaranties Constituted
a Fraudulent Conveyance, such Court Could Avoid Our Obligations under the Notes
or the Subsidiary Guarantors' Obligations under the Subsidiary Guaranties."
A subsidiary guarantor may not sell or otherwise dispose of all or
substantially all of its assets to, or consolidate with or merge with or into
another person, whether or not such subsidiary guarantor is the surviving
person, other than French Automotive or another subsidiary guarantor, unless:
(1) immediately after giving effect to that transaction, no default or event
of default exists; and
(2) either:
(a) the person acquiring the property in any such sale or disposition or
the person formed by or surviving any such consolidation or merger
assumes all the obligations of that subsidiary guarantor under the
indenture, its subsidiary guaranty and the registration rights
agreement pursuant to a supplemental indenture and appropriate
collateral documents satisfactory to the Trustee; or
(b) the Net Proceeds of such sale or other disposition are applied in
accordance with the "Asset Sale" provisions of the indenture.
The subsidiary guaranty of a subsidiary guarantor will be released:
(1) in connection with any sale or other disposition of all or substantially
all of the assets of that subsidiary guarantor (including by way of
merger or consolidation) to a person that is not (either before or after
giving effect to such transaction) a restricted subsidiary of French
Automotive, if the subsidiary guarantor applies the Net Proceeds of that
sale or other disposition in accordance with the "Asset Sale" provisions
of the indenture;
(2) in connection with any sale of all of the capital stock of a subsidiary
guarantor to a person that is not (either before or after giving effect
to such transaction) a restricted subsidiary of French Automotive, if
French Automotive applies the Net Proceeds of that sale in accordance
with the "Asset Sale" provisions of the indenture, or
(3) if we properly designate any restricted subsidiary that is a subsidiary
guarantor as an unrestricted subsidiary.
See "--Repurchase at the Option of Holders--Asset Sales."
SUBORDINATION
The payment of principal, interest and premium and liquidated damages, if
any, on the notes, and any other Obligations with respect to the notes, will be
subordinated to the prior payment in full in cash of all of our senior debt,
including senior debt incurred after the date of the indenture.
The holders of senior debt will be entitled to receive payment in full in
cash of all obligations due in respect of senior debt, including interest after
the commencement of any bankruptcy proceeding at the rate specified in the
applicable senior debt, whether or not such interest would be an allowed claim,
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before the holders of notes will be entitled to receive any payment with respect
to the notes (except that holders of notes may receive and retain Permitted
Junior Securities and payments made from the trust described under "--Legal
Defeasance and Covenant Defeasance" if the funding of such trust is permitted
under the defeasance section of the indenture), in the event of any distribution
to our creditors:
(1) in a liquidation or dissolution of French Automotive;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to French Automotive or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of French Automotive's assets and liabilities.
We also may not make any payment, whether by purchase, redemption,
defeasance or otherwise, in respect of the notes (except in Permitted Junior
Securities or from the trust described under "--Legal Defeasance and Covenant
Defeasance" if the funding of such trust is permitted under the defeasance
section of the indenture) if:
(1) a payment default on Designated Senior Debt occurs and is continuing; or
(2) any other default occurs and is continuing on any series of Designated
Senior Debt that permits holders of that series of Designated Senior Debt
to accelerate its maturity and the Trustee receives a notice of such
default (a "Payment Blockage Notice") from us or the holders of any
Designated Senior Debt.
Payments on the notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such default is
cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which
the applicable Payment Blockage Notice is received, unless the maturity
of any Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the delivery of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the Trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice unless such default shall have been
cured or waived for a period of not less than 90 consecutive days.
If the Trustee or any holder of the notes receives a payment in respect of
the notes (except in Permitted Junior Securities in the circumstances permitted
above or from the trust described under "--Legal Defeasance and Covenant
Defeasance" if the funding of such trust is permitted under the defeasance
section of the indenture) when the payment is prohibited by these subordination
provisions, the Trustee or the holder, as the case may be, shall hold the
payment in trust for the benefit of the holders of senior debt. Upon the proper
written request of the holders of senior debt, the Trustee or the holder, as the
case may be, shall deliver the amounts in trust to the holders of senior debt or
their proper representative.
We must promptly notify holders of senior debt if payment of the notes is
accelerated because of an event of default.
As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or reorganization of French Automotive, holders of
notes may recover less ratably than our
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creditors who are holders of senior debt. See "Risk Factors--The Notes and
Subsidiary Guaranties are Unsecured Subordinated Obligations."
"DESIGNATED SENIOR DEBT" means:
(1) any indebtedness outstanding under or in respect of the Credit
Agreement; and
(2) after payment in full of all Obligations under the Credit Agreement, any
other senior debt permitted under the indenture the principal amount of
which is $15.0 million or more and that has been designated by us as
"Designated Senior Debt."
"PERMITTED JUNIOR SECURITIES" means: (1) debt securities of French
Automotive as reorganized or readjusted, if applicable, and guaranteed by the
subsidiary guarantors, or debt securities of French Automotive (or any other
company, trust or organization provided for by a plan of reorganization or
readjustment succeeding to the assets and liabilities of French Automotive) and
guaranteed by the subsidiary guarantors, in each of the foregoing cases, which
securities and guarantees are subordinated, to at least the same extent as the
notes and the subsidiary guarantees, to the payment of all senior debt and
guaranties thereof that will be outstanding after giving effect to such
reorganization or readjustment, if applicable, so long as (a) such debt
securities are not entitled to the benefit of covenants or defaults more
beneficial to the holders of such debt securities than those in effect with
respect to the notes (or the senior debt, after giving effect to such
reorganization or readjustment, if applicable), and (b) such debt securities
shall not provide for amortization--including sinking fund and mandatory
prepayment provisions (other than a mandatory prepayment of the type described
under the caption "--Repurchase at the Option of Holders--Change of Control")--
commencing prior to the date which is one year after the final scheduled
maturity date of the senior debt (as modified by such reorganization or
readjustment, if applicable), or (2) equity interests in French Automotive or
any subsidiary guarantor; PROVIDED THAT in each case with respect to clause (1)
or (2) above, if a new corporation results from any such reorganization or
readjustment, such corporation assumes all senior debt that will be outstanding
after giving effect thereto and provided further that the rights of the holders
of senior debt are not impaired.
"SENIOR DEBT" means:
(1) all indebtedness of French Automotive or any subsidiary guarantor
outstanding under credit facilities and all Hedging Obligations with
respect thereto;
(2) any other indebtedness of French Automotive or any subsidiary guarantor
permitted to be incurred under the terms of the indenture, unless the
instrument under which such indebtedness is incurred expressly provides
that it is on a parity with or subordinated in right of payment to the
notes or any subsidiary guaranty, as the case may be; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding paragraph, senior
debt will not include:
(1) any liability for federal, state, local or other taxes owed or owing by
French Automotive or the subsidiary guarantors;
(2) any indebtedness of French Automotive to any of its subsidiaries or
other affiliates;
(3) any trade payables; or
(4) any indebtedness that is incurred in violation of the indenture.
OPTIONAL REDEMPTION
At any time prior to June 1, 2002, we may on any one or more occasions
redeem up to 35% of the aggregate principal amount of notes issued under the
indenture at a redemption price of 111.5% of the
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principal amount thereof, plus accrued and unpaid interest and liquidated
damages, if any, to the redemption date, with the net cash proceeds of one or
more equity offerings; PROVIDED that:
(1) at least 65% of the aggregate principal amount of notes issued under the
indenture remains outstanding immediately after the occurrence of each
such redemption, excluding notes held by us and our subsidiaries; and
(2) the redemption must occur within 90 days of the date of the closing of
such equity offering.
Except pursuant to the preceding paragraph, the notes will not be redeemable
at our option prior to June 1, 2004. We are not prohibited, however, from
acquiring the notes by means other than a redemption, whether pursuant to an
issuer tender or otherwise, assuming such acquisition does not otherwise violate
the terms of the indenture.
On or after June 1, 2004, we may redeem all or a part of the notes upon not
less than 30 nor more than 60 days' notice, at the redemption prices, expressed
as percentages of principal amount, set forth below plus accrued and unpaid
interest and liquidated damages, if any, thereon, to the applicable redemption
date, if redeemed during the twelve-month period beginning on June 1 of the
years indicated below:
YEAR PERCENTAGE
- ------------------------------------------------------------------------------------------------------ -----------
2004.................................................................................................. 105.750%
2005.................................................................................................. 103.833%
2006.................................................................................................. 101.917%
2007 and thereafter................................................................................... 100.000%
MANDATORY REDEMPTION
We are not required to make mandatory redemption or sinking fund payments
with respect to the notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a change of control occurs and we have not previously issued an
irrevocable notice of redemption of all of the notes on the terms set forth
above under the heading "--Optional Redemption", each holder of notes will have
the right to require us to repurchase all or any part equal to $1,000 or an
integral multiple thereof of that holder's notes pursuant to a change of control
offer (as described herein) on the terms set forth in the indenture. In the
change of control offer, we will offer a change of control payment in cash equal
to 101% of the aggregate principal amount of notes repurchased plus accrued and
unpaid interest and liquidated damages, if any, thereon, to the date of
purchase. Within 30 days following any change of control, we will mail a notice
to each holder describing the transaction or transactions that constitute the
change of control and offering to repurchase notes on the change of control
payment date specified in such notice, which date shall be no earlier than 30
days and no later than 60 days from the date such notice is mailed, pursuant to
the procedures required by the indenture and described in such notice. We will
comply with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the notes as a
result of a change of control. To the extent that the provisions of any
securities laws or regulations conflict with the change of control provisions of
the indenture, we will comply with the applicable securities laws and
regulations and will not be deemed to have breached our obligations under the
change of control provisions of the indenture by virtue of such conflict.
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On the change of control payment date, we will, to the extent lawful:
(1) accept for payment all notes or portions thereof properly tendered
pursuant to the change of control offer;
(2) deposit with the paying agent an amount equal to the change of control
payment in respect of all notes or portions thereof so tendered; and
(3) deliver or cause to be delivered to the Trustee the notes so accepted
together with an officers' certificate stating the aggregate principal
amount of notes we are purchasing.
The paying agent will promptly mail to each holder of notes so tendered the
change of control payment for such notes, and the Trustee will promptly
authenticate and mail or cause to be transferred by book entry to each holder a
new note equal in principal to any unpurchased portion of the notes surrendered,
if any; provided that each such new note will be in a principal amount of $1,000
or an integral multiple thereof.
Prior to complying with any of the provisions of this "change of control"
covenant, but in any event within 90 days following a change of control, we will
either repay all outstanding senior debt or obtain the requisite consents, if
any, under all agreements governing outstanding senior debt to permit the
repurchase of notes required by this covenant. If we do not obtain such consents
or repay such borrowings, we will be prohibited from repurchasing the notes. We
will publicly announce the results of the change of control offer on or as soon
as practicable after the change of control payment date.
The provisions described above that require we make a change of control
offer following a change of control will be applicable regardless of whether any
other provisions of the indenture are applicable. Except as described above with
respect to a change of control, the indenture does not contain provisions that
permit the holders of the notes to require that we repurchase or redeem the
notes in the event of a takeover, recapitalization or similar transaction.
We will not be required to make a change of control offer upon a change of
control if a third party makes the change of control offer in the manner, at the
times and otherwise in compliance with the requirements set forth in the
indenture applicable to a change of control offer made by us and purchases all
notes validly tendered and not withdrawn under such change of control offer.
The definition of change of control includes a phrase relating to the direct
or indirect sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of our properties or assets and of our subsidiaries taken as
a whole. Although there is a limited body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of notes to require
us to repurchase the notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of our assets and the assets of our
subsidiaries taken as a whole to another person or group may be uncertain.
ASSET SALES
We will not, and will not permit any of our restricted subsidiaries to,
consummate an Asset Sale unless:
(1) we (or the restricted subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair
market value of the assets or equity interests issued or sold or
otherwise disposed of, as determined in good faith by us;
(2) such fair market value is determined by our board of directors and
evidenced by a resolution of the board of directors set forth in an
officers' certificate delivered to the Trustee; and
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(3) at least 75% of the consideration therefor received by us or such
restricted subsidiary is in the form of cash or Cash Equivalents. For
purposes of this provision, each of the following shall be deemed to be
cash:
(a) any of our or our restricted subsidiaries' liabilities, as shown on
our or any such restricted subsidiary's most recent balance sheet,
other than contingent liabilities and liabilities that are by their
terms subordinated to the notes or any subsidiary guaranty, that are
assumed by the transferee of any such assets pursuant to a customary
novation agreement that releases us or such restricted subsidiary
from further liability;
(b) any securities, notes or other obligations received by us or any such
restricted subsidiary from such transferee that are converted by us
or such restricted subsidiary into cash within 180 days after the
consummation of such Asset Sale, to the extent of the cash received
in that conversion; and
(c) any Designated Noncash Consideration received by us or any of our
restricted subsidiaries in such Asset Sale; PROVIDED that the
aggregate fair market value (as determined above) of such Designated
Noncash Consideration, taken together with the fair market value at
the time of receipt of all other Designated Noncash Consideration
received pursuant to this clause (c) less the amount of Net Proceeds
previously realized in cash from such earlier received Designated
Noncash Consideration is less than the greater of 5.0% of Total
Assets or $25.0 million at the time of the receipt of such Designated
Noncash Consideration, with the fair market value of each item of
Designated Noncash Consideration being measured at the time received
and without giving effect to subsequent changes in value.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale, we
may apply such Net Proceeds at our option:
(1) to repay senior debt and, if the senior debt repaid is revolving credit
indebtedness, to correspondingly reduce commitments with respect thereto;
(2) to acquire all or substantially all of the assets of, or a majority of
the voting stock of, another Permitted Business;
(3) to make a capital expenditure; and/or
(4) to acquire other long-term assets that are used or useful in a Permitted
Business.
Pending the final application of any such Net Proceeds, we may temporarily
reduce revolving credit borrowings or otherwise invest such Net Proceeds in any
manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "excess proceeds." When the
aggregate amount of excess proceeds exceeds $10.0 million, we will make an offer
to all holders of notes and all holders of other indebtedness that ranks equally
with the notes containing provisions similar to those set forth in the indenture
with respect to offers to purchase or redeem with the proceeds of sales of
assets to purchase the maximum principal amount of notes and such other
indebtedness that ranks equally with the notes that may be purchased out of the
excess proceeds, such offer being referred to in this prospectus as an "asset
sale offer". The offer price in any asset sale offer will be equal to 100% of
principal amount plus accrued and unpaid interest and liquidated damages, if
any, to the date of purchase, and will be payable in cash. If any excess
proceeds remain after consummation of an asset sale offer, we may use such
excess proceeds for any purpose not otherwise prohibited by the indenture. If
the aggregate principal amount of notes and such other indebtedness as ranks
equally with the notes tendered into such asset sale offer exceeds the amount of
excess proceeds, the Trustee shall select the notes and such other indebtedness
70
as ranks equally with the notes to be purchased on a pro rata basis based on the
principal amount of notes and such other indebtedness as ranks equally with the
notes that is tendered. Upon completion of each asset sale offer, the amount of
excess proceeds shall be reset at zero.
We will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with each repurchase of notes
pursuant to an asset sale offer. To the extent that the provisions of any
securities laws or regulations conflict with the asset sales provisions of the
indenture, we will comply with the applicable securities laws and regulations
and will not be deemed to have breached our obligations under the asset sale
provisions of the indenture by virtue of such conflict.
The agreements governing our outstanding senior debt currently prohibit us
from purchasing any notes, and also provide that certain change of control or
asset sale events with respect to us would constitute a default under these
agreements. Any future credit agreements or other agreements relating to senior
debt to which we become a party may contain similar restrictions and provisions.
In the event a change of control or Asset Sale occurs at a time when we are
prohibited from purchasing notes, we could seek the consent of our senior
lenders to the purchase of notes or could attempt to refinance the borrowings
that contain such prohibition. If we do not obtain such a consent or repay such
borrowings, we cannot purchase the notes. In such case, our failure to purchase
tendered notes would constitute an event of default under the indenture which
would, in turn, constitute a default under such senior debt. In such
circumstances, the subordination provisions in the indenture would likely
restrict payments to the holders of notes.
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, the Trustee
will select notes for redemption as follows:
(1) if the notes are listed, in compliance with the requirements of the
principal national securities exchange on which the notes are listed; or
(2) if the notes are not so listed, on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate.
No notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each holder of notes to be redeemed at its registered
address. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion of
the original note will be issued in the name of the holder thereof upon
cancellation of the original note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on notes or portions of them called for redemption.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
We will not, and will not permit any of our restricted subsidiaries to,
directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution on
account of our or any of our restricted subsidiaries' equity interests
(including, without limitation, any payment in connection with any merger
or consolidation involving us or any of our restricted subsidiaries) or
to the direct or indirect holders of our or any of our restricted
subsidiaries'
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equity interests in their capacity as such (other than dividends or
distributions payable in our equity interests, other than Disqualified
Stock, or to us or one of our restricted subsidiaries);
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving us) any of our equity interests or the equity interests of any
direct or indirect parent of us;
(3) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any indebtedness that is by its
terms subordinated to the notes or the subsidiary guaranties, except a
payment of interest or principal at the stated maturity thereof; or
(4) make any Restricted Investment (all such payments and other actions set
forth in clauses (1) through (4) above being collectively referred to as
"restricted payments"),
unless, at the time of and after giving effect to such restricted payment:
(1) no default or event of default shall have occurred and be continuing or
would occur as a consequence thereof; and
(2) we would, at the time of such restricted payment and after giving pro
forma effect thereto as if such restricted payment had been made at the
beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the
covenant described below under the caption "--Incurrence of Indebtedness
and Issuance of Preferred Stock;" and
(3) such restricted payment, together with the aggregate amount of all other
restricted payments made by us and our restricted subsidiaries after the
date of the indenture (excluding restricted payments permitted by clauses
(2), (3), (4), (5), (7) and (8) of the next succeeding paragraph), is
less than the sum, without duplication, of:
(a) 50% of our Consolidated Net Income for the period (taken as one
accounting period) from March 31, 1999 to the end of our most
recently ended fiscal quarter for which internal financial statements
are available at the time of such restricted payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of
such deficit), PLUS
(b) 100% of the aggregate net cash proceeds or fair market value of
Productive Assets received by us since the date of the indenture as a
contribution to our common equity capital or from the issue or sale
of our equity interests, other than Disqualified Stock or Designated
Preferred Stock, or from the issue or sale of convertible or
exchangeable Disqualified Stock or Designated Preferred Stock or
convertible or exchangeable debt securities that have been converted
into or exchanged for such equity interests (other than equity
interests (or Disqualified Stock or Designated Preferred Stock or
debt securities) sold to one of our subsidiaries), PLUS
(c) 100% of the aggregate net cash proceeds or fair market value of
Productive Assets received from the disposition or sale of any
Restricted Investment that was made after the date of the indenture
less, in each case, the cost of such disposition or sale, PLUS
(d) 100% of the amount of any dividends paid in cash or the fair market
value (as determined above) of any Productive Assets received by us
or a restricted subsidiary after the date of the indenture from one
of our unrestricted subsidiaries, to the extent that such dividends
were not otherwise included in our Consolidated Net Income for such
period, PLUS
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(e) to the extent that any of our unrestricted subsidiaries is
redesignated as a restricted subsidiary after the date of the
indenture, the fair market value of our Investment in such subsidiary
as of the date of such redesignation, PLUS
(f) without duplication of any amounts included in clause (b) above, 100%
of the aggregate net cash proceeds or the fair market value of
Productive Assets received by us as equity contributions (other than
Disqualified Stock or Designated Preferred Stock) by a holder of our
equity interests (excluding any net cash proceeds from an equity
contribution which has been financed, directly or indirectly using
funds (1) borrowed from us or any of our subsidiaries, unless and
until and to the extent such borrowing is repaid or (2) contributed,
extended, guaranteed or advanced by us or by any of our
subsidiaries).
So long as no payment default has occurred and is continuing or would be
caused thereby, the preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of declaration
thereof, if at said date of declaration such payment would have complied
with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other acquisition
of any of our or our restricted subsidiaries' subordinated indebtedness
or of our or our restricted subsidiaries' equity interests in exchange
for, or out of the net cash proceeds of the substantially concurrent sale
(other than to one of our subsidiaries) of our equity interests (other
than Disqualified Stock); PROVIDED that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from clause
(3) (b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of our
subordinated indebtedness or the subordinated indebtedness of any
restricted subsidiary with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness;
(4) the payment of any dividend by one of our restricted subsidiaries to the
holders of its capital stock on a pro rata basis;
(5) the repurchase, redemption or other acquisition or retirement for value
of any of our or our restricted subsidiaries' equity interests held by
any of our or our restricted subsidiaries' current or former employees,
officers or directors pursuant to any management equity subscription
agreement, stock option agreement or other employee plan or agreement or
employment benefit plan; PROVIDED that the aggregate price paid for all
such repurchased, redeemed, acquired or retired equity interests shall
not exceed $2.5 million in any calendar year (provided that in any
calendar year such amount shall be increased by the amount available for
use, but not used, under this clause (5) in the immediately preceding
year) and $10.0 million since the date of the indenture;
(6) the declaration and payment of dividends to holders of any class or
series of Designated Preferred Stock (other than Disqualified Capital
Stock) issued after the date of the indenture; PROVIDED that, at the time
of such issuance, we, after giving effect to such issuance on a pro forma
basis, would have had a Fixed Charge Coverage Ratio of at least 2.0 to
1.0;
(7) repurchases of capital stock deemed to occur upon the exercise of stock
options if such capital stock represents a portion of the exercise price
thereof; and
(8) so long as no default or event of default shall have occurred and be
continuing or would occur as a consequence thereof, other restricted
payments in an aggregate amount not to exceed $10.0 million since the
date of the indenture.
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The amount of all restricted payments, other than cash, shall be the fair
market value on the date of the restricted payment of the asset(s) or securities
proposed to be transferred or issued to or by us or such restricted subsidiary,
as the case may be, pursuant to the restricted payment. The fair market value of
any assets or securities that are required to be valued by this covenant shall
be determined by the board of directors whose resolution with respect thereto
shall be delivered to the Trustee. The board of directors' determination must be
based upon an opinion or appraisal issued by an accounting, appraisal or
investment banking firm of national standing if the fair market value exceeds
the greater of 3.0% of Total Assets or $5.0 million. Not later than the date of
making any restricted payment, we shall deliver to the Trustee an officers'
certificate stating that such restricted payment is permitted and setting forth
the basis upon which the calculations required by this restricted payments
covenant were computed, together with a copy of any fairness opinion or
appraisal required by the indenture.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
We will not, and will not permit any of our subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise become directly
or indirectly liable, contingently or otherwise, with respect to (collectively,
"incur") any indebtedness, including Acquired Debt, and we will not issue any
Disqualified Stock and will not permit any of our restricted subsidiaries to
issue any shares of preferred stock; PROVIDED, HOWEVER, that we may incur
indebtedness, including Acquired Debt, or issue Disqualified Stock, and any
subsidiary guarantor may incur indebtedness, including Acquired Debt, or issue
preferred stock, if:
The Fixed Charge Coverage Ratio for our most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on which such additional indebtedness is incurred or such
Disqualified Stock or preferred stock is issued would have been at least 2.0 to
1.0, determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if the additional indebtedness had been incurred or
the preferred stock or Disqualified Stock had been issued, as the case may be,
at the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of any
of the following items of indebtedness, which we collectively refer to in this
prospectus as Permitted Debt:
(1) the incurrence by us or any of our restricted subsidiaries of indebtedness
and letters of credit under credit facilities in an aggregate principal
amount at any one time outstanding (with letters of credit being deemed to
have a principal amount equal to the face amount thereof) not to exceed the
positive difference between (a) the greater of (i) $330.0 million and (ii)
the amount of the Borrowing Base and (b) the sum of (i) all outstanding
indebtedness incurred in Qualified Securitization Transactions and (ii) the
aggregate amount of all Net Proceeds of Asset Sales applied by us or any of
our subsidiaries to repay any indebtedness under the credit facilities
pursuant to the covenant described above under the caption "--Repurchase at
the Option of Holders--Asset Sales";
(2) the incurrence by us and our restricted subsidiaries of the Existing
Indebtedness;
(3) the incurrence by us and the subsidiary guarantors of indebtedness
represented by the notes and the related subsidiary guaranties to be issued
on the date of the indenture and by the exchange notes and the related
subsidiary guaranties to be issued pursuant to the registration rights
agreement;
(4) the incurrence by us or any of our restricted subsidiaries of indebtedness
represented by Capital Lease Obligations, mortgage financings or purchase
money obligations, in each case, incurred for the purpose of financing all
or any part of the purchase price or cost of construction or improvement of
property, plant or equipment used in our business or the business of such
restricted subsidiary, in an aggregate principal amount, including all
Permitted Refinancing
74
Indebtedness incurred to refund, refinance or replace any indebtedness
incurred pursuant to this clause (4), not to exceed 5.0% of Total Assets at
any time outstanding;
(5) the incurrence by us or any of our restricted subsidiaries of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which are
used to refund, refinance or replace indebtedness, other than intercompany
indebtedness, that was permitted by the indenture to be incurred under the
first paragraph of this covenant or clauses (2), (3), (4), (5), or (10) of
this paragraph;
(6) the incurrence by us or any of our restricted subsidiaries of intercompany
indebtedness between or among us and any of our restricted subsidiaries;
PROVIDED, HOWEVER, that:
(a) if we or any subsidiary guarantor is the obligor on such indebtedness,
such indebtedness must be expressly subordinated to the prior payment in
full in cash of all Obligations with respect to the notes, in our case,
or the subsidiary guaranty, in the case of a subsidiary guarantor; and
(b) (i) any subsequent issuance or transfer of equity interests that results
in any such indebtedness being held by a person other than us or any of
our restricted subsidiaries and (ii) any sale or other transfer of any
such indebtedness to a person other than us or one of our restricted
subsidiaries; shall be deemed, in each case, to constitute an incurrence
of such indebtedness by us or such subsidiary, as the case may be, that
was not permitted by this clause (6);
(7) the incurrence by us or any of our restricted subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging (a)
interest rate risk with respect to any floating rate indebtedness that is
permitted by the terms of this indenture to be outstanding or (b) the value
of foreign currencies or the cost of commodities purchased or received by
us or any of our restricted subsidiaries;
(8) (a) the guaranty by us or any of the subsidiary guarantors of indebtedness
of us or a subsidiary guarantor that was permitted to be incurred by
another provision of this covenant;
(b) the guaranty by any of our restricted subsidiaries that is not a
subsidiary guarantor of our indebtedness or the indebtedness of another
of our restricted subsidiaries that was permitted to be incurred by
another provision of this covenant;
(9) the accrual of interest, the accretion or amortization of original issue
discount, the payment of interest on any indebtedness in the form of
additional indebtedness with the same terms, and the payment of dividends
on Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock; PROVIDED, in each such case, that the amount thereof is
included in our Fixed Charges of as accrued;
(10) the incurrence by us or any of our restricted subsidiaries of additional
indebtedness or Disqualified Stock in an aggregate principal amount (or
accreted value, as applicable) at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or
replace any indebtedness incurred pursuant to this clause (10), not to
exceed $25.0 million;
(11) the incurrence by our unrestricted subsidiaries of Non-Recourse Debt or
the issuance of preferred stock, provided, however, that if any such
indebtedness ceases to be Non-Recourse Debt of an unrestricted subsidiary,
such event shall be deemed to constitute an incurrence of indebtedness by
a restricted subsidiary that was not permitted by this clause (11);
(12) the incurrence of indebtedness owing to any insurance company in
connection with the financing of insurance premiums permitted by such
insurance company in the ordinary course of business;
(13) the incurrence of indebtedness, including letters of credit, in respect of
workers' compensation claims, self-insurance obligations, performance,
surety, bid or similar bonds and completion
75
guarantees provided by us or one of our restricted subsidiaries in the
ordinary course of business and consistent with past practices;
(14) indebtedness arising from our agreements or the agreements of a restricted
subsidiary providing for indemnification, adjustment of purchase price,
earn out or other similar obligations, in each case, incurred or assumed
in connection with the disposition of any business, assets or a restricted
subsidiary, other than guarantees of indebtedness incurred by any person
acquiring all or any portion of such business, assets or restricted
subsidiary for the purpose of financing such acquisition; PROVIDED that
the maximum assumable liability in respect of all such indebtedness shall
at no time exceed the gross proceeds actually received by us and our
restricted subsidiaries in connection with such disposition;
(15) the incurrence by a Securitization Entity of indebtedness in a Qualified
Securitization Transaction that is Non-Recourse Debt, except for Standard
Securitization Undertakings, with respect to us and our other restricted
subsidiaries;
(16) indebtedness of French Automotive evidenced by promissory notes
subordinated to the notes issued to our and our subsidiaries, current or
former employees, directors, officers or consultants in lieu of cash
payment for any of our equity interests being repurchased from such
persons; PROVIDED, that the aggregate amount of such indebtedness incurred
does not exceed $2.5 million in any calendar year (provided that in any
calendar year such amount shall be increased by the amount available for
incurrence, but not incurred, under this clause (16) in any preceding
year) and $10.0 million since the date of the indenture;
(17) guaranties of indebtedness of any other person incurred by us or a
restricted subsidiary in the ordinary course of business in an aggregate
principal amount not to exceed $5.0 million at any one time outstanding;
(18) indebtedness consisting of take-or-pay obligations contained in supply
agreements entered into by us or our subsidiaries in the ordinary course;
and
(19) the incurrence by any foreign subsidiary of indebtedness that is not
prohibited by the covenant described below under the caption "--Limitation
on Foreign Indebtedness."
For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant, in the event that an item of proposed
indebtedness meets the criteria of more than one of the categories of permitted
debt described in clauses (1) through (19) above, or is entitled to be incurred
pursuant to the first paragraph of this covenant, we will be permitted to
classify such item of indebtedness on the date of its incurrence, or later
reclassify all or a portion of such item of indebtedness, in any manner that
complies with this covenant. Indebtedness under credit facilities outstanding on
the date on which the outstanding notes were first issued and authenticated
under the indenture shall be deemed to have been incurred on such date in
reliance on the exception provided by clause (1) of the definition of permitted
debt.
LIMITATION ON FOREIGN INDEBTEDNESS
We will not permit any of our restricted subsidiaries that are not
subsidiary guarantors to, directly or indirectly, incur any indebtedness
(including Acquired Indebtedness) other than indebtedness incurred pursuant to
clause (1) or (2) of the covenant described above under "--Incurrence of
Indebtedness and Issuance of Preferred Stock" unless:
(1) after giving effect to the incurrence of such indebtedness and the receipt
of the application of the proceeds thereof;
76
(a) if, as a result of the incurrence of such indebtedness, such restricted
subsidiary will become subject to any restriction or limitation on the
payment of dividends or the making of other distributions,
(i) the Fixed Charge Coverage Ratio of restricted subsidiaries that are
not subsidiary guarantors (determined on a pro forma basis for the
last four fiscal quarters for which financial statements are
available at the date of determination) is greater than 2.5 to 1;
and
(ii) our Fixed Charge Coverage Ratio (determined on a pro forma basis
for our last four fiscal quarters for which financial statements
are available at the date of determination) is greater than 2.0 to
1; and
(b) in any other case, our Fixed Charge Coverage Ratio (determined on a pro
forma basis for our last four fiscal quarters for which financial
statements are available at the date of determination) is greater than
2.0 to 1; and
(2) no default or event of default shall have occurred and be continuing at the
time or as a consequence of the incurrence of such indebtedness.
This covenant will not prohibit the incurrence of indebtedness by a
restricted subsidiary that is not a subsidiary guarantor in an amount at any one
time outstanding that does not exceed $5.0 million; provided, that neither we
nor any subsidiary guarantor shall be obligated, directly or indirectly, to pay
principal, premium, interest or other amounts thereon or in respect thereof,
including by way of net worth requirements, equity keep wells or the like. In
the event that any indebtedness incurred pursuant to clause (1)(b) of the first
paragraph of this covenant is proposed to be amended, modified or otherwise
supplemented such that the payment of dividends or the making of other
distributions becomes subject in any manner to any restriction or limitation, we
will not permit the restricted subsidiary to so amend, modify or supplement such
indebtedness unless such indebtedness could be incurred pursuant to the terms of
clause (1)(a) of the foregoing paragraph.
All calculations required under the prior two paragraphs hereof shall be
made in a manner consistent with the calculations required under the covenant
described under "--Incurrence of Indebtedness and Issuance of Preferred Stock."
NO SENIOR SUBORDINATED DEBT
We will not incur, create, issue, assume, guarantee or otherwise become
liable for any indebtedness that is subordinate or junior in right of payment to
any of our senior debt and senior in any respect in right of payment to the
notes. No subsidiary guarantor will incur, create, issue, assume, guarantee or
otherwise become liable for any indebtedness that is subordinate or junior in
right of payment to the senior debt of such subsidiary guarantor and senior in
any respect in right of payment to such subsidiary guarantor's subsidiary
guaranty.
LIENS
We will not, and will not permit any of our restricted subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any lien of any
kind on any asset now owned or hereafter acquired, except permitted liens (as
defined below).
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DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
We will not, and will not permit any of our restricted subsidiaries to,
directly or indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any restricted
subsidiary to:
(1) pay dividends or make any other distributions on its capital stock to us or
any of our restricted subsidiaries, or with respect to any other interest or
participation in, or measured by, its profits, or pay any indebtedness owed
to us or any of our restricted subsidiaries;
(2) make loans or advances to us or any of our restricted subsidiaries; or
(3) transfer any of its properties or assets to us or any of our restricted
subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on the date of the indenture;
(2) the indenture, the notes and the subsidiary guaranties;
(3) applicable law, regulation or order;
(4) indebtedness incurred by a restricted subsidiary that is not a subsidiary
guarantor in compliance with the provisions set forth under the caption
"--Limitation on Foreign Indebtedness."
(5) any instrument governing indebtedness or capital stock of a person acquired
by us or any of our restricted subsidiaries as in effect at the time of
such acquisition (except to the extent such indebtedness was incurred in
connection with or in contemplation of such acquisition), which encumbrance
or restriction is not applicable to any person, or the properties or assets
of any person, other than the person, or the property or assets of the
person, so acquired, PROVIDED that, in the case of indebtedness, such
indebtedness was permitted by the terms of the indenture to be incurred;
(6) customary non-assignment provisions in leases, licenses or similar
agreements entered into in the ordinary course of business and consistent
with past practices;
(7) purchase money obligations for property acquired in the ordinary course of
business that impose restrictions on the property so acquired of the nature
described in clause (3) of the preceding paragraph;
(8) any agreement for the sale or other disposition of a restricted subsidiary
that restricts distributions by that restricted subsidiary pending its sale
or other disposition;
(9) liens securing indebtedness that limit the right of the debtor to dispose
of the assets subject to such lien;
(10) provisions with respect to the disposition or distribution of assets or
property in joint venture agreements, asset sale agreements, stock sale
agreements and other similar agreements entered into in the ordinary
course of business;
(11) restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business;
(12) any encumbrance or restriction on a Securitization Entity effected in
connection with a Qualified Securitization Transaction;
(13) indebtedness incurred after the date of the indenture in accordance with
the terms of the indenture; PROVIDED, that the restrictions contained in
the agreements governing such new indebtedness are, in the good faith
judgment of our board of directors, not materially less
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favorable, taken as a whole, to the holders of the notes than those
contained in the agreements governing indebtedness outstanding on the date
of the indenture;
(14) customary provisions in agreements with respect to Permitted Joint
Ventures; and
(15) any encumbrances or restrictions imposed by any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements
or refinancings of the contracts, instruments or obligations referred to
in clauses (1) through (14) above; PROVIDED that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are, in the good faith judgment of our board
of directors, no more restrictive with respect to such dividend and other
payment restrictions than those contained in the dividend or other payment
restrictions prior to such amendment, modification, restatement, renewal,
increase, supplement, refunding, replacement or refinancing.
MERGER, CONSOLIDATION OR SALE OF ASSETS
We may not, directly or indirectly, consolidate or merge with or into
another person (whether or not we are the surviving corporation), or sell,
assign, transfer, convey or otherwise dispose of all or substantially all of our
properties or assets and the properties and assets of our restricted
subsidiaries taken as a whole, in one or more related transactions, to another
person; unless:
(1) either: (a) we are the surviving corporation; or (b) the person formed by or
surviving any such
consolidation or merger (if other than us) or to which such sale,
assignment, transfer, conveyance or other disposition shall have been made
is a corporation, partnership, limited liability company or trust organized
or existing under the laws of the United States, any state thereof or the
District of Columbia;
(2) the person formed by or surviving any such consolidation or merger (if other
than us) or the person to which such sale, assignment, transfer, conveyance
or other disposition shall have been made assumes all our obligations of
under the notes, the indenture and the registration rights agreement
pursuant to agreements reasonably satisfactory to the Trustee;
(3) immediately after such transaction no default or event of default exists;
and
(4) we or the person formed by or surviving any such consolidation or merger (if
other than us), or to which such sale, assignment, transfer, conveyance or
other disposition shall have been made will, on the date of such transaction
after giving pro forma effect thereto and any related financing transactions
as if the same had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock."
In addition, we may not, directly or indirectly, lease all or substantially
all of our properties or assets, in one or more related transactions, to any
other person. This "Merger, Consolidation or Sale of Assets" covenant will not
apply to a sale, assignment, transfer, conveyance or other disposition of assets
between or among us and any of the subsidiary guarantors.
TRANSACTIONS WITH AFFILIATES
We will not, and will not permit any of our restricted subsidiaries to, make
any payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any transaction, contract, agreement, understanding, loan,
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advance or guarantee with, or for the benefit of, any affiliate, such
transactions being referred to in this prospectus as affiliate transactions,
unless:
(1) such affiliate transaction is on terms that are no less favorable to us or
the relevant restricted subsidiary than those that would have been obtained
in a comparable transaction by us or such restricted subsidiary with an
unrelated person; and
(2) we deliver to the Trustee:
(a) with respect to any affiliate transaction or series of related affiliate
transactions involving aggregate consideration in excess of $2.5 million,
a resolution of our board of directors set forth in an officers'
certificate certifying that such affiliate transaction complies with this
covenant and that such affiliate transaction has been approved by a
majority of the disinterested members of our board of directors.
(b) with respect to any affiliate transaction or series of related affiliate
transactions involving aggregate consideration in excess of $7.5 million,
an opinion issued by an accounting, appraisal or investment banking firm
of national standing that such affiliate transaction complies with this
covenant.
The following items shall not be deemed to be affiliate transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by us or any of our restricted
subsidiaries in the ordinary course of business and consistent with our
past practice or the past practice of any such restricted subsidiary;
(2) transactions between or among us and/or our restricted subsidiaries;
(3) transactions with a person that is our affiliate solely because we own an
equity interest in such person;
(4) payment of reasonable directors fees to persons who are not otherwise our
affiliates;
(5) sales of equity interests (other than Disqualified Stock) to our
affiliates;
(6) restricted payments that are permitted by the provisions of the indenture
described above under the caption "--Restricted Payments."
(7) providing indemnity to current or former officers, directors, employees or
consultants or those of any of our subsidiaries as determined in good faith
by our board of directors;
(8) the payment of customary management, consulting and advisory fees and
related expenses to Hidden Creek or its affiliates consistent with Hidden
Creek's past practices, including, without limitation, in connection with
acquisitions, divestitures or financings by us or any of our restricted
subsidiaries;
(9) our performance of obligations or those of any of our restricted
subsidiaries under the terms of any agreement to which we or any such
restricted subsidiary is a party as of the date of the indenture and which
is described above under the caption "Certain Relationships and Related
Transactions" and any similar agreements entered into after the date of the
indenture as such agreements may be amended or modified from time to time;
provided, however, that the existence of, or the performance by us or any
of our restricted subsidiaries of obligations under, any future amendment
to any such existing agreement or under any similar agreement entered into
after the date of the indenture shall be permitted by this clause to the
extent that the terms of any such amendment or similar agreement are not
more disadvantageous to the holders in any material respect than the terms
of the agreements in place on the date of the indenture;
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(10) the grant of stock options, restricted stock or similar rights to our
employees, and directors and consultants pursuant to plans approved by our
board of directors;
(11) transactions effected as part of a Qualified Securitization Transaction;
(12) loans or advances to employees or consultants in the ordinary course of
business and consistent with past practices, which are approved by a
majority of our board of directors in good faith; and
(13) transactions with customers, joint venture partners, clients, suppliers,
or purchasers or sellers of goods or services, in each case in the
ordinary course of business and otherwise in compliance with the terms of
the indenture which are fair to us or our restricted subsidiaries, in the
reasonable determination of our board of directors.
ADDITIONAL SUBSIDIARY GUARANTIES
If we or any of our restricted subsidiaries acquires or creates another
domestic restricted subsidiary after the date of the indenture and the newly
acquired or created domestic restricted subsidiary becomes a guarantor of the
credit facilities, then that newly acquired or created domestic restricted
subsidiary must become a subsidiary guarantor and execute a supplemental
indenture and deliver an opinion of counsel to the Trustee within 10 business
days of the date on which it became a subsidiary guarantor under the credit
facilities.
We will not permit any restricted subsidiary that is not a subsidiary
guarantor, directly or indirectly, to guaranty or pledge any assets to secure
the payment of any of our other indebtedness or the indebtedness of any
subsidiary guarantor (other than such restricted subsidiary) unless it
simultaneously executes and delivers a supplemental indenture providing for the
guaranty of the payment of the notes by such restricted subsidiary, which
subsidiary guaranty shall be senior to or rank equally with such restricted
subsidiary's guaranty of or pledge to secure such other indebtedness.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
Our board of directors may designate any restricted subsidiary to be an
unrestricted subsidiary if that designation would not cause a default. If a
restricted subsidiary is designated as an unrestricted subsidiary, the aggregate
fair market value of all outstanding Investments owned by us and our restricted
subsidiaries in the subsidiary so designated will be deemed to be an Investment
made as of the time of such designation and will either reduce the amount
available for restricted payments under the first paragraph of the covenant
described above under the caption "--Restricted Payments" or reduce the amount
available for future Investments under one or more clauses of the definition of
Permitted Investments, as we shall determine. That designation will only be
permitted if such Investment would be permitted at that time and if such
restricted subsidiary otherwise meets the definition of an unrestricted
subsidiary. Our board of directors may redesignate any unrestricted subsidiary
to be a restricted subsidiary if the redesignation would not cause a default.
BUSINESS ACTIVITIES
We and our restricted subsidiaries shall be at all times engaged primarily
in Permitted Businesses.
PAYMENTS FOR CONSENT
We will not, and will not permit any of our subsidiaries to, directly or
indirectly, pay or cause to be paid any consideration to or for the benefit of
any holder of notes for or as an inducement to any consent, waiver or amendment
of any of the terms or provisions of the indenture or the notes unless such
consideration is offered to be paid and is paid to all holders of the notes that
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
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REPORTS
So long as any notes are outstanding, we will furnish to the holders of
notes, whether or not required by the SEC, on or before the fifth day following
the date on which such reports are or would be due under the SEC's rules and
regulations:
(1) all quarterly and annual financial information that would be required to be
contained in a filing with the SEC on Forms 10-Q and 10-K if we 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 our certified independent accountants; and
(2) all current reports that would be required to be filed with the SEC on Form
8-K if we were required to file such reports.
The quarterly and annual financial information required by the preceding
paragraphs shall separately include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereof, of the
financial condition and results of operations of our non-guarantor subsidiaries.
In addition, following the consummation of the exchange offer contemplated
by the registration rights agreement, whether or not required by the SEC, we
will file a copy of all of the information and reports referred to in clauses
(1) and (2) above with the SEC for public availability within the time periods
specified in the SEC's rules and regulations (unless the SEC will not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request. In addition, we and the subsidiary
guarantors have agreed that, for so long as any notes remain outstanding, we
will furnish to the holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an event of default:
(1) default for 30 days in the payment when due of interest on, or liquidated
damages with respect to, the notes whether or not prohibited by the
subordination provisions of the indenture;
(2) default in payment when due of the principal of, or premium, if any, on the
notes, whether or not prohibited by the subordination provisions of the
indenture;
(3) failure by us or any of our restricted subsidiaries to comply with the
provisions described under the caption "--Certain Covenants--Merger,
Consolidation or Sale of Assets;"
(4) failure by us or any of our restricted subsidiaries for 60 days after notice
from the Trustee or holders of at least 25% of the outstanding principal
balance of the notes to comply with any of the other agreements in the
indenture;
(5) default under any mortgage, indenture or instrument under which there is
issued and outstanding any indebtedness for money borrowed by us or any of
our restricted subsidiaries (or the payment of which is guarantied by us or
any of our restricted subsidiaries) whether such indebtedness or guaranty
now exists, or is created after the date of the indenture, if that default:
(a) is caused by a failure to pay principal of, or interest or premium, if
any, on such indebtedness prior to the expiration of the grace period
provided in such indebtedness on the date of such default, such default
being referred to in this prospectus as a payment default; or
(b) results in the acceleration of such indebtedness prior to its express
maturity,
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and, in each case, the principal amount of any such indebtedness, together with
the principal amount of any other such indebtedness under which there has been a
payment default or the maturity of which has been so accelerated, aggregates
$10.0 million or more;
(6) failure by us or any of our restricted subsidiaries to pay final judgments
aggregating in excess of $10.0 million, which judgments are not paid,
vacated, discharged, stayed or non-appealable for a period of 90 days, and
in the event such judgment is covered by insurance, an enforcement
proceeding has been commenced by any creditor upon such judgment or decree
which is not promptly stayed;
(7) except as permitted by the indenture, any subsidiary guaranty shall be held
in any judicial proceeding to be unenforceable or invalid or shall cease for
any reason to be in full force and effect or any subsidiary guarantor, or
any person acting on behalf of any subsidiary guarantor, shall deny or
disaffirm its obligations under its subsidiary guaranty; and
(8) certain events of bankruptcy or insolvency with respect to us or any
subsidiary or group of subsidiaries that, individually or in the aggregate,
would constitute a Significant Subsidiary.
In the case of an event of default arising from certain events of bankruptcy
or insolvency, with respect to us, any subsidiary that is a Significant
Subsidiary or any group of subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding notes will become due and payable
immediately without further action or notice. If any other event of default
occurs and is continuing, the Trustee or the holders of at least 25% in
principal amount of the then outstanding notes may declare all the notes to be
past due and payable immediately; provided, however, that so long as any
indebtedness permitted to be incurred under the indenture as part of the credit
facilities is outstanding, no such acceleration shall be effective until the
earlier of (i) five business days after the giving of written notice to us and
the administrative agent under the credit facilities of such acceleration or
(ii) acceleration of any such indebtedness under the credit facilities.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
notes notice of any continuing default or event of default (except a default or
event of default relating to the payment of principal or interest or liquidated
damages) if it determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
notes waive any existing default or event of default and its consequences under
the indenture except a continuing default or event of default in the payment of
interest or liquidated damages on, or the principal of, the notes.
We are required to deliver to the Trustee annually a statement regarding
compliance with the indenture. Upon becoming aware of any default or event of
default, we are required to deliver to the Trustee a statement specifying such
default or event of default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of us or any
subsidiary guarantor, as such, shall have any liability for any of our
obligations or of the subsidiary guarantors under the notes, the indenture or
the subsidiary guaranties or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each holder of notes by accepting a note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes. The waiver may not be effective to
waive liabilities under the federal securities laws.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
We may, at our option and at any time, elect to have all of our obligations
discharged with respect to the outstanding notes and all obligations of the
subsidiary guarantors discharged with respect to their subsidiary guaranties,
such discharge being referred to in this prospectus as legal defeasance, except
for:
(1) the rights of holders of outstanding notes to receive payments in respect of
the principal of, or interest or premium and liquidated damages, if any, on
such notes when such payments are due from the trust referred to below;
(2) our obligations with respect to the notes concerning issuing temporary
notes, registration of notes, mutilated, destroyed, lost or stolen notes and
the maintenance of an office or agency for payment and money for security
payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and our
and the subsidiary guarantor's obligations in connection therewith; and
(4) the legal defeasance provisions of the indenture.
In addition, we may, at our option and at any time, elect to have our
obligations and the obligations of the subsidiary guarantors released with
respect to certain covenants that are described in the indenture, such release
being referred to in this prospectus as covenant defeasance and thereafter any
omission to comply with those covenants shall not constitute a default or event
of default with respect to the notes. In the event covenant defeasance occurs,
certain events, not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events, described under "Events of Default" will
no longer constitute an event of default with respect to the notes.
In order to exercise either legal defeasance or covenant defeasance:
(1) we must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders of the notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, or interest and premium and liquidated
damages, if any, on the outstanding notes on the stated maturity or on the
applicable redemption date, as the case may be, and we must specify whether
the notes are being defeased to maturity or to a particular redemption date;
(2) in the case of legal defeasance, we shall have delivered to the Trustee an
opinion of counsel reasonably acceptable to the Trustee confirming that (a)
we have received from, or there has been published by, the Internal Revenue
Service a ruling or (b) since the date of the indenture, there has been a
change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion of counsel shall confirm that,
the holders of the notes will not recognize income, gain or loss for federal
income tax purposes as a result of such legal defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such legal defeasance had not
occurred;
(3) in the case of covenant defeasance, we shall have delivered to the Trustee
an opinion of counsel reasonably acceptable to the Trustee confirming that
the holders of the notes will not recognize income, gain or loss for federal
income tax purposes as a result of such covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such covenant defeasance had
not occurred;
(4) no default or event of default shall have occurred and be continuing either:
(a) on the date of such deposit (other than a default or event of default
resulting from the borrowing of funds to be applied to such deposit); or (b)
or insofar as events of default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date
of deposit;
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(5) such legal defeasance or covenant defeasance will not result in a breach or
violation of, or constitute a default under any material agreement or
instrument (other than the indenture) to which we or any of our subsidiaries
is a party or by which we or any of our subsidiaries is bound;
(6) we must have delivered to the Trustee an opinion of counsel to the effect
that, assuming no intervening bankruptcy of us or any subsidiary guarantor
between the date of deposit and the 91st day following the deposit and
assuming that no holder is an insider of the Issuer under applicable
bankruptcy law, after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally;
(7) we must deliver to the Trustee an officers' certificate stating that the
deposit was not made by us with the intent of preferring the holders of
notes over our other creditors with the intent of defeating, hindering,
delaying or defrauding our creditors or others; and
(8) we must deliver to the Trustee an officers' certificate and an opinion of
counsel, each stating that all conditions precedent relating to the legal
defeasance or the covenant defeasance have been complied with.
Notwithstanding the foregoing, the opinion of counsel required by clauses
(2) or (3) above need not be delivered if, at such time, all notes have been
irrevocably called for redemption in accordance with the terms of the indenture.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next three succeeding paragraphs, the indenture or
the notes may be amended or supplemented with the consent of the holders of at
least a majority in principal amount of the notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, the notes), and any existing default or
compliance with any provision of the indenture or the notes may be waived with
the consent of the holders of a majority in principal amount of the then
outstanding notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, the
notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting holder):
(1) reduce the principal amount of notes whose holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or alter
the provisions with respect to the redemption of the notes (other than
provisions relating to the covenants described above under the caption
"--Repurchase at the Option of holders");
(3) reduce the rate of or change the time for payment of interest on any note;
(4) waive a default or event of default in the payment of principal of, or
interest or premium, or liquidated damages, if any, on the notes (except a
rescission of acceleration of the notes by the holders of at least a
majority in aggregate principal amount of the notes and a waiver of the
payment default that resulted from such acceleration);
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the indenture relating to waivers of
past defaults or the rights of holders of notes to receive payments of
principal of, or interest or premium or liquidated damages, if any, on the
notes;
(7) waive a redemption payment with respect to any note (other than a payment
required by one of the covenants described above under the caption
"--Repurchase at the Option of Holders");
(8) release any subsidiary guarantor from any of its obligations under its
subsidiary guaranty or the indenture, except in accordance with the terms of
the indenture; or
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(9) make any change in the preceding amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of the indenture
relating to subordination that adversely affects the rights of the holders of
the notes will require the consent of the holders of at least 75% in aggregate
principal amount of notes then outstanding.
Notwithstanding the preceding, without the consent of any holder of notes,
we, the subsidiary guarantors and the Trustee may amend or supplement the
indenture or the notes:
(1) to cure any ambiguity, defect, error or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of the issuer's, or any subsidiary
guarantor's, obligations to holders of notes in the case of a merger or
consolidation or sale of all or substantially all of our, or any subsidiary
guarantor's, as the case may be, assets;
(4) to make any change that would provide any additional rights or benefits to
the holders of notes, including providing for additional subsidiary
guaranties, or that does not adversely affect the legal rights under the
indenture of any such holder; or
(5) to comply with requirements of the SEC in order to effect or maintain the
qualification of the indenture under the Trust Indenture Act.
SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect as
to all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated (except lost, stolen or destroyed
notes that have been replaced or paid and notes for whose payment money
has theretofore been deposited in trust and thereafter repaid to us) have
been delivered to the Trustee for cancellation; or
(b) all notes that have not been delivered to the Trustee for cancellation
have become due and payable by reason of the making of a notice of
redemption or otherwise or will become due and payable within one year
and we or any subsidiary guarantor has irrevocably deposited or caused to
be deposited with the Trustee as trust funds in trust solely for the
benefit of the holders, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be
sufficient without consideration of any reinvestment of interest, to pay
and discharge the entire indebtedness on the notes not delivered to the
Trustee for cancellation for principal, premium and liquidated damages,
if any, and accrued interest to the date of maturity or redemption;
(2) no default or event of default shall have occurred and be continuing on the
date of such deposit or shall occur as a result of such deposit and such
deposit will not result in a breach or violation of, or constitute a default
under, any other instrument to which we or any subsidiary guarantor is a
party or by which we or any subsidiary guarantor is bound;
(3) we or any subsidiary guarantor has paid or caused to be paid all sums
payable by it under the indenture; and
(4) we have delivered irrevocable instructions to the Trustee under the
indenture to apply the deposited money toward the payment of the notes at
maturity or the redemption date, as the case may be.
In addition, we must deliver an officers' certificate to the Trustee stating
that all conditions precedent to satisfaction and discharge have been satisfied.
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CONCERNING THE TRUSTEE
If the Trustee becomes a creditor of French Automotive or any subsidiary
guarantor, the indenture limits its right to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the SEC for permission to continue or
resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The indenture provides that in case an event of default
shall occur and be continuing, the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
holder of notes, unless such holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the indenture and
registration rights agreement without charge by writing to J.L. French
Automotive Castings, Inc., 4508 IDS Center, Minneapolis, Minnesota 55402,
Attention: Chief Financial Officer.
BOOK-ENTRY, DELIVERY AND FORM
The notes sold to qualified institutional buyers, as defined in Rule 144A
under the Securities Act, which are known as QIBs, initially will be in the form
of one or more registered global notes without interest coupons (collectively,
the "144A global notes"). Upon issuance, the 144A global notes will be deposited
with the Trustee, as custodian for DTC and registered in the name of DTC or its
nominee, in each case for credit to the accounts of DTC's direct and indirect
participants. In addition, a registered global note without coupons will be
established to accommodate subsequent transfers to institutional accredited
investors, as defined in Rule 501(a)(1)(2)(3) or (7) of Regulation D under the
Securities Act (an "IAI note" and, together with the 144A global notes, the
"U.S. global notes"). The notes being offered and sold in offshore transactions
in reliance on Regulation S, if any, initially will be in the form of one or
more temporary, registered, global book entry notes without interest coupons
(the "Regulation S temporary global notes"). The Regulation S temporary global
notes will be deposited with the Trustee, as custodian for DTC, in New York, New
York, and registered in the name of a nominee of DTC for credit to the accounts
of indirect participants at the Euroclear System and Cedelbank. During the
40-day period commencing on the day after the later of the offering date and the
date of the indenture, beneficial interests in the Regulation S temporary global
notes may be held only through Euroclear or CEDEL, and, pursuant to DTC's
procedures, indirect participants that hold a beneficial interest in the
Regulation S temporary global notes will not be able to transfer such interest
to a person that takes delivery thereof in the form of an interest in the U.S.
global notes. Within a reasonable time after the expiration of the 40-day
restricted period, the Regulation S temporary global notes will be exchanged for
one or more permanent global notes (the "Regulation S permanent global notes,"
and collectively with the Regulation S temporary global notes, the "Regulation S
global notes") upon delivery to DTC of certification of compliance with the
transfer restrictions applicable to the notes and pursuant to Regulation S as
provided in the indenture. After the 40-day restricted period (1) beneficial
interests in the Regulation S permanent global notes may be transferred to a
person that takes delivery in the form of an interest in the U.S. global notes
and (2) beneficial interests in the U.S. global notes may be transferred to a
person that takes delivery in the form of an interest in the Regulation S
permanent global notes; provided, in each case, that the certification
requirements described below are complied with. See "--Exchanges Between
Regulation
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S Notes and Rule 144A Notes." All registered global notes are referred to herein
collectively as "global notes."
The global notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the global notes may be exchanged
for notes in certificated form in certain limited circumstances. See "--Exchange
of Global Notes for Certificated Notes."
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC, Euroclear
and CEDEL are provided solely as a matter of convenience. These operations and
procedures are solely within the control of the respective settlement systems
and are subject to changes by them. We take no responsibility for these
operations and procedures and urge investors to contact the system or their
participants directly to discuss these matters.
DTC is a limited-purpose trust company created to hold securities for its
participating organizations and to facilitate the clearance and settlement of
transactions in those securities between participants through electronic
book-entry changes in accounts of its participants. The participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Access to DTC's system is also available to
other entities such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a participant, either directly
or indirectly. Persons who are not participants may beneficially own securities
held by or on behalf of DTC only through the participants or the indirect
participants. The ownership interests in, and transfers of ownership interests
in, each security held by or on behalf of DTC are recorded on the records of the
participants and indirect participants.
Investors in the U.S. global notes who are participants in DTC's system may
hold their interests therein directly through DTC. Investors in the U.S. global
notes who are not participants may hold their interests therein indirectly
through organizations, including Euroclear and CEDEL, which are participants in
such system. Investors in the Regulation S global notes must initially hold
their interests therein through Euroclear or CEDEL, if they are participants in
such systems, or indirectly through organizations that are participants in such
systems. After the expiration of the 40-day restricted period, but not earlier,
investors may also hold interests in the Regulation S global notes through
participants in the DTC system other than Euroclear and CEDEL. Euroclear and
CEDEL will hold interests in the Regulation S global notes on behalf of their
participants through customers' securities accounts in their respective names on
the books of their respective depositories, which are Morgan Guaranty Trust
Company of New York, Brussels office, as operator of Euroclear, and Citibank,
N.A., as operator of CEDEL.
All interests in a global note, including those held through Euroclear or
CEDEL, may be subject to the procedures and requirements of DTC. Those interests
held through Euroclear or CEDEL may also be subject to the procedures and
requirements of such systems. The laws of some states require that certain
persons take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer beneficial interests in a global note to
such persons will be limited to that extent. Because DTC can act only on behalf
of participants, which in turn act on behalf of indirect participants, the
ability of a person having beneficial interests in a global note to pledge such
interests to persons that do not participate in the DTC system, or otherwise
take actions in respect of such interests, may be affected by the lack of a
physical certificate evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
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Payments in respect of the principal of, and interest and premium and
liquidated damages, if any, on a global note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered holder
under the indenture. Under the terms of the indenture, we and the Trustee will
treat the persons in whose names the notes, including the global notes, are
registered as the owners thereof for the purpose of receiving payments and for
all other purposes. Consequently, neither we, the Trustee nor any of our
respective agents has or will have any responsibility or liability for:
(1) any aspect of DTC's records or any participant's or indirect participant's
records relating to or payments made on account of beneficial ownership
interest in the global notes or for maintaining, supervising or reviewing
any of DTC's records or any participant's or indirect participant's records
relating to the beneficial ownership interests in the global notes; or
(2) any other matter relating to the actions and practices of DTC or any of its
participants or indirect participants.
DTC's current practice, upon receipt of any payment in respect of securities
such as the notes, including principal and interest, is to credit the accounts
of the relevant participants with the payment on the payment date unless DTC has
reason to believe it will not receive payment on such payment date. Each
relevant participant is credited with an amount proportionate to its beneficial
ownership of an interest in the principal amount of the relevant security as
shown on the records of DTC.
Payments by the participants and the indirect participants to the beneficial
owners of notes will be governed by standing instructions and customary
practices and will be the responsibility of the participants or the indirect
participants and will not be the responsibility of DTC, the Trustee or us.
Neither we nor the Trustee will be liable for any delay by DTC or any of its
participants in identifying the beneficial owners of the notes, and we and the
Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Except for trades involving only Euroclear and CEDEL participants, interest
in the global notes are expected to be eligible to trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will,
therefore, settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its participants. See"--Same Day Settlement and
Payment."
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds, and transfers between
participants in Euroclear and CEDEL will be effected in accordance with their
respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
outstanding notes described herein, cross-market transfers between the
participants in DTC, on the one hand, and Euroclear or CEDEL participants, on
the other hand, will be effected through DTC in accordance with DTC's rules on
behalf of Euroclear or CEDEL, as the case may be, by its respective depositary;
however, such cross-market transactions will require delivery of instructions to
Euroclear or CEDEL, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or CEDEL, as the case may be, will, if
the transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Global Note in DTC, and making
or receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and CEDEL participants may
not deliver instructions directly to the depositories for Euroclear or CEDEL.
DTC has advised us that it will take any action permitted to be taken by a
holder of notes only at the direction of one or more participants to whose
account DTC has credited the interests in the global
89
notes and only in respect of such portion of the aggregate principal amount of
the notes as to which such participant or participants has or have given such
direction. However, if there is an event of default under the notes, DTC
reserves the right to exchange the global notes for legended notes in
certificated form, and to distribute such notes to its participants.
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures to
facilitate transfers of interests in the U.S. global notes and the Regulation S
global notes among participants in DTC, Euroclear and CEDEL, they are under no
obligation to perform or to continue to perform such procedures, and may
discontinue such procedures at any time. Neither we nor the Trustee nor any of
our respective agents will have any responsibility for the performance by DTC,
Euroclear or CEDEL or their respective participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations.
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES
A global note is exchangeable for definitive notes in registered
certificated form if:
(1) DTC (a) notifies us that it is unwilling or unable to continue as depositary
for the global notes and we fail to appoint a successor depositary or (b)
has ceased to be a clearing agency registered under the Exchange Act;
(2) we, at our option, notify the Trustee in writing that we elect to cause the
issuance of the certificated notes; or
(3) there shall have occurred and be continuing a default or event of default
with respect to the Notes.
In addition, beneficial interests in a global note may be exchanged for
certificated notes upon prior written notice given to the Trustee by or on
behalf of DTC in accordance with the indenture. In all cases, certificated notes
delivered in exchange for any global note or beneficial interests in global
notes will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary, in accordance with its customary
procedures.
EXCHANGE OF CERTIFICATED NOTES FOR GLOBAL NOTES
Certificated notes may not be exchanged for beneficial interests in any
global note unless the transferor first delivers to the Trustee a written
certificate (in the form provided in the indenture) to the effect that such
transfer will comply with the appropriate transfer restrictions applicable to
such notes.
EXCHANGES BETWEEN REGULATION S NOTES AND RULE 144A NOTES
Prior to the expiration of the 40-day restricted period, beneficial
interests in the Regulation S global note may be exchanged for beneficial
interests in the Rule 144A global note only if:
(1) such exchange occurs in connection with a transfer of the notes pursuant to
Rule 144A; and
(2) the transferor first delivers to the Trustee a written certificate (in the
form provided in the indenture) to the effect that the notes are being
transferred to a Person:
(a) who the transferor reasonably believes to be a QIB;
(b) purchasing for its own account or the account of a QIB in a transaction
meeting the requirements of Rule 144A; and
(c) in accordance with all applicable securities laws of the states of the
United States and other jurisdictions.
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Beneficial interest in a Rule 144A global note may be transferred to a
Person who takes delivery in the form of an interest in the Regulation S global
note, whether before or after the expiration of the 40-day restricted period,
only if the transferor first delivers to the Trustee a written certificate in
the form provided in the indenture to the effect that such transfer is being
made in accordance with Rule 903 or 904 of Regulation S or Rule 144, if
available, and that, if such transfer occurs prior to the expiration of the
40-day restricted period, the interest transferred will be held immediately
thereafter through Euroclear or CEDEL.
Transfers involving exchanges of beneficial interests between the Regulation
S global notes and the Rule 144A global notes will be effected in DTC by means
of an instruction originated by the Trustee through the DTC Deposit/Withdraw at
Custodian system. Accordingly, in connection with any such transfer, appropriate
adjustments will be made to reflect a decrease in the principal amount of the
Regulation S global note and a corresponding increase in the principal amount of
the Rule 144A global note or vice versa, as applicable. Any beneficial interest
in one of the global notes that is transferred to a person who takes delivery in
the form of an interest in the other global note will, upon transfer, cease to
be an interest in such global note and will become an interest in the other
global note and, accordingly, will thereafter be subject to all transfer
restrictions and other procedures applicable to beneficial interest in such
other global note for so long as it remains such an interest. The policies and
practices of DTC may prohibit transfers of beneficial interests in the
Regulation S global note prior to the expiration of the 40-day restricted
period.
SAME DAY SETTLEMENT AND PAYMENT
The indenture requires that payments in respect of the notes represented by
the global notes (including principal, premium, if any, interest and liquidated
damages, if any) be made by wire transfer of immediately available funds to the
accounts specified by the global note holder. We will make all payments of
principal, interest and premium and liquidated damages, if any, with respect to
certificated notes by wire transfer of immediately available funds to the
accounts specified by the holders thereof or, if no such account is specified,
by mailing a check to each such holder's registered address. The notes
represented by the global notes are expected to be eligible to trade in the
PORTAL market and to trade in DTC's Same-Day Funds Settlement System, and any
permitted secondary market trading activity in such notes will, therefore, be
required by DTC to be settled in immediately available funds. We expect that
secondary trading in any certificated notes will also be settled in immediately
available funds.
Because of time zone differences, the securities account of a Euroclear or
CEDEL participant purchasing an interest in a global note from a participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or CEDEL participant, during the securities settlement processing day
(which must be a business day for Euroclear and CEDEL) immediately following the
settlement date of DTC. DTC has advised us that cash received in Euroclear or
CEDEL as a result of sales of interests in a global note by or through a
Euroclear or CEDEL participant to a participant in DTC will be received with
value on the settlement date of DTC but will be available in the relevant
Euroclear or CEDEL cash account only as of the business day for Euroclear or
CEDEL following DTC's settlement date.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The following description is a summary of the material provisions of the
registration rights agreement. It does not restate that agreement in its
entirety. We urge you to read the registration rights agreement in its entirety
because it, and not this description, defines your registration rights as a
holder of these notes. See "--Additional Information."
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We, the subsidiary guarantors and the initial purchasers entered into the
registration rights agreement. Pursuant to the registration rights agreement, we
and the subsidiary guarantors agreed to file with the SEC the exchange offer
registration statement on the appropriate form under the Securities Act with
respect to the exchange notes. Upon the effectiveness of the exchange offer
registration statement, we and the subsidiary guarantors will offer to the
holders of Transfer Restricted Securities (as defined below) pursuant to the
exchange offer who are able to make certain representations the opportunity to
exchange their outstanding notes for exchange notes.
If:
(1) we and the subsidiary guarantors are not
(a) required to file the exchange offer registration statement; or
(b) permitted to consummate the exchange offer because the exchange offer is
not permitted by applicable law or SEC policy; or
(2) any holder of transfer restricted securities (as defined below) notifies us
prior to the 20th day following consummation of the exchange offer that:
(a) it is prohibited by law or SEC policy from participating in the exchange
offer; or
(b) that it may not resell the exchange notes acquired by it in the exchange
offer to the public without delivering a prospectus and the prospectus
contained in the exchange offer registration statement is not appropriate
or available for such resales; or
(c) that it is a broker-dealer and owns notes acquired directly from us or
an affiliate of ours,
we and the subsidiary guarantors will file with the SEC a shelf registration
statement to cover resales of the notes by the holders thereof who satisfy
certain conditions relating to the provision of information in connection with
the shelf registration statement.
We and the subsidiary guarantors will use our reasonable best efforts to
cause the applicable registration statement to be declared effective as promptly
as possible by the SEC.
For purposes of the preceding, transfer restricted securities means each
note until:
(1) the date on which such note has been exchanged by a Person other than a
broker-dealer for an exchange note in the exchange offer;
(2) following the exchange by a broker-dealer in the exchange offer of a note
for an exchange note, the date on which such exchange note is sold to a
purchaser who receives from such broker-dealer on or prior to the date of
such sale a copy of the prospectus contained in the exchange offer
registration statement;
(3) the date on which such note has been effectively registered under the
Securities Act and disposed of in accordance with the shelf registration
statement; or
(4) the date on which such note is distributed to the public pursuant to Rule
144 under the Securities Act.
The registration rights agreement provides:
(1) we and the subsidiary guarantors will use our reasonable best efforts to
file an exchange offer registration statement with the SEC on or prior to 90
days after the closing of initial offering of the outstanding notes;
(2) we and the subsidiary guarantors will use our reasonable best efforts to
have the exchange offer registration statement declared effective by the SEC
on or prior to 180 days after the closing of the initial offering of the
outstanding note;
92
(3) unless the exchange offer would not be permitted by applicable law or SEC
policy, we and the subsidiary guarantors will
(a) commence the exchange offer; and
(b) use our reasonable best efforts to issue on or prior to 30 business
days, or longer, if required by the federal securities laws, after the
date on which the exchange offer registration statement was declared
effective by the SEC, exchange notes in exchange for all outstanding
notes tendered prior thereto in the exchange offer; and
(4) if obligated to file the shelf registration statement, we and the subsidiary
guarantors will use our reasonable best efforts to file the shelf
registration statement with the SEC on or prior to 30 days after such filing
obligation arises and to cause the shelf registration statement to be
declared effective by the SEC on or prior to 90 days after such filing is
made, but in no event earlier than the date on which our obligation with
respect to the exchange offer registration statement would have arisen.
If:
(1) we and the subsidiary guarantors fail to file any of the registration
statements required by the registration rights agreement on or before the
date specified for such filing; or
(2) any of such registration statements is not declared effective by the SEC on
or prior to the date specified for such effectiveness; or
(3) we and the subsidiary guarantors fail to consummate the exchange offer
within 30 business days of the date specified for the effectiveness of the
exchange offer registration statement; or
(4) the shelf registration statement or the exchange offer registration
statement is declared effective but thereafter ceases to be effective or
usable in connection with resales of transfer restricted securities during
the periods specified in the registration rights agreement, each such event
referred to in clauses (1) through (4) being referred to in this prospectus
as a registration default,
then we and the subsidiary guarantors will pay liquidated damages to each
holder of notes, with respect to the first 90-day period immediately following
the occurrence of the first registration default in an amount equal to $.05 per
week per $1,000 principal amount of notes held by such holder.
The amount of the liquidated damages will increase by an additional $.05 per
week per $1,000 principal amount of notes with respect to each subsequent 90-day
period until all registration defaults have been cured, up to a maximum amount
of liquidated damages for all registration defaults of $.50 per week per $1,000
principal amount of notes. All accrued liquidated damages will be paid by the us
the subsidiary guarantors on each Damages Payment Date to the global note holder
by wire transfer of immediately available funds or by federal funds check and to
holders of certificated notes by wire transfer to the accounts specified by them
or by mailing checks to their registered addresses if no such accounts have been
specified. Following the cure of all registration defaults, the accrual of
liquidated damages will cease.
Holders of notes will be required to make certain representations to us, as
described in the registration rights agreement, in order to participate in the
exchange offer and will be required to deliver certain information to be used in
connection with the shelf registration statement and to provide comments on the
shelf registration statement within the time periods set forth in the
registration rights agreement in order to have their notes included in the shelf
registration statement and benefit from the provisions regarding liquidated
damages set forth above. By acquiring transfer restricted securities, a holder
will be deemed to have agreed to indemnify us and the subsidiary guarantors
against certain losses arising out of information furnished by such holder in
writing for inclusion in any shelf registration statement. Holders of notes will
also be required to suspend their use
93
of the prospectus included in the shelf registration statement under certain
circumstances upon receipt of written notice to that effect from us.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified person:
(1) indebtedness of any other person existing at the time such other person
is merged with or into or became a subsidiary of such specified person,
whether or not such indebtedness is incurred in connection with, or in
contemplation of, such other person merging with or into, or becoming a
subsidiary of, such specified person; and
(2) indebtedness secured by a lien encumbering any asset acquired by such
specified person.
"AFFILIATE" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For purposes of this definition, "control,"
as used with respect to any person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such person, whether through the ownership of voting securities, by
agreement or otherwise; PROVIDED that beneficial ownership of 10% or more of the
voting stock of a person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings.
"ASSET SALE" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales or leases in the ordinary course of business
consistent with past practices; PROVIDED that the sale, conveyance or
other disposition of all or substantially all of our assets and the
assets of our restricted subsidiaries taken as a whole will be governed
by the provisions of the indenture described above under the caption
"--Repurchase at the Option of Holders--Change of Control" and/or the
provisions described above under the caption "--Certain Covenants--
Merger, Consolidation or Sale of Assets" and not by the provisions of the
Asset Sale covenant; and
(2) the issuance of equity interests by any of our restricted subsidiaries
or the sale of equity interests in any of our restricted subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that involves
assets having a fair market value of less than $2.5 million;
(2) a transfer of assets between or among us and our restricted
subsidiaries,
(3) an issuance of equity interests by a restricted subsidiary to us or to
another restricted subsidiary;
(4) the sale, lease or license of equipment, inventory, accounts receivable
or other assets in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents;
(6) a restricted payment or Permitted Investment that is permitted by the
covenant described above under the caption "--Certain
Covenants--Restricted Payments";
94
(7) the licensing or sublicensing of intellectual property or other general
intangibles and licenses, leases or subleases of other property in the
ordinary course of business and which do not materially interfere with
our business and our subsidiaries' businesses;
(8) sales of receivables and related assets (including contract rights) of
the type specified in the definition of "QUALIFIED SECURITIZATION
TRANSACTION" to a Securitization Entity for the fair market value
thereof;
(9) an exchange or series of exchanges of long-term assets; provided (i)
that the long-term assets received by us or any of our restricted
subsidiaries have a fair market value, as determined by us, at least
equal to the fair market value of the assets for which they were
exchanged and are used or useful in a Permitted Business and (ii) that
the aggregate fair market value, as determined above, of such long-term
assets, taken together with the fair market value of all other long-term
assets received pursuant to this clause (9) less the amount of Net
Proceeds previously realized in cash from the disposition of such earlier
received long-term assets is, at the time of receipt of such long-term
assets, with the fair market value of each long-term asset being measured
at the time received and without giving effect to subsequent changes in
value, less than 10.0% of Total Assets; and
(10) any exchange of like property pursuant to 1031(g) of the Internal
Revenue Code of 1986, as amended, for use in a Permitted Business.
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means, at
the time of determination, the present value of the obligation of the lessee for
net rental payments during the remaining term of the lease included in such sale
and leaseback transaction including any period for which such lease has been
extended or may, at the option of the lessor, be extended. Such present value
shall be calculated using a discount rate equal to the rate of interest implicit
in such transaction, determined in accordance with GAAP.
"BENEFICIAL OWNER" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" shall have a corresponding meaning.
"BORROWING BASE" means, as of any date, an amount equal to:
(1) 85% of the face amount of all accounts receivable owned by us and our
restricted subsidiaries as of the most recent month end for which such
information is available that were not more than 90 days past due; PLUS
(2) 50% of the book value of all inventory owned by us and our restricted
subsidiaries as of the most recent month end for which such information
is available.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;
95
(3) in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a person the right
to receive a share of the profits and losses of, or distributions of
assets of, the issuing person.
"CASH EQUIVALENTS" means:
(1) with respect to United States dollars, (a) United States dollars, (b)
securities with maturities of one year or less from the date of
acquisition issued or fully guaranteed or insured by the United States
Government or any agency thereof, (c) certificates of deposit, time
deposits, overnight bank deposits, bankers acceptances and repurchase
agreements of any commercial bank which has, or whose obligations are
guaranteed by an affiliated commercial bank which has capital and surplus
in excess of $500,000,000 having maturities of one year or less from the
date of acquisition, (d) commercial paper of an issuer rated at least A-1
by Standard & Poor's Corporation or P-1 by Moody's Investors Service,
Inc., or carrying an equivalent rating by a nationally recognized rating
agency if both of the two named rating agencies cease publishing ratings
of investments, (e) money market accounts or funds with or issued by
Qualified Issuers, (f) repurchase obligations with a term of not more
than 90 days for underlying securities of the types described in clause
(b) above entered into with any bank meeting the qualifications specified
in clause (c) above, and (g) demand deposit accounts maintained in the
ordinary course of business with any Lender or with any bank that is not
a Lender not in excess of $100,000 in the aggregate on deposit with any
such bank; "QUALIFIED ISSUER" means any commercial bank (a) which has, or
whose obligations are guaranteed by an affiliated commercial bank which
has, capital and surplus in excess of $500,000,000 and (b) the
outstanding short-term debt securities of which are rated at least A-1 by
Standard & Poor's Corporation or at least P-1 by Moody's Investors
Service, Inc., or carry an equivalent rating by a nationally recognized
rating agency if both of the two named rating agencies cease publishing
ratings of investments;
(2) with respect to pounds sterling, (a) pounds sterling, (b) any credit
balances, realizable within three (3) months, on any bank or other
deposit, savings or current account held in the United Kingdom (or any
other jurisdiction from which cash is readily remittable to the United
Kingdom); (c) cash in hand; (d) gilt edged securities; (e) Sterling
commercial paper maturing not more than twelve (12) months from the date
of issue and rated A-1 by Standard & Poor's Corporation or P-1 by Moody's
Investors Service, Inc.; (f) any deposit with or acceptance maturing not
more than one (1) year after issue accepted by an institution authorized
under the Banking Act 1987 or a Bank; and (g) Sterling denominated debt
securities having not more than one (1) year until final maturity and
listed on a recognized stock exchange and rated at least AA by Standard &
Poor's Corporation or Aa by Moody's Investors Service, Inc.; and
(3) with respect to currencies of nations in which we or our restricted
subsidiaries do business, (a) the currency of such nations and (b) any
credit balances realizable within three (3) months, on any bank or other
deposit, savings or current account held in such nations (or any other
jurisdiction from which cash is readily remittable to such nation).
"CHANGE OF CONTROL" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of our properties or
assets and the properties and assets of our restricted subsidiaries taken
as a whole to any "person", as that term is used in Section 13(d)(3) of
the Exchange Act, other than a Principal or a Related Party of a
Principal;
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(2) the adoption by us of a plan relating to the liquidation or dissolution;
(3) the consummation of any transaction, including, without limitation, any
merger or consolidation, the result of which is that any "person", as
defined above, other than the Principals and their Related Parties,
becomes the Beneficial Owner, directly or indirectly, of more than 50% of
our voting stock, measured by voting power rather than number of shares;
(4) the first day on which a majority of the members of our board of
directors are not Continuing Directors; or
(5) we consolidate with, or merge with or into, any person, or any person
consolidates with, or merges with or into, us, in any such event pursuant
to a transaction in which any of our outstanding voting stock or such
other person is converted into or exchanged for cash, securities or other
property, other than any such transaction where our voting stock
outstanding immediately prior to such transaction is converted into or
exchanged for voting stock, other than Disqualified Stock, of the
surviving or transferee person constituting a majority of the outstanding
shares of such voting stock of such surviving or transferee person,
immediately after giving effect to such issuance.
"CONSOLIDATED CASH FLOW" means, with respect to any specified person for any
period, the Consolidated Net Income of such person for such period PLUS:
(1) an amount equal to any extraordinary loss plus any net loss realized by
such person or any of its restricted subsidiaries in connection with an
Asset Sale, to the extent such losses were deducted in computing such
Consolidated Net Income; PLUS
(2) provision for taxes based on income or profits of such person and its
restricted subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net
Income; PLUS
(3) consolidated interest expense of such person and its restricted
subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions,
discounts and other fees and charges incurred in respect of letter of
credit or bankers' acceptance financings, and net of the effect of all
payments made or received pursuant to Hedging Obligations), to the extent
that any such expense was deducted in computing such Consolidated Net
Income; PLUS
(4) depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were
paid in a prior period) and other non-cash expenses (excluding any such
non-cash expense to the extent that it represents an accrual of or
reserve for cash expenses in any future period or amortization of a
prepaid cash expense that was paid in a prior period) of such person and
its restricted subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income; MINUS
(5) non-cash items increasing such Consolidated Net Income for such period,
other than the accrual of revenue in the ordinary course of business, in
each case, on a consolidated basis and determined in accordance with
GAAP.
Notwithstanding the preceding, the provision for taxes based on the income
or profits of, and the depreciation and amortization and other non-cash expenses
of, any of our restricted subsidiaries shall be added to Consolidated Net Income
to compute our Consolidated Cash Flow only to the extent that a corresponding
amount would be permitted at the date of determination to be dividended to us by
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such restricted subsidiary without prior governmental approval that has not been
obtained, and without direct or indirect restriction pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that restricted
subsidiary or its stockholders.
"CONSOLIDATED NET INCOME" means, with respect to any specified person for
any period, the aggregate of the Net Income of such person and its restricted
subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; PROVIDED that:
(1) the Net Income (but not loss) of any person that is not a restricted
subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid in cash to the specified person or a wholly owned
restricted subsidiary thereof;
(2) the Net Income of any restricted subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that restricted subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that restricted subsidiary or its stockholders;
(3) the Net Income of any person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(4) the cumulative effect of a change in accounting principles shall be
excluded;
(5) any fees, expenses and costs relating to the recapitalization, including
any fees and expenses incurred in connection with the subordinated credit
facility, any compensation expense incurred in connection with the
cancellation of stock options and expenses related to early
extinguishment of debt, shall be excluded; and
(6) the Net Income (but not loss) of any unrestricted subsidiary shall be
excluded, whether or not distributed to the specified person or one of
its subsidiaries.
"CONTINUING DIRECTORS" means, as of any date of determination, any member of
our board of directors who:
(1) was a member of our board of directors on the date of the indenture; or
(2) was nominated for election or elected to our board of directors with the
approval of a majority of the Continuing Directors who were members of
the board at the time of such nomination or election.
"CREDIT AGREEMENT" means that certain Credit Agreement, dated as of April
21, 1999, by and among French Automotive, Automotive Components Investments
Limited, Morris Ashby Limited, Bank of America National Trust and Savings
Association, as syndication agent, Chase Manhattan International Limited and The
Chase Manhattan Bank, as administrative agent, and the other lenders signatory
thereto, providing for up to $370 million of revolving credit borrowings and
term loans, including any related notes, guaranties, collateral documents,
instruments and agreements executed in connection therewith, and in each case as
amended, modified, renewed, refunded, replaced or refinanced, in whole or in
part, or increased (provided that such increase in borrowings is permitted by
the covenant described under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock") from time to time.
"CREDIT FACILITIES" means, one or more debt facilities, including, without
limitation, the Credit Agreement, or commercial paper facilities, in each case
with banks or other institutional lenders providing for revolving credit loans,
term loans, receivables financing, including through the sale of
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receivables to such lenders or to special purpose entities formed to borrow from
such lenders against such receivables, or letters of credit, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced in whole
or in part from time to time.
"DEFAULT" means any event that is, or with the passage of time or the giving
of notice or both would be, an event of default.
"DESIGNATED NONCASH CONSIDERATION" means any non-cash consideration (other
than non-cash consideration that would constitute a Restricted Investment)
received by us or one of our restricted subsidiaries in connection with an Asset
Disposition that is designated as Designated Noncash Consideration pursuant to
an officers' certificate executed by our principal executive officer and our
principal financial officer or such restricted subsidiary principal executive
officer and principal financial officer. Such officers' certificate shall state
the basis of such valuation, which shall be a report of a nationally recognized
investment banking firm with respect to the receipt in one or a series of
related transactions of Designated Noncash Consideration with a fair market
value in excess of $5.0 million.
"DESIGNATED PREFERRED STOCK" means preferred stock that is designated as
Designated Preferred Stock, pursuant to an officers' certificate executed by our
principal executive officer and principal financial officer on the issuance date
thereof, the cash proceeds of which are excluded from the calculation set forth
in clause 3(b) of the first paragraph of the covenant described under the
caption "--Restricted Payments."
"DISQUALIFIED STOCK" means any capital stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the notes mature. Notwithstanding the preceding sentence, any
capital stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require us to repurchase such capital stock
upon the occurrence of a change of control or an asset sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the we may
not repurchase or redeem any such capital stock pursuant to such provisions
unless such repurchase or redemption complies with the covenant described above
under the caption "--Certain Covenants--restricted Payments."
"DOMESTIC RESTRICTED SUBSIDIARY" means any domestic subsidiary that is a
restricted subsidiary.
"EQUITY INTERESTS" means capital stock and all warrants, options or other
rights to acquire capital stock, but excluding any debt security that is
convertible into, or exchangeable for, capital stock.
"EQUITY OFFERING" means an offering by us of shares of our common stock,
however designated and whether voting or non-voting and any and all rights,
warrants or options to acquire such common stock.
"EXISTING INDEBTEDNESS" means our indebtedness and the indebtedness of our
restricted subsidiaries, other than Indebtedness under the Credit Agreement, in
existence on the date of the indenture, until such amounts are repaid.
"FIXED CHARGES" means, with respect to any specified person for any period,
the sum, without duplication, of:
(1) the consolidated interest expense of such person and its restricted
subsidiaries for such period, whether paid or accrued, including, without
limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net of the effect
of all payments made or received pursuant to Hedging Obligations; PLUS
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(2) the consolidated interest of such person and its restricted subsidiaries
that was capitalized during such period; PLUS
(3) any interest expense on indebtedness of another person that is
guarantied by such person or any of its restricted subsidiaries or
secured by a lien on assets of such person or any of its restricted
subsidiaries, whether or not such guaranty or lien is called upon; PLUS
(4) the product of (a) all dividends, whether paid or accrued and whether or
not in cash, on any series of preferred stock of such person or any of
its restricted subsidiaries, other than dividends on equity interests
payable solely in equity interests of French Automotive, other than
Disqualified Stock, or to French Automotive or a restricted subsidiary of
French Automotive, times (b) a fraction, the numerator of which is one
and the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such person, expressed as
a decimal, in each case, on a consolidated basis and in accordance with
GAAP.
"FIXED CHARGE COVERAGE RATIO" means with respect to any specified person for
any period, the ratio of the Consolidated Cash Flow of such person for such
period to the Fixed Charges of such person for such period. In the event that
the specified person or any of its restricted subsidiaries incurs, assumes,
guaranties, repays, repurchases or redeems any indebtedness, other than ordinary
working capital borrowings, or issues, repurchases or redeems preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated and on or prior to the date on which the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, guaranty, repayment,
repurchase or redemption of indebtedness, or such issuance, repurchase or
redemption of preferred stock, and the use of the proceeds therefrom as if the
same had occurred at the beginning of the applicable four-quarter reference
period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified person or any of its
restricted subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior
to the Calculation Date shall be given pro forma effect as if they had
occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated on a
pro forma basis in accordance with Regulation S-X under the Securities
Act (giving effect to any Pro Forma Cost Savings), but without giving
effect to clause (3) of the proviso set forth in the definition of
Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior
to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations
of the specified person or any of its restricted subsidiaries following
the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect as of the date of this indenture.
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"GUARANTY" means a guaranty other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any indebtedness.
"HEDGING OBLIGATIONS" means, with respect to any specified person, the
obligations of such person under:
(1) interest rate swap agreements, interest rate cap agreements and interest
rate collar agreements and foreign exchange hedge agreements; and
(2) other agreements or arrangements designed to protect such person against
fluctuations in interest rates and foreign exchange rates.
"INDEBTEDNESS" means, with respect to any specified person, any indebtedness
of such person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof);
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any property,
except any such balance that constitutes an accrued expense or trade
payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items, other than letters of credit
and Hedging Obligations, would appear as a liability upon a balance sheet of the
specified person prepared in accordance with GAAP. In addition, the term
indebtedness includes all indebtedness of others secured by a lien on any asset
of the specified person, whether or not such indebtedness is assumed by the
specified person, and, to the extent not otherwise included, the guaranty by the
specified person of any indebtedness of any other person.
The amount of any indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any indebtedness issued with
original issue discount; and
(2) the principal amount thereof, together with any interest thereon that is
more than 30 days past due, in the case of any other indebtedness.
"INVESTMENTS" means, with respect to any person, all direct or indirect
investments by such person in other persons, including affiliates, in the forms
of loans, including guaranties or other obligations, advances or capital
contributions, excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business, purchases or other
acquisitions for consideration of indebtedness, equity interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If we or any of
our restricted subsidiaries sell or otherwise dispose of any equity interests of
any of our direct or indirect restricted subsidiaries such that, after giving
effect to any such sale or disposition, such person is no longer one of our
restricted subsidiaries, we shall be deemed to have made an Investment on the
date of any such sale or disposition equal to the fair market value of the
equity interests of such restricted subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the covenant described
above under the caption "--Certain Covenants--Restricted Payments."
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"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction.
"LIQUIDATED DAMAGES" means all liquidated damages owing pursuant to the
registration rights agreement.
"NET INCOME" means, with respect to any specified person, the net income
(loss) of such person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however:
(1) any gain or loss, together with any related provision for taxes on such
gain or loss, realized in connection with: (a) any Asset Sale; or (b) the
disposition of any securities by such person or any of its restricted
subsidiaries or the extinguishment of any Indebtedness of such person or
any of its restricted subsidiaries; and
(2) any extraordinary gain or loss, together with any related provision for
taxes on such extraordinary gain or loss.
"NET PROCEEDS" means the aggregate cash proceeds received by us or any of
our restricted subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale, including, without limitation, legal, accounting and investment
banking fees, sales commissions, any relocation expenses incurred as a result
thereof, taxes paid or payable as a result thereof, in each case, after taking
into account any available tax credits or deductions and any tax sharing
arrangements, and amounts required to be applied to the repayment of
indebtedness, other than our Credit Agreement, secured by a lien on the asset or
assets that were the subject of such Asset Sale in each case and any reserves
for adjustment in respect of the sale price of such asset or assets or for any
indemnification obligations assumed in connection with the sale of such asset or
assets, established in accordance with GAAP; provided, however, that the
reversal of any such reserve shall be deemed a receipt of Net Proceeds by us in
the amount and on the date of such reversal.
"NON-RECOURSE DEBT" means indebtedness:
(1) as to which neither we nor any of our restricted subsidiaries (a)
provides credit support of any kind (including any undertaking, agreement
or instrument that would constitute indebtedness), (b) is directly or
indirectly liable as a guarantor or otherwise, or (c) constitutes the
lender;
(2) no default with respect to which (including any rights that the holders
thereof may have to take enforcement action against an unrestricted
subsidiary) would permit upon notice, lapse of time or both any holder of
any of our other indebtedness or of any of our restricted subsidiaries'
other indebtedness to declare a default on such other indebtedness or
cause the payment thereof to be accelerated or payable prior to its
stated maturity; and
(3) as to which the lenders have been notified in writing that they will not
have any recourse to our stock or assets or to the stock or assets of any
of our restricted subsidiaries.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursement obligations, damages and other liabilities
payable under the documentation governing any indebtedness.
"PERMITTED BUSINESS" means the business conducted by us and our restricted
subsidiaries on the date hereof and businesses reasonably related thereto or
supportive thereof.
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"PERMITTED INVESTMENTS" means:
(1) any Investment in us or in one of our restricted subsidiaries;
(2) any Investment in Cash Equivalents;
(3) any Investment by us or any of our subsidiaries in a person, if as a
result of such Investment:
(a) such person becomes a restricted subsidiary of French Automotive; 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, French Automotive or a restricted subsidiary of
French Automotive;
(4) any Investment made as a result of the receipt of non-cash consideration
from an Asset Sale that was made pursuant to and in compliance with the
covenant described above under the caption "--Repurchase at the Option
of Holders--Asset Sales";
(5) any acquisition of assets to the extent acquired in exchange for the
issuance of our equity interests, other than Disqualified Stock;
(6) Hedging Obligations;
(7) other Investments in any person having an aggregate fair market value
(measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (7) that are at the time
outstanding not to exceed the greater of (a) $35.0 million and (b) 5% of
Total Assets;
(8) Investments existing on the date of the indenture and any amendment,
modification, restatement, supplement, extension, renewal, refunding,
replacement, refinancing, in whole or in part, thereof;
(9) Investments in Permitted Joint Ventures in an amount at any one time
outstanding not to exceed the greater of 3% of Total Assets or $10.0
million;
(10) Investments in unrestricted subsidiaries in an amount at any one time
outstanding not to exceed the greater of 3% of Total Assets or $10.0
million;
(11) Investments in securities of trade creditors or customers received
pursuant to a plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(12) any Investment by us or one of our subsidiaries in a Securitization
Entity or any Investment by a Securitization Entity in any other person
in connection with a Qualified Securitization Transaction; PROVIDED that
any Investment in a Securitization Entity is in the form of a purchase
money note or any equity interest;
(13) extensions of trade credit in the ordinary course of business; and
(14) loans or advances to employees or consultants in the ordinary course of
business and consistent with past practices, which are approved by the
majority of our board of directors in good faith.
"PERMITTED JOINT VENTURE" means an entity characterized as a joint venture,
however structured, engaged in a Permitted Business and in which we or a
restricted subsidiary (a) owns at least 25% of the ownership interest or (b) has
the right to receive at least 25% of the profits or distributions; provided that
such joint venture is not a subsidiary.
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"PERMITTED LIENS" means:
(1) liens of French Automotive and any subsidiary guarantor securing
indebtedness and other Obligations under credit facilities that were
senior debt that was permitted by the terms of the indenture to be
incurred;
(2) liens in favor of French Automotive or the subsidiary guarantors;
(3) liens on property of a person existing at the time such person is merged
with or into or consolidated with French Automotive or any subsidiary of
French Automotive; PROVIDED that such liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to
any assets other than those of the person merged into or consolidated
with French Automotive or the subsidiary;
(4) liens on property existing at the time of acquisition thereof by French
Automotive or any subsidiary of French Automotive, PROVIDED that such
liens were in existence prior to the contemplation of such acquisition;
(5) liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) liens to secure indebtedness, including Capital Lease Obligations,
permitted by clause (4) of the second paragraph of the covenant
described under "--Incurrence of Indebtedness and Issuance of Preferred
Stock" covering only the assets acquired with such indebtedness;
(7) liens existing on the date of the indenture;
(8) liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
PROVIDED that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(9) liens (not otherwise permitted hereunder) with respect to obligations
that do not exceed $10.0 million at any one time outstanding;
(10) liens on assets of unrestricted subsidiaries that secure Non-Recourse
Debt of unrestricted subsidiaries;
(11) liens on assets of a restricted subsidiary that is not a subsidiary
guarantor that secure indebtedness, including Acquired Indebtedness,
incurred in compliance with the covenant described under "--Limitation
on Foreign Indebtedness" or indebtedness incurred in compliance with
clauses (1) or (2) of the covenant described under "--Incurrence of
Indebtedness and Issuance of Preferred Stock;"
(12) judgment liens not giving rise to an event of default;
(13) liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of French
Automotive or any of our restricted subsidiaries, including rights of
offset and set-off;
(14) liens in favor of customs and revenue authorities arising as a matter of
law to secure payment of customer duties in connection with the
importation of goods;
(15) leases or subleases granted to others that do not materially interfere
with the ordinary course of our business and the business of our
restricted subsidiaries;
(16) liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security, including any lien securing letters of credit
issued in the ordinary course of business consistent with past practice
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in connection therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations, exclusive of obligations for the payment of borrowed money;
(17) liens imposed by law, such as carriers', warehouseman's and mechanics'
liens in each case for sums not yet due or being contested in good
faith;
(18) liens securing indebtedness or other obligations of a restricted
subsidiary owing to us or any subsidiary guarantor to the extent such
indebtedness is permitted to be incurred in accordance with the covenant
described under "--Incurrence of Indebtedness and Issuance of Preferred
Stock";
(19) liens securing Hedging Obligations as long as the related indebtedness
is, and is permitted to be under the indentures to be secured by a lien
on the same property securing the Hedging Obligations;
(20) liens on specific items of inventory or other goods and proceeds of any
person securing such person's obligations with respect of bankers'
acceptances issued or created for the account of such person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(21) liens arising from Uniform Commercial Code financing statement filings
regarding operating leases entered into by us and our restricted
subsidiaries in the ordinary course of business; and
(22) liens on assets transferred to a Securitization Entity or on assets of a
Securitization Entity, in either case incurred in connection with a
Qualified Securitization Transaction.
"PERMITTED REFINANCING INDEBTEDNESS" means any of our indebtedness or any
indebtedness of our restricted subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other indebtedness of us or any of our restricted subsidiaries, other
than intercompany indebtedness; PROVIDED that:
(1) the principal amount or accreted value, if applicable, of such Permitted
Refinancing Indebtedness does not exceed the principal amount or accreted
value, if applicable, of the indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded plus all accrued interest thereon
and the amount of all expenses and premiums incurred in connection
therewith;
(2) such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity
of, the indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded;
(3) if the indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes,
such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of payment
to, the notes on terms at least as favorable to the holders of notes as
those contained in the documentation governing the indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and
(4) if such refinanced indebtedness was indebtedness of French Automotive or
a subsidiary guarantor, such indebtedness is incurred either by French
Automotive or by a subsidiary guarantor.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
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"PRINCIPALS" means Onex DHC LLC and J2R Corporation.
"PRO FORMA COST SAVINGS" means, with respect to any period, the reduction in
costs that occurred during the four-quarter period or after the end of the
four-quarter period and on or prior to the Transaction Date that were (i)
directly attributable to an asset acquisition and calculated on a basis that is
consistent with Article 11 of Regulation S-X under the Securities Act as in
effect on the date of the indenture or (ii) implemented by the business that was
the subject of any such asset acquisition within six months of the date of the
asset acquisition, that are supportable and quantifiable by the underlying
accounting records of such business, and are described, as provided below, in an
officer's certificate, as if, in the case of each of clause (i) and (ii), all
such reductions in costs had been effected as of the beginning of such period.
Pro Forma Cost Savings described in clause (ii) above shall be set forth in
reasonable specificity in a certificate delivered to the Trustee from our chief
financial officer and, in the case of Pro Forma Cost Savings in excess of $5.0
million per four-quarter period, such certificate shall be accompanied by a
supporting opinion from an accounting firm of national standing.
"PRODUCTIVE ASSETS" means assets that are used or useful in, or capital
stock of any person engaged in, a Permitted Business.
"QUALIFIED SECURITIZATION TRANSACTION" means any transaction or series of
transactions pursuant to which we or any of our restricted subsidiaries may
sell, convey or otherwise transfer to (a) a Securitization Entity, in the case
of a transfer by us or any of our restricted subsidiaries, and (b) any other
person, in case of a transfer by a Securitization Entity, or may grant a
security interest in, any accounts receivable whether now existing or arising or
acquired in the future, of us or any of our restricted subsidiaries, and any
assets related thereto including, without limitation, all collateral securing
such accounts receivable and other assets, including contract rights, and all
guarantees or other obligations in respect to such accounts receivable, proceeds
of such accounts receivable and other assets, including contract rights, which
are customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable all of the foregoing for the purpose of providing
working capital financing on terms that are more favorable to us and our
restricted subsidiary than would otherwise be available at that time.
"RELATED PARTY" means:
(1) any controlling stockholder, 80% (or more) owned subsidiary, or
immediate family member (in the case of an individual) of any Principal;
or
(2) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or persons beneficially holding an 80% or
more controlling interest of which consist of any one or more Principals
and/or such other persons referred to in the immediately preceding clause
(1).
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a person means any subsidiary of the referent
person that is not an unrestricted subsidiary.
"SECURITIZATION ENTITY" means a wholly owned subsidiary of French
Automotive, or another person in which French Automotive or any subsidiary of
French Automotive makes an Investment and to which French Automotive or any
subsidiary of French Automotive transfers accounts receivable or equipment and
related assets, that engages in no activities other than in connection with the
financing of accounts receivable and that is designated by our board of
directors, as provided below, as a Securitization Entity (a) no portion of the
indebtedness or any other obligations, contingent or otherwise, of which (i) is
guaranteed by the French Automotive or any other restricted subsidiary,
excluding guarantees of Obligations other than the principal of, and interest
on, indebtedness pursuant to Standard Securitization Undertakings, (ii) is
recourse to or obligates French Automotive or any
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restricted subsidiary in any way other than pursuant to Standard Securitization
Undertakings, (b) with which neither French Automotive nor any restricted
subsidiary has any material contract, agreement, arrangement or understanding
other than on terms no less favorable to French Automotive or such restricted
subsidiary than those that might be obtained at the time from persons that are
not our affiliates, other than fees payable in the ordinary course of business
in connection with servicing receivables of such entity, and (c) to which
neither French Automotive nor any restricted subsidiary has any obligation to
maintain or preserve such entity's financial condition or cause such entity to
achieve certain levels of operating results. Any such designation by our board
of directors shall be evidenced to each of the Trustees by filing with the
Trustees a certified copy of the resolution of the board of directors giving
effect to such designation and an officers' certificate certifying that such
designation complied with the foregoing conditions.
"SIGNIFICANT SUBSIDIARY" means any subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"STANDARD SECURITIZATION UNDERTAKINGS" means representations, warranties,
covenants and indemnities entered into by us or any of our subsidiaries that are
reasonably customary in an accounts receivable securitization transaction.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"SUBORDINATED CREDIT FACILITY" means the Bridge Loan Agreement dated as of
April 21, 1999 by and among us, the subsidiary guarantors, the lenders named
therein, NationsBanc Montgomery Securities LLC and Chase Securities Inc., as
arrangers, NationsBridge L.L.C. and The Chase Manhattan Bank, as co-agents, and
NationsBridge L.L.C., as administrative agent.
"SUBSIDIARY" means, with respect to any specified person:
(1) any corporation, association or other business entity of which more than
50% of the total voting power of shares of capital stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned
or controlled, directly or indirectly, by such person or one or more of
the other subsidiaries of that person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such person or a subsidiary of such person or (b) the
only general partners of which are such person or one or more
subsidiaries of such person (or any combination thereof).
"SUBSIDIARY GUARANTORS" means:
(1) each of our domestic subsidiaries existing on the date of the indenture;
and
(2) any other subsidiary that executes a subsidiary guaranty in accordance
with the provisions of the indenture;
and their respective successors and assigns.
"TOTAL ASSETS" means the total assets of us and our restricted subsidiaries
on a consolidated basis determined in accordance with GAAP, as shown on the most
recently available consolidated balance sheet of us and our restricted
subsidiaries.
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"UNRESTRICTED SUBSIDIARY" means any subsidiaries that is designated by our
board of directors as an unrestricted subsidiaries pursuant to a board
resolution, but only to the extent that such subsidiary:
(1) has no indebtedness other than Non-Recourse Debt:
(2) is not party to any agreement, contract, arrangement or understanding
with us or any of our restricted subsidiaries unless the terms of any
such agreement, contract, arrangement or understanding are no less
favorable to us or such restricted subsidiary than those that might be
obtained at the time from persons who are not our affiliates;
(3) is a person with respect to which neither we nor any of our restricted
subsidiaries has any direct or indirect obligation (a) to subscribe for
additional equity interests or (b) to maintain or preserve such person's
financial condition or to cause such person to achieve any specified
levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any of our indebtedness or any indebtedness of any of our
restricted subsidiaries.
Any designation of subsidiaries as an unrestricted subsidiary shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
board resolution giving effect to such designation and an officers' certificate
certifying that such designation complied with the preceding conditions and was
permitted by the covenant described above under the caption "--Certain
Covenants--Restricted Payments." If, at any time, any unrestricted subsidiary
would fail to meet the preceding requirements as an unrestricted subsidiary, it
shall thereafter cease to be an unrestricted subsidiary for purposes of the
indenture and any indebtedness of such subsidiary shall be deemed to be incurred
by one of our restricted subsidiaries as of such date and, if such indebtedness
is not permitted to be incurred as of such date under the covenant described
under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock," we shall be in default of such covenant. Our board of
directors may at any time designate any unrestricted subsidiary to be a
restricted subsidiary; PROVIDED that such designation shall be deemed to be an
incurrence of indebtedness by a restricted subsidiary of any outstanding
indebtedness of such unrestricted subsidiary and such designation shall only be
permitted if (1) such indebtedness is permitted under the covenant described
under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock," calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period; and (2) no
default or event of default would be in existence following such designation.
"VOTING STOCK" of any person as of any date means the capital stock of such
person that is at the time entitled to vote in the election of the board of
directors of such person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment; by
(2) the then outstanding principal amount of such indebtedness.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any specified person means a
restricted subsidiary of such person all of the outstanding capital stock or
other ownership interests of which (other than directors' qualifying shares)
shall at the time be owned by such person and/or by one or more wholly owned
restricted subsidiaries of such person.
108
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a discussion of certain material U.S. Federal income tax
consequences of the acquisition, ownership and disposition of the notes. Unless
otherwise stated, this discussion is limited to the tax consequences to those
persons who are original owners of the notes and who hold such notes as capital
assets. The discussion does not purport to address specific tax consequences
that may be relevant to particular persons (including, for example, financial
institutions, broker-dealers, insurance companies, tax-exempt organizations and
persons in special situations, such as those who hold notes as part of a
straddle, hedge, conversion transaction or other integrated investment). In
addition, this discussion does not address U.S. federal alternative minimum tax
consequences or any aspect of state, local or foreign taxation. This discussion
is based upon the Internal Revenue Code of 1986, as amended, the Treasury
Department regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all of which are subject to change, possibly with
retroactive effect. We will treat the notes as indebtedness for federal income
tax purposes, and the following discussion assumes that such treatment is
correct.
For purposes of this discussion, a "U.S. holder" is a holder of a note who
is a United States citizen or resident, a corporation or partnership created or
organized in or under the laws of the United States or any state, an estate the
income of which is subject to U.S. federal income taxation regardless of its
source, or a trust if a United States court exercises primary supervision over
its administration and one or more United States persons have the authority to
control all of its substantial decisions. A "non-U.S. holder" is a holder of a
note who is not a U.S. holder.
PROSPECTIVE PURCHASERS OF THE NOTES ARE URGED TO CONSULT THEIR TAX ADVISORS
CONCERNING THE UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO THEM
OF ACQUIRING, OWNING AND DISPOSING OF THE NOTES, AS WELL AS THE APPLICATION OF
STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
TAX CONSEQUENCES TO U.S. HOLDERS
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
Upon the sale, exchange or retirement of the notes, a U.S. holder will
recognize gain or loss equal to the difference between the amount realized upon
the sale, exchange or retirement (less a portion allocable to any accrued and
unpaid interest, which will be taxable as ordinary income) and the U.S. holder's
adjusted tax basis in the notes. A U.S. holder's adjusted tax basis in the notes
generally will be the U.S. holder's cost therefor, less any principal payments
received by such holder.
Gain or loss recognized by a U.S. holder on the sale, exchange or retirement
of the notes will be capital gain or loss. The gain or loss will be long-term
capital gain or loss if the notes have been held by the U.S. holder for more
than twelve months. Long-term capital gain is subject to a maximum federal tax
rate of 20%. The deductibility of capital losses by U.S. holders is subject to
limitation.
EXCHANGE OFFER
A U.S. holder will not recognize any taxable gain or loss on the exchange of
the notes for exchange notes pursuant to the exchange offer, and a U.S. holder's
tax basis and holding period in the exchange notes will be the same as in the
outstanding notes.
TAXATION OF INTEREST
Interest paid on the notes will be includible in the income of a U.S. holder
in accordance with the U.S. holder's regular method of tax accounting. A U.S.
holder may be entitled to treat interest income on the notes as investment
income for purposes of computing certain limitations concerning the
deductibility of investment interest expense.
109
In the event of a change of control, a holder of a note will have the right
to require us to purchase such note at a price equal to 101% of the principal
amount thereof. The Treasury Regulations provide that the right of a holder of a
note to require redemption of such note upon the occurrence of a change of
control will not affect the yield or maturity date of the note if, based on all
the facts and circumstances as of the issue date, it is significantly more
likely than not that a change of control giving rise to the redemption right
will not occur. We believe that the redemption provisions of the notes will not
affect the computation of the yield to maturity of the notes and intend to
report in a manner consistent with this belief.
We may redeem the notes at any time on or after June 1, 2004, and in certain
circumstances, may redeem a portion of the notes at any time prior to June 1,
2002. Under the Treasury Regulations, we are deemed to exercise any option to
redeem if the exercise of such option would lower the yield of the debt
instrument. We believe that it will not be treated as having exercised an option
to redeem under these rules and intend to report in a manner consistent with
this belief.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
Any capital gain a non-U.S. holder recognizes on the sale, exchange,
retirement or other taxable disposition of a note will be exempt from U.S.
federal income and withholding tax, provided that (1) the gain is not
effectively connected with the non-U.S. holder's conduct of a trade or business
within the United States, and (2) in the case of a non-U.S. holder that is an
individual, the non-U.S. holder is not present in the United States for 183 days
or more during the taxable year.
TAXATION OF INTEREST
A non-U.S. holder generally will not be subject to U.S. federal income or
withholding tax on interest paid on the notes so long as such interest is not
effectively connected with the non-U.S. holder's conduct of a trade or business
within the United States, and the non-U.S. holder (1) does not actually or
constructively own 10% or more of the total combined voting power of all classes
of stock of French Automotive, (2) is not a "controlled foreign corporation"
with respect to which French Automotive is a "related person" within the meaning
of the Code, and (3) satisfies the requirements of Sections 871(h) or 881(c) of
the Code, as set forth below under "OWNER STATEMENT REQUIREMENT." If the
foregoing conditions (1) - (3) are not satisfied, then interest paid on the
notes will be subject to U.S. withholding tax at a rate of 30%, unless such rate
is reduced or eliminated pursuant to an applicable tax treaty.
EFFECTIVELY CONNECTED INCOME
If the interest, gain or other income a non-U.S. holder recognized on a note
is effectively connected with the non-U.S. holder's conduct of a trade or
business within the United States, the non-U.S. holder (although exempt from the
withholding tax previously discussed if an appropriate statement is furnished)
generally will be subject to U.S. federal income tax on the interest, gain or
other income at regular federal income tax rates. In addition, if the non-U.S.
holder is a corporation, it may be subject to a branch profits tax equal to 30%
of its effectively connected earnings and profits, as adjusted for certain
items, unless it qualifies for a lower rate under an applicable tax treaty.
FEDERAL ESTATE TAXES
A note held by an individual who at the time of death is not a citizen or
resident of the United States will not be subject to United States federal
estate tax as a result of such individual's death, provided that the individual
does not actually or constructively own 10% or more of the total combined voting
power of all classes of our stock entitled to vote and that the interest accrued
on such notes was
110
not effectively connected with the non-U.S. holder's conduct of a trade or
business within the United States.
OWNER STATEMENT REQUIREMENT
Sections 871(h) and 881(c) of the Code require that either the beneficial
owner of a note or a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business and that holds a note on behalf of such owner files a statement with
us or our agent to the effect that the beneficial owner is not a United States
person in order to avoid withholding of United States federal income tax. Under
current regulations, this requirement will be satisfied if we or our agent
receives (1) a statement (an "Owner Statement") from the beneficial owner of a
note in which such owner certifies, under penalties of perjury, that such owner
is not a United States person and provides such owner's name and address, or (2)
a statement from the financial institution holding the note on behalf of the
beneficial owner in which the financial institution certifies, under penalties
of perjury, that it has received the Owner Statement together with a copy of the
Owner Statement. The beneficial owner must inform us or our agent (or, in the
case of a statement described in clause (2) of the immediately preceding
sentence, the financial institution) within 30 days of any change in information
on the Owner Statement. The Internal Revenue Service has amended the transition
period relating to recently issued Treasury Regulations governing backup
withholding and information reporting requirements. Withholding certificates or
statements that are valid on December 31, 1999, may be treated as valid until
the earlier of their expiration or December 31, 2000. Certificates or statements
received under the currently effective rules will fail to be effective after
December 31, 2000.
INFORMATION REPORTING AND BACKUP WITHHOLDING
We will, where required, report to the holders of notes and the Internal
Revenue Service the amount of any interest paid on the notes in each calendar
year and the amounts of tax withheld, if any, with respect to such payments. A
noncorporate U.S. holder may be subject to information reporting and to backup
withholding at a rate of 31% with respect to payments of principal and interest
made on a note, or on proceeds of the disposition of a note before maturity,
unless such U.S. holder provides a correct taxpayer identification number or
proof of an applicable exemption, and otherwise complies with applicable
requirements of the information reporting and backup withholding rules.
In the case of payments of interest to non-U.S. holders, current Treasury
Regulations provide that the 31% backup withholding tax and certain information
reporting requirements will not apply to such payments with respect to which
either the requisite certification, as described above, has been received or an
exemption has otherwise been established, provided that neither we nor our
payment agent has actual knowledge that the holder is a United States person or
that the conditions of any other exemption are not in fact satisfied. Under
current Treasury Regulations, these information reporting and backup withholding
requirements will apply, however, to the gross proceeds paid to a non-U.S.
holder on the disposition of the notes by or through a United States office of a
United States or foreign broker, unless the non-U.S. holder otherwise
establishes an exemption. Information reporting requirements, but not backup
withholding, will also apply to payment of the proceeds of a disposition of the
notes by or through a foreign office of a United States broker or foreign
brokers with certain types of relationships to the United States unless such
broker has documentary evidence in its file that the holder of the notes is not
a United States person and such broker has no actual knowledge to the contrary,
or the holder establishes an exemption. Neither information reporting nor backup
withholding generally will apply to payment of the proceeds of a disposition of
the notes by or through a foreign office of a foreign broker not subject to the
preceding sentence.
The Treasury Department has released new Treasury Regulations governing the
backup withholding and information reporting requirements. The new regulations
would not generally alter the
111
treatment of a non-U.S. holder who furnishes an Owner Statement to the payor.
The new regulations may change certain procedures applicable to the foreign
office of a United States broker or foreign brokers with certain types of
relationships to the United States. The new regulations are generally effective
for payments made after December 31, 2000. Non U.S. holders should consult their
own tax advisors with respect to the impact, if any, of the new final
regulations.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the holder's United
States federal income tax liability, provided that the required information is
furnished to the Internal Revenue Service.
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 such broker-dealers in
connection with resales of exchange notes received in exchange for outstanding
notes where such outstanding notes were acquired as a result of market-making
activities or other trading activities. We have agreed that for a period of one
year after the expiration date, 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 sales of the exchange notes by
such broker-dealers. Exchange notes received by broker-dealers for their own
account pursuant to the exchange offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the exchange notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such exchange notes. Any
broker-dealer that resells the exchange notes that were received by it for its
own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
underwriter within the meaning of the Securities Act and any profit on any such
resale of exchange notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The letter of transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an underwriter within the meaning of the Securities Act.
For a period of one year after the expiration date of the exchange offer we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal.
Prior to the exchange offer, there has not been any public market for the
outstanding notes. The outstanding notes have not been registered under the
Securities Act and will be subject to restrictions on transferability to the
extent that they are not exchanged for exchange notes by holders who are
entitled to participate in this exchange offer. The holders of outstanding
notes, other than any such holder that is an affiliate of ours within the
meaning of Rule 405 under the Securities Act, who are not eligible to
participate in the exchange offer are entitled to certain registration rights,
and we are required to file a shelf registration statement with respect to such
outstanding notes. The exchange notes will constitute a new issue of securities
with no established trading market. We do not intend to list the exchange notes
on any national securities exchange or to seek the admission thereof to trading
in the National Association of Securities Dealers Automated Quotation System. In
addition, such market making activity will be subject to the limits imposed by
the Securities Act and the Exchange Act and may be limited during the exchange
offer and the pendency of the shelf registration statement.
112
Accordingly, no assurance can be given that an active public or other market
will develop for the exchange notes or as to the liquidity of the trading market
for the exchange notes. If a trading market does not develop or is not
maintained, holders of the exchange notes may experience difficulty in reselling
the exchange notes or may be unable to sell them at all. If a market for the
exchange notes develops, any such market may be discontinued at any time.
LEGAL MATTERS
The validity of the exchange notes offered hereby and certain other legal
matters will be passed upon on behalf of French Automotive by Kirkland & Ellis
(a partnership that includes professional corporations), Chicago, Illinois.
Certain partners of Kirkland & Ellis are partners in Randolph Street Partners
II, which owns 190 shares of class D-1 common stock.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of J.L. French Automotive Castings,
Inc. and Subsidiaries as of December 31, 1998 and 1997 and for the years ended
December 31, 1998 and 1997 and the nine months ended December 31, 1996 included
in this prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
reports.
The consolidated financial statements of Morris Ashby plc as of March 31,
1997 and 1996 and for each of the two years in the period ended March 31, 1997
included in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
AVAILABLE INFORMATION
French Automotive has filed with the SEC a registration statement on Form
S-4 pursuant to the Securities Act and the rules and regulations promulgated
thereunder covering the exchange offer contemplated by this prospectus. This
prospectus does not contain all the information set forth in the registration
statement. For further information with respect to French Automotive and the
exchange offer, see the registration statement.
We are not currently subject to the periodic reporting and other
informational requirements of the Exchange Act. We have agreed that, whether or
not it is required to do so by the rules and regulations of the SEC, for so long
as any of the notes remain outstanding, it will furnish to the holders of the
notes and file with the SEC, copies of the financial and other information that
would be contained in the annual reports 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 prospective purchasers
of the exchange notes, and to securities analysts and broker-dealers upon their
request.
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UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The Unaudited Pro Forma Statements of Operations for the year ended December
31, 1998, the six months ended June 30, 1999 and 1998 give effect to: (1) the
recapitalization and the related financing transactions, including borrowings
under the senior credit facility and subordinated financing facility and (2) the
initial offering of the outstanding notes and the application of the net
proceeds therefrom, as if such transactions had occurred at the beginning of the
period.
The unaudited pro forma financial data presented in this prospectus are
based on the assumptions and adjustments described in the accompanying notes.
The Unaudited Pro Forma Statements of Operations do not purport to represent
what our results of operations actually would have been if the events described
above had occurred as of the dates indicated or what our results will be for any
future periods. The Unaudited Pro Forma Financial Statements are based upon
assumptions and adjustments that we believe are reasonable. You should read the
Unaudited Pro Forma Financial Statements and the accompanying notes in
conjunction with the historical financial statements, including the related
notes, included elsewhere in this prospectus.
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J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(In thousands)
PRO FORMA
ACTUAL(1) ADJUSTMENTS PRO FORMA
---------- ----------- -----------
Sales.................................................................. $ 295,690 $ -- $ 295,690
Cost of sales.......................................................... 221,040 -- 221,040
---------- ----------- -----------
Gross profit......................................................... 74,650 -- 74,650
Selling, general and administrative expenses........................... 16,802 -- 16,802
Amortization of intangible assets...................................... 16,861 1,174(2) 18,035
---------- ----------- -----------
Operating income..................................................... 40,987 (1,174) 39,813
Interest expense....................................................... 20,533 22,270(3) 42,803
---------- ----------- -----------
Income (loss) before income taxes.................................... 20,454 (23,444) (2,990)
Provision (benefit) for income taxes................................... 8,299 (9,495)(4) (1,196)
---------- ----------- -----------
Income (loss) from continuing operations............................. $ 12,155 $ (13,949) $ (1,794)
---------- ----------- -----------
---------- ----------- -----------
115
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(In thousands)
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
---------- ----------- -----------
Sales.................................................................. $ 165,689 $ -- $ 165,689
Cost of sales.......................................................... 123,406 -- 123,406
---------- ----------- -----------
Gross profit......................................................... 42,283 -- 42,283
Selling, general and administrative expenses........................... 10,228 -- 10,228
Recapitalization expenses.............................................. 21,151 (21,151)(5) --
Amortization of intangible assets...................................... 5,505 392(2) 5,897
---------- ----------- -----------
Operating income..................................................... 5,399 20,759 26,158
Interest expense....................................................... 13,823 7,579(3) 21,402
---------- ----------- -----------
Income (loss) before income taxes.................................... (8,424) 13,180 4,756
Provision (benefit) for income taxes................................... (3,369) 5,271(4) 1,902
---------- ----------- -----------
Income from continuing operations.................................... $ (5,055) $ 7,909 $ 2,854
---------- ----------- -----------
---------- ----------- -----------
116
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(In thousands)
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
---------- ----------- -----------
Sales.................................................................. $ 145,563 $ -- $ 145,563
Cost of sales.......................................................... 108,467 -- 108,467
---------- ----------- -----------
Gross profit......................................................... 37,096 -- 37,096
Selling, general and administrative expenses........................... 8,882 -- 8,882
Amortization of intangible assets...................................... 8,484 588(2) 9,072
---------- ----------- -----------
Operating income..................................................... 19,730 (588) 19,142
Interest expense....................................................... 8,844 12,558(3) 21,402
---------- ----------- -----------
Income (loss) before income taxes.................................... 10,886 (13,146) (2,260)
Provision (benefit) for income taxes................................... 4,376 (5,279)(4) (903)
---------- ----------- -----------
Income (loss) from continuing operations............................. $ 6,510 $ (7,867) $ (1,357)
---------- ----------- -----------
---------- ----------- -----------
117
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(In thousands)
(1) Represents the results of operations of French Automotive for the year ended
December 31, 1998, including the results of operations of Morris Ashby and
Ansola from their respective dates of acquisition. The results of operations
of Morris Ashby and Ansola prior to their respective dates of acquisition
have not been included because such results are not material to French
Automotive's results of operations taken as a whole.
(2) Represents the net increase in amortization of other intangible assets
arising from amortization of fees related to the senior credit facility and
costs associated with the initial offering of the outstanding notes, net of
amortization of debt issue costs related to the former credit facility:
YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, ENDED JUNE 30, ENDED JUNE 30,
1998 1999 1998
------------- ----------------- -----------------
Senior credit facility..................... $ 1,111 $ 371 $ 556
Initial offering of the outstanding
notes.................................... 720 240 360
Debt issue costs related to former credit
facility................................. (657) (219) (328)
------ ----- -----
Net increase............................. $ 1,174 $ 392 $ 588
------ ----- -----
------ ----- -----
(3) Represents the change in interest expense arising from:
YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, ENDED JUNE 30, ENDED JUNE 30,
1998 1999 1998
------------ ---------------- ----------------
Interest expense on tranche A term loan.... $ 8,138 $ 4,069 $ 4,069
Interest expense on tranche B term loan.... 12,000 6,000 6,000
Interest expense on notes offered hereby... 20,125 10,063 10,063
Interest expense on other senior
indebtedness............................. 2,540 1,270 1,270
------------ -------- -------
42,803 21,402 21,402
Net interest expense previously recorded by
French Automotive........................ (20,533) (13,823) (8,844)
------------ -------- -------
Net increase............................. $ 22,270 $ 7,579 $ 12,558
------------ -------- -------
------------ -------- -------
(4) Adjusts income taxes on a pro forma basis to reflect French Automotive's
estimated effective tax rate.
(5) Represents an elimination of non-recurring expenses incurred pursuant to the
recapitalization.
118
INDEX TO FINANCIAL STATEMENTS
PAGE
---------
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
Report of Independent Public Accountants................................................................. F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997............................................. F-3
Consolidated Statements of Operations for the Years Ended December 31, 1998 and 1997 and for the Nine
Months Ended December 31, 1996......................................................................... F-4
Consolidated Statements of Stockholders' Investment and Comprehensive Income for the Years Ended December
31, 1998 and 1997 and for the Nine Months Ended December 31, 1996...................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998 and 1997 and for the Nine
Months Ended December 31, 1996......................................................................... F-6
Notes to Consolidated Financial Statements............................................................... F-7
Condensed Consolidated Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998.............. F-26
Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 1999 and 1998
(unaudited)............................................................................................ F-29
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998
(unaudited)............................................................................................ F-30
Notes to Condensed Consolidated Financial Statements (unaudited)......................................... F-31
MORRIS ASHBY PLC
Auditors' Report......................................................................................... F-39
Consolidated Profit and Loss Account for the Years Ended March 31, 1997 and 1996......................... F-40
Balance Sheets as at March 31, 1997 and 1996............................................................. F-41
Cash Flow Statement for the Years Ended March 31, 1997 and 1996.......................................... F-42
Notes to the Accounts.................................................................................... F-43
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To J. L. French Automotive Castings, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of J. L. French
Automotive Castings, Inc. and Subsidiaries as of December 31, 1998 and 1997 and
the related consolidated statements of operations, stockholders' investment and
comprehensive income and cash flows for the years ended December 31, 1998 and
1997 and for the nine months ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of J. L. French
Automotive Castings, Inc. and Subsidiaries as of December 31, 1998 and 1997 and
the results of their operations and their cash flows for the years ended
December 31, 1998 and 1997 and for the nine months ended December 31, 1996 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
April 30, 1999 (except with respect to
the matter discussed in Note 13,
as to which the date is May 25, 1999)
F-2
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1998 1997
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................................ $ 4,128 $ 14,438
Accounts receivable, less reserve for doubtful accounts of $1,353 and $553............... 55,242 18,529
Inventories.............................................................................. 17,077 7,422
Customer tooling-in-progress............................................................. 8,013 5,992
Other current assets..................................................................... 2,029 1,713
--------- ---------
Total current assets................................................................... 86,489 48,094
PROPERTY, PLANT AND EQUIPMENT, net......................................................... 147,505 66,371
INTANGIBLE AND OTHER ASSETS, net of accumulated amortization of $56,233 and $39,372........ 170,799 120,737
--------- ---------
Total assets........................................................................... $ 404,793 $ 235,202
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable......................................................................... $ 27,814 $ 5,131
Accrued liabilities...................................................................... 23,329 6,899
Current portion of long-term debt........................................................ 13,113 12,170
--------- ---------
Total current liabilities.............................................................. 64,256 24,200
LONG-TERM DEBT, excluding current portion.................................................. 198,467 122,221
OTHER NONCURRENT LIABILITIES............................................................... 5,165 --
--------- ---------
Total liabilities...................................................................... 267,888 146,421
COMMITMENTS AND CONTINGENCIES (Notes 9 and 10)
CONVERTIBLE REDEEMABLE SERIES A PREFERRED STOCK............................................ 12,217 11,974
CONVERTIBLE REDEEMABLE SERIES B PREFERRED STOCK............................................ -- --
STOCKHOLDERS' INVESTMENT:
Common stock, Class A; par value $0.0001; 300,000 shares authorized; 60,492.73 and
66,960.34 shares issued and outstanding................................................ -- --
Common stock, Class B; par value $0.0001; 75,000 shares authorized; 16,016.36 and
2,326.86 shares issued and outstanding................................................. -- --
Common stock, Class C; par value $0.0001; 50,000 shares authorized; 2,651.05 and 258.54
shares issued and outstanding.......................................................... -- --
Common stock, Class D; par value $0.0001; 25,000 shares authorized; 294.56 and 0 shares
issued and outstanding................................................................. -- --
Additional paid-in capital............................................................... 109,034 72,640
Retained earnings........................................................................ 14,224 4,167
Accumulated other comprehensive income--foreign currency translation adjustment.......... 1,430 --
--------- ---------
Total stockholders' investment......................................................... 124,688 76,807
--------- ---------
Total liabilities and stockholders' investment......................................... $ 404,793 $ 235,202
--------- ---------
--------- ---------
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEARS ENDED DECEMBER
31 NINE MONTHS
---------------------- ENDED
1998 1997 DECEMBER 31, 1996
---------- ---------- -----------------
SALES................................................................. $ 295,690 $ 169,510 $ 106,941
COST OF SALES......................................................... 221,040 116,522 75,697
---------- ---------- --------
Gross profit...................................................... 74,650 52,988 31,244
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.......................... 16,802 5,649 3,359
AMORTIZATION OF INTANGIBLE ASSETS..................................... 16,861 20,680 18,692
---------- ---------- --------
Operating income.................................................. 40,987 26,659 9,193
INTEREST EXPENSE, net................................................. 20,533 13,981 11,973
---------- ---------- --------
Income (loss) before income taxes and extraordinary loss.......... 20,454 12,678 (2,780)
PROVISION (BENEFIT) FOR INCOME TAXES.................................. 8,299 4,954 (1,126)
---------- ---------- --------
Income (loss) before extraordinary loss........................... 12,155 7,724 (1,654)
EXTRAORDINARY LOSS--WRITE-OFF OF UNAMORTIZED DEBT ISSUANCE COSTS, net
of income tax benefit of $515....................................... 805 -- --
---------- ---------- --------
NET INCOME (LOSS)..................................................... $ 11,350 $ 7,724 $ (1,654)
---------- ---------- --------
---------- ---------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
COMMON STOCKS
------------------------------------------------------------
CLASS A CLASS B CLASS C
------------------------ ----------------------- ---------
SHARES AMOUNT SHARES AMOUNT SHARES
----------- ----------- ---------- ----------- ---------
INITIAL CAPITALIZATION:
Issuance of common stock................................ 64,960.34 $ -- 2,326.86 $ -- 258.54
Capital component of convertible redeemable Series A
preferred stock....................................... -- -- -- -- --
----------- ----- ---------- ----- ---------
64,960.34 -- 2,326.86 -- 258.54
Sale of Class A common stock, $1,000 per share.......... 2,000 -- -- -- --
Accretion of convertible redeemable Series A preferred
stock to redemption value............................. -- -- -- -- --
Dividends declared for convertible redeemable Series A
preferred stock, $523 per share....................... -- -- -- -- --
Comprehensive income--
Net loss.............................................. -- -- -- -- --
----------- ----- ---------- ----- ---------
BALANCE, December 31, 1996................................ 66,960.34 -- 2,326.86 -- 258.54
Comprehensive income--
Net income............................................ -- -- -- -- --
Accretion of convertible redeemable Series A preferred
stock to redemption value............................. -- -- -- -- --
Dividends declared for convertible redeemable Series A
preferred stock, $700 per share....................... -- -- -- -- --
----------- ----- ---------- ----- ---------
BALANCE, December 31, 1997................................ 66,960.34 -- 2,326.86 -- 258.54
Comprehensive income--
Net income............................................ -- -- -- -- --
Foreign currency translation adjustment............... -- -- -- -- --
Total comprehensive income............................
Accretion of convertible redeemable Series A preferred
stock to redemption value............................. -- -- -- -- --
Dividends declared for convertible redeemable Series A
preferred stock, $700 per share....................... -- -- -- -- --
Conversion of Class A to Class B........................ (13,944.85) -- 13,944.85 -- --
Conversion of Class B to Class C........................ -- -- (2,326.86) -- 2,326.86
Conversion of Class C to Class D........................ -- -- -- -- (258.54)
Sale of common stocks at $3,672.89 per share............ 7,477.24 -- 2,071.51 -- 324.19
----------- ----- ---------- ----- ---------
BALANCE, December 31, 1998................................ 60,492.73 $ -- 16,016.36 $ -- 2,651.05
----------- ----- ---------- ----- ---------
----------- ----- ---------- ----- ---------
CLASS D ADDITIONAL
------------------------ PAID-IN RETAINED
AMOUNT SHARES AMOUNT CAPITAL EARNINGS
----------- ----------- ----------- ----------- -----------
INITIAL CAPITALIZATION:
Issuance of common stock................................ $ -- -- $ -- $ 67,546 $ --
Capital component of convertible redeemable Series A
preferred stock....................................... -- -- -- 3,396 --
----- ----------- ----- ----------- -----------
-- -- -- 70,942 --
Sale of Class A common stock, $1,000 per share.......... -- -- -- 2,000 --
Accretion of convertible redeemable Series A preferred
stock to redemption value............................. -- -- -- -- (152)
Dividends declared for convertible redeemable Series A
preferred stock, $523 per share....................... -- -- -- (302) (483)
Comprehensive income--
Net loss.............................................. -- -- -- -- (1,654)
----- ----------- ----- ----------- -----------
BALANCE, December 31, 1996................................ -- -- -- 72,640 (2,289)
Comprehensive income--
Net income............................................ -- -- -- -- 7,724
Accretion of convertible redeemable Series A preferred
stock to redemption value............................. -- -- -- -- (218)
Dividends declared for convertible redeemable Series A
preferred stock, $700 per share....................... -- -- -- -- (1,050)
----- ----------- ----- ----------- -----------
BALANCE, December 31, 1997................................ -- -- -- 72,640 4,167
Comprehensive income--
Net income............................................ -- -- -- -- 11,350
Foreign currency translation adjustment............... -- -- -- -- --
Total comprehensive income............................
Accretion of convertible redeemable Series A preferred
stock to redemption value............................. -- -- -- -- (243)
Dividends declared for convertible redeemable Series A
preferred stock, $700 per share....................... -- -- -- -- (1,050)
Conversion of Class A to Class B........................ -- -- -- -- --
Conversion of Class B to Class C........................ -- -- -- -- --
Conversion of Class C to Class D........................ -- 258.54 -- -- --
Sale of common stocks at $3,672.89 per share............ -- 36.02 -- 36,394 --
----- ----------- ----- ----------- -----------
BALANCE, December 31, 1998................................ $ -- 294.56 $ -- $ 109,034 $ 14,224
----- ----------- ----- ----------- -----------
----- ----------- ----- ----------- -----------
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME TOTAL
--------------- ---------
INITIAL CAPITALIZATION:
Issuance of common stock................................ $ -- $ 67,546
Capital component of convertible redeemable Series A
preferred stock....................................... -- 3,396
------ ---------
-- 70,942
Sale of Class A common stock, $1,000 per share.......... -- 2,000
Accretion of convertible redeemable Series A preferred
stock to redemption value............................. -- (152)
Dividends declared for convertible redeemable Series A
preferred stock, $523 per share....................... -- (785)
Comprehensive income--
Net loss.............................................. -- (1,654)
------ ---------
BALANCE, December 31, 1996................................ -- 70,351
Comprehensive income--
Net income............................................ -- 7,724
Accretion of convertible redeemable Series A preferred
stock to redemption value............................. -- (218)
Dividends declared for convertible redeemable Series A
preferred stock, $700 per share....................... -- (1,050)
------ ---------
BALANCE, December 31, 1997................................ -- 76,807
Comprehensive income--
Net income............................................
Foreign currency translation adjustment............... 1,430
Total comprehensive income............................ 12,780
Accretion of convertible redeemable Series A preferred
stock to redemption value............................. -- (243)
Dividends declared for convertible redeemable Series A
preferred stock, $700 per share....................... -- (1,050)
Conversion of Class A to Class B........................ -- --
Conversion of Class B to Class C........................ -- --
Conversion of Class C to Class D........................ -- --
Sale of common stocks at $3,672.89 per share............ -- 36,394
------ ---------
BALANCE, December 31, 1998................................ $ 1,430 $ 124,688
------ ---------
------ ---------
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31
NINE MONTHS
----------------------- ENDED
1998 1997 DECEMBER 31, 1996
----------- ---------- -----------------
OPERATING ACTIVITIES:
Net income (loss)................................................... $ 11,350 $ 7,724 $ (1,654)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities--
Depreciation and amortization..................................... 36,037 31,037 25,880
Subordinated notes discount accretion............................. 469 437 250
Deferred income taxes............................................. 1,100 (610) (3,743)
Extraordinary loss................................................ 805 -- --
Change in other operating items:
Accounts receivable............................................. (12,197) (1,485) 3,446
Inventories and customer tooling-in-progress.................... (3,398) (6,210) 2,451
Accounts payable and accrued liabilities........................ 5,662 (420) 420
Other, net...................................................... (773) (844) (329)
----------- ---------- -----------------
Net cash provided by operating activities..................... 39,055 29,629 26,721
----------- ---------- -----------------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired.................................. (74,778) -- (227,765)
Capital expenditures................................................ (34,640) (24,530) (2,995)
----------- ---------- -----------------
Net cash used for investing activities........................ (109,418) (24,530) (230,760)
----------- ---------- -----------------
FINANCING ACTIVITIES:
Borrowings under revolving credit facilities........................ 197,273 -- --
Repayments under revolving credit facilities........................ (179,870) -- --
Long-term borrowings................................................ 74,474 -- 152,454
Repayment of long-term borrowings................................... (64,157) (10,715) (8,035)
Debt issuance costs................................................. (3,193) -- (3,300)
Proceeds from sale of common stock.................................. 36,394 -- 69,546
Proceeds from sale of convertible redeemable Series A preferred
stock............................................................. -- -- 15,000
Dividends paid on convertible redeemable Series A preferred stock... (1,050) (1,572) --
----------- ---------- -----------------
Net cash provided by (used in) financing activities........... 59,871 (12,287) 225,665
----------- ---------- -----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS.......... 182 -- --
----------- ---------- -----------------
NET CHANGE IN CASH AND CASH EQUIVALENTS............................... (10,310) (7,188) 21,626
CASH AND CASH EQUIVALENTS, beginning of period........................ 14,438 21,626 --
----------- ---------- -----------------
CASH AND CASH EQUIVALENTS, end of period.............................. $ 4,128 $ 14,438 $ 21,626
----------- ---------- -----------------
----------- ---------- -----------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for--
Interest.......................................................... $ 20,289 $ 15,107 $ 10,216
----------- ---------- -----------------
----------- ---------- -----------------
Income taxes...................................................... $ 6,200 $ 6,245 $ 2,781
----------- ---------- -----------------
----------- ---------- -----------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. ORGANIZATION AND BASIS OF PRESENTATION:
DESCRIPTION OF BUSINESS
J. L. French Automotive Castings, Inc. (French) is an international
independent designer and manufacturer of aluminum die cast components and
assemblies for the global automotive industry. French consists of three primary
operating subsidiaries: French Holdings, Inc. and Subsidiaries (FHI) initially
capitalized in April 1996, located primarily in Wisconsin; Morris Ashby Ltd. and
Subsidiaries (Morris Ashby) acquired in January 1998, located in the United
Kingdom; and Fundiciones Viuda De Ansola, S.A. (Ansola) acquired in April 1998,
located in Spain.
2. SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The consolidated financial statements include the financial statements of
French and its wholly owned subsidiaries (collectively referred to as the
Company). All significant intercompany balances and transactions have been
eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid investments with an
original maturity of three months or less. Cash equivalents consist primarily of
short-term money market investments with Spanish financial institutions in 1998,
and overnight investments collateralized by U.S. government securities and
premium rated commercial paper in 1997. Cash equivalents are stated at cost
which approximates fair value.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out (FIFO) or average cost methods, which approximate
current cost. Market is determined by the quoted price for comparable raw
materials.
Inventories consisted of the following (in thousands):
DECEMBER 31
--------------------
1998 1997
--------- ---------
Raw materials............................................................ $ 4,094 $ 2,313
Components............................................................... 2,815 1,841
Work-in-process.......................................................... 5,045 887
Finished goods........................................................... 4,573 1,860
Supplies................................................................. 550 521
--------- ---------
$ 17,077 $ 7,422
--------- ---------
--------- ---------
CUSTOMER TOOLING
Excess of cost over billings on uncompleted tooling projects represents
costs incurred by the Company in the production of customer-owned tooling to be
used by the Company in the manufacture
F-7
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
of its products. The Company receives a specific purchase order for this tooling
and is reimbursed by the customer for the cost of such tooling. Costs are
deferred until reimbursed by the customer. Forecasted losses on incomplete
projects are recognized currently.
PROPERTY, PLANT AND EQUIPMENT
Property plant and equipment consisted of the following (in thousands):
DECEMBER 31
----------------------
1998 1997
---------- ----------
Land and improvements................................................. $ 3,218 $ 1,239
Buildings............................................................. 30,044 15,537
Machinery and equipment............................................... 138,908 59,673
Furniture, fixtures and other......................................... 2,390 757
Construction in progress.............................................. 9,455 6,663
---------- ----------
184,015 83,869
Less- Accumulated depreciation........................................ (36,510) (17,498)
---------- ----------
Net property, plant and equipment..................................... $ 147,505 $ 66,371
---------- ----------
---------- ----------
Property, plant and equipment are stated at cost. Depreciation of plant and
equipment is calculated on the straight-line method over the following estimated
useful lives:
15 to 39
Buildings and land improvements.............................. years
Machinery and equipment...................................... 5 to 13 years
Furniture and fixtures....................................... 3 to 10 years
The Company capitalizes interest cost as a component of the cost of
construction in progress. Interest costs of $210,000 and $384,000 were
capitalized for the years ended December 31, 1998 and 1997. There were no costs
capitalized for the period ended December 31, 1996.
Maintenance and repairs are charged to expense as incurred. Major
betterments and improvements which extend the useful life of the item are
capitalized and depreciated. The cost and accumulated depreciation of property,
plant and equipment retired or otherwise disposed of are removed from the
related accounts, and any residual values are charged or credited to income.
F-8
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INTANGIBLE AND OTHER ASSETS
Intangibles and other assets consisted of the following (in thousands):
DECEMBER 31
----------------------
1998 1997
---------- ----------
Goodwill.............................................................. $ 169,793 $ 98,779
Customer relationships................................................ 52,946 52,946
Debt issuance costs and other......................................... 4,293 8,384
---------- ----------
227,032 160,109
Accumulated amortization.............................................. (56,233) (39,372)
---------- ----------
$ 170,799 $ 120,737
---------- ----------
---------- ----------
Goodwill represents the excess of the purchase price over fair value of net
assets acquired arising from the initial capitalization in April 1996 and the
Morris Ashby and Ansola transactions described in Note 3. Goodwill is amortized
on a straight-line basis over 40 years. Amortization for the customer
relationships is calculated using an accelerated method, reflecting the nature
of the relationship, over 5 years. Debt financing costs are amortized over the
term of the applicable agreement.
The Company periodically evaluates whether events and circumstances have
occurred which may affect the estimated useful life or the recoverability of the
remaining balance of its goodwill and other long-lived assets. If such events or
circumstances were to indicate that the carrying amount of these assets would
not be recoverable, the Company would estimate the future cash flows expected to
result from the use of the assets and their eventual disposition. If the sum of
the expected future cash flows (undiscounted and without interest charges) were
less than the carrying amount of goodwill and other long-lived assets, the
Company would recognize an impairment loss.
ACCRUED LIABILITIES
Accrued liabilities consisted of the following (in thousands):
DECEMBER 31
--------------------
1998 1997
--------- ---------
Compensation and benefits................................................ $ 10,026 $ 4,121
Income taxes............................................................. 2,361 128
Tooling advances......................................................... 4,896 --
Interest................................................................. 2,084 1,742
Other.................................................................... 3,962 908
--------- ---------
$ 23,329 $ 6,899
--------- ---------
--------- ---------
INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax
F-9
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
assets and liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities using currently
enacted tax rates.
REVENUE RECOGNITION AND SALES COMMITMENTS
The Company recognizes revenue as its products are shipped to its customers.
The Company enters into agreements to produce products for its customers at the
beginning of a given vehicle's life. Once such agreements are entered into by
the Company, fulfillment of the customer's purchasing requirements is the
obligation of the Company for the entire production life of the vehicle, with
terms averaging seven years. The Company has no provisions to terminate such
contracts.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations are translated into U.S.
dollars using the year-end rates of exchange. Results of operations are
translated at average rates prevailing throughout the period. Translation gains
and losses are accumulated as a separate component of other comprehensive
income--foreign currency translation adjustments in stockholders' investment.
Gains and losses resulting from foreign currency transactions are included in
net income. Such gains or losses and related hedges are reported in the same
manner as translation adjustments.
STOCK OPTION PLANS
The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," as permitted by Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." Under APB
Opinion No. 25, compensation expense is recorded only if the current market
price of the underlying stock exceeds the exercise price of the stock option.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income, " which established standards for
reporting and display of comprehensive income and its components. Comprehensive
income reflects the change in equity of a business enterprise during a period
from transactions and other events and circumstances from nonowner sources. For
the Company, comprehensive income represents net income adjusted for foreign
currency translation adjustments. In accordance with SFAS No. 130, the Company
has chosen to disclose comprehensive income in the accompanying consolidated
statements of stockholders' investment and comprehensive income. Net income
(loss) for periods prior to 1998 was the same as comprehensive income.
SEGMENT REPORTING
In 1998, the Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 supersedes SFAS No. 14,
replacing the "industry segment" approach with the "management" approach. The
management approach designates the internal organization that is used by
management for making operating decisions and assessing performance as
F-10
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
the source of the Company's reportable segments. SFAS No. 131 also requires
disclosures about products and services, geographic areas and major customers.
The adoption affected only the disclosure of segment information (see Note 8).
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," becomes effective for the years beginning after June 15, 2000. SFAS
No. 133 establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments embedded in
other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge criteria are met. Special accounting for qualifying hedges allow a
derivative's gains or losses to offset related results on the hedged item in the
income statement and requires that a company must formally document, designate
and assess the effectiveness of transactions that receive hedge accounting. The
Company has not yet quantified the impact of adopting SFAS No. 133 and has not
yet determined the timing of adoption.
During 1998, the Company adopted Financial Accounting Standards Board
Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Start-up
Activities." SOP 98-5 requires that start-up activities be expensed as incurred,
versus capitalizing and expensing them over a period of time. The adoption of
SOP 98-5 did not affect the Company's consolidated results of operations or the
financial position of the Company.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of changes in net assets available for
benefits during the reporting period. Ultimate results could differ from those
estimates.
RECLASSIFICATIONS
Certain amounts previously reported in the 1997 and 1996 consolidated
financial statements have been reclassified to conform to the 1998 presentation.
These reclassifications had no effect on previously reported net income (loss)
or stockholders' investment.
3. MERGER AND ACQUISITIONS:
MORRIS ASHBY AND ANSOLA
On January 12, 1998, the Company effectively acquired 100% of the
outstanding common stock of Morris Ashby for approximately $54.0 million in
cash, including certain transaction costs, plus unsecured sterling loan notes
issued to certain electing shareholders in the amount of $26.4 million. On April
30, 1998, the Company acquired 100% of the outstanding common stock of Ansola
for approximately $20.8 million in cash, including certain transaction costs.
F-11
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
3. MERGER AND ACQUISITIONS: (CONTINUED)
The acquisitions of Morris Ashby and Ansola have been accounted for using
the purchase method of accounting and, accordingly, the assets acquired and
liabilities assumed have been recorded at their fair value as of the respective
dates of acquisition. The excess of the purchase price over the fair value of
the assets acquired and liabilities assumed have been recorded as goodwill.
The assets acquired and liabilities assumed have been recorded based upon
preliminary estimates of fair value as of the dates of acquisition. The Company
does not believe the final allocation of purchase price will be materially
different from preliminary allocations. Any changes to the preliminary estimates
will be reflected as adjustments to goodwill. Results of operations for these
acquisitions have been included in the accompanying consolidated financial
statements since the respective dates of the acquisition.
The following unaudited consolidated pro forma results of operations for the
years ended December 31, 1998 and 1997 give effect to the acquisitions of Morris
Ashby and Ansola as if such transactions had occurred at the beginning of the
period (in thousands):
PRO FORMA FOR YEARS
ENDED DECEMBER 31
----------------------
1998 1997
---------- ----------
Sales................................................................. $ 303,899 $ 269,480
Operating income...................................................... 41,910 38,222
Net income before extraordinary item.................................. 12,264 14,696
The unaudited pro forma consolidated financial information does not purport
to represent what the Company's financial position or results of operations
would actually have been if these transactions had occurred at such dates or to
project the Company's future results of operations.
F-12
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
4. LONG-TERM DEBT:
Long-term debt consisted of the following (in thousands)
DECEMBER 31
----------------------
1998 1997
---------- ----------
1998 senior credit facility:
U.S. term loan...................................................... $ 41,625 $ --
Sterling term loan.................................................. 24,215 --
U.S. revolving credit facility...................................... 15,000 --
Sterling revolving credit facility.................................. 14,204 --
1996 senior credit facility--U.S. term loan........................... -- 56,250
Unsecured sterling loan notes......................................... 27,303 --
Peseta term loans..................................................... 5,303 --
Obligations under capital leases (Note 10)............................ 5,320 --
Subordinated notes at face amount..................................... 85,000 85,000
Less- Subordinated notes original issue discount...................... (6,390) (6,859)
---------- ----------
211,580 134,391
Less- Current portion................................................. 13,113 12,170
---------- ----------
$ 198,467 $ 122,221
---------- ----------
---------- ----------
1998 SENIOR CREDIT FACILITY
On March 16, 1998, the Company entered into a new global senior credit
facility (the Agreement) with a group of banks providing for a U.S. term loan
and revolving credit facility of $45.0 million and $75.0 million, respectively,
and a sterling term loan and revolving credit facility of L33.6 million and
L16.4 million, respectively. The proceeds from the new senior credit facility
were used to finance the acquisitions of Morris Ashby and Ansola and retire
amounts outstanding under the 1996 senior credit facility discussed below.
Each of the revolving credit facilities and term loans provide for an annual
interest rate, at the option of the Company, equal to either the Eurocurrency
loan rate plus an applicable margin of 0.5% to 1.25%, or the base rate, as
defined, plus an applicable margin of up to 0.25%. The applicable interest rate
at December 31, 1998 was 6.6% for the U.S. term loan and revolving credit
facility and 6.5% for the Sterling term loan and revolving credit facility. The
Eurocurrency loan rate reflects the London Interbank Offered Rate (LIBOR) plus
an additional margin as determined by the Lender's agent. The base rate is equal
to the greater of 1) the publicly announced prime rate, 2) the federal funds
rate plus 0.5% to 1.0%, or 3) the base certificate of deposit rate plus 1.0%.
The applicable margin is based on the Company's leverage ratio as defined in the
Agreement. A commitment fee ranging from 0.2% to 0.375%, depending on the
Company's leverage ratio, is charged on the unused portion of the revolving
credit facilities.
The dollar and sterling term loans call for quarterly principal payments
totaling $1.1 million and L395,000 respectively, from June 30, 1998 to March 31,
1999.
F-13
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
4. LONG-TERM DEBT: (CONTINUED)
The Agreement contains covenants which restrict the Company with regard to
capital expenditures, asset sales, additional debt and distributions to
stockholders, while permitting regularly scheduled dividends or redemption of
Series A and B preferred stock. The Company is also subject to the maintenance
of certain financial covenants. The Company was in compliance with all covenants
as of December 31, 1998.
The Agreement was terminated in April 1999 in connection with the
transaction described in Note 13.
1996 SENIOR CREDIT FACILITY
In 1997, the U.S. term loan represented advances under a $100.0 million Loan
and Security Agreement with a group of banks entered into in conjunction with
the 1996 Acquisition. The term loan was payable in quarterly principal
installments of $2.7 million with a final payment of $21.4 million due on April
2, 2001. Interest on the term loan was based on the prime rate plus 5% or,
alternatively at the option of the Company, on the LIBOR plus .75% (6.7% at
December 31, 1997).
The Loan and Security Agreement also provided for a U.S. revolving credit
facility. There were no borrowings outstanding as of December 31, 1997 under the
revolving credit facility.
In connection with the repayment of the 1996 Senior Credit Facility, the
Company wrote off as an extraordinary loss $1.3 million ($805,000 after income
tax benefit) of unamortized debt issuance costs.
PESETA TERM LOANS
Upon the acquisition of Ansola, the Company assumed peseta term loans under
agreements with a number of Spanish banks. The loans were used by Ansola to
finance capital expenditures and generally have restrictions that require
approval prior to the disposal of assets. The loans have various payment terms
and maturity dates from 2000 through 2005. The effective interest rate in 1998
was approximately 5.2%.
SUBORDINATED NOTES
The subordinated notes (the Notes) bear interest at 12% and are due March
31, 2006. In conjunction with the acquisition and merger with FHI as discussed
in Note 3, the Notes were amended and the Company assumed all obligations and
rights of FHI under the Notes. The Notes are subordinated to the obligations
under the Agreement. The Notes were originally issued by FHI in April 1996 at a
face value of $85.0 million, with a discounted yield of 13.65%. Interest is
payable semiannually. The original issue discount is being accreted under the
interest method over the term of the Notes.
The Notes were retired in April 1999 in connection with the transaction
described in Note 13.
F-14
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
4. LONG-TERM DEBT: (CONTINUED)
AGGREGATE MATURITIES
The aggregate maturities of long-term debt, including obligations under
capital leases, for each of the five years subsequent to December 31, 1998 are
as follows (in thousands):
AMOUNT
----------
1999.............................................................................. $ 13,113
2000.............................................................................. 13,542
2001.............................................................................. 13,499
2002.............................................................................. 13,177
2003.............................................................................. 77,984
2004 and thereafter............................................................... 80,265
----------
$ 211,580
----------
----------
5. REDEEMABLE PREFERRED STOCKS:
The Company has 1,500 shares of convertible redeemable 7% Series A preferred
stock with a redemption value of $15.0 million issued and outstanding as of
December 31, 1998. The Series A preferred stock has a par value of $.0001 per
share. Holders of Series A preferred stock are entitled to cumulative cash
dividends, payable quarterly on the first business day of the succeeding
quarter, at an annual rate of $700 per share.
Each share of Series A preferred stock is convertible at any time at the
option of the holder into (i) 2.26372 shares of Class A common stock, or if such
share of Series A preferred stock is held by a Regulated Holder, 2.26372 shares
of Class B common stock; and (ii) one share of Series B preferred stock. The
conversion rate is subject to adjustment under certain circumstances pursuant to
antidilution provisions. The Series A preferred stock carries a redemption price
of $10,000 per share plus accrued, but unpaid, cash dividends.
The shares of Series A preferred stock are nonvoting, except in certain
circumstances. Such shares rank in parity with shares of Series B preferred
stock with respect to dividend rights and rights of liquidation and dissolution
and are senior to all other equity securities of the Company, including all
preferred stock used subsequent to March 16, 1998.
The Series A preferred stock was stated at estimated fair value at the
original date of issuance, net of $3.4 million, the estimated fair value
attributed to the conversion into shares of Class A common stock. The Company is
recording the accretion to increase the carrying value of the Series A preferred
stock to the redemption value of $15.0 million as a reduction to retained
earnings.
The Company has 1,500 shares of authorized redeemable 7% Series B preferred
stock with a par value of $.0001 per share that are available for issue only in
the event of the conversion of the Series A preferred stock. Shares of the
Series B preferred stock are not convertible, but have the same rights as the
Series A preferred stock with respect to dividends, liquidation, dissolution,
voting and seniority with respect to all other equity securities of the Company.
F-15
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
5. REDEEMABLE PREFERRED STOCKS: (CONTINUED)
Any outstanding shares of Series B preferred stock may be redeemed at the
option of the Company at any time at $10,000 per share plus accrued, but unpaid,
cash dividends.
In April 1999, in connection with transaction described in Note 13, each
share of Series A preferred stock was converted into 2.26372 shares of Class A
common stock and 1 share of Series B preferred stock. Certain shares of the
Class A common stock and all of the Series B preferred stock were redeemed by
the Company.
6. COMMON STOCKS:
In connection with the March 1998 merger, the Class A common stock was
converted into 53,015.49 shares of Class A and 13,944.85 shares of Class B
common stock. Class B common stock was converted in Class C common stock and
Class C common stock was converted into Class D common stock. The
transferability of common stock is restricted by a shareholders' agreement.
Each share of Class A and Class B common stock is entitled to one vote.
Shares of Class C common stock are nonvoting except in certain circumstances and
shares of Class D common stock are entitled to ten votes per share. Under
certain circumstances, including an initial public offering or the sale of the
Company, each share of Class C common stock will convert into one share of Class
A or, if owned by a "Regulated Holder," into one share of Class A or Class B
common stock. Concurrent with any conversion of a share of Class C common stock,
one-ninth of a share of Class D common stock will automatically convert into
one-ninth of a share of Class A or Class B common stock. In other references,
each class of common stock generally shares the same powers.
In April 1999, in connection with the transaction described in Note 13,
certain shares of common stock were redeemed by the Company.
7. INCOME TAXES:
The provision (benefit) for income taxes consists of the following (in
thousands):
YEARS ENDED DECEMBER NINE MONTHS
31 ENDED
-------------------- DECEMBER 31,
1998 1997 1996
--------- --------- ------------
Current.................................................. $ 7,199 $ 5,564 $ 2,617
Deferred................................................. 1,100 (610) (3,743)
--------- --------- ------------
Total................................................ $ 8,299 $ 4,954 $ (1,126)
--------- --------- ------------
--------- --------- ------------
F-16
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
7. INCOME TAXES: (CONTINUED)
A summary of deferred income tax assets and liabilities is as follows (in
thousands):
YEARS ENDED
DECEMBER 31
--------------------
1998 1997
--------- ---------
Deferred tax assets:
Accounts receivable................................................... $ 456 $ 210
Inventories........................................................... 212 218
Vacation accruals..................................................... 138 95
Employee benefit plans................................................ 512 --
Amortization of intangible assets..................................... 9,212 5,885
State tax credit and net operating loss carryforwards................. 584 244
--------- ---------
Total deferred tax assets......................................... 11,114 6,652
Deferred tax liabilities--depreciation.................................. 13,288 3,961
--------- ---------
Net deferred tax assets (liabilities)............................. $ (2,174) $ 2,691
--------- ---------
--------- ---------
Management believes it more likely than not that the results of future
operations will generate sufficient taxable income to realize the deferred tax
assets. Accordingly, no valuation allowance is recorded.
A reconciliation of income taxes computed at the statutory rates to the
reported income tax provisions is as follows (in thousands):
YEARS ENDED DECEMBER 31 NINE MONTHS
ENDED
------------------------ DECEMBER 31,
1998 1997 1996
----------- ----------- ---------------
Federal provision at statutory rates........................ 35.0% 35.0% (35.0)%
State income taxes, net of federal benefit.................. 5.4 4.4 (2.0)
Other, net.................................................. 0.2 (0.3) (3.5)
--- --- -----
40.6% 39.1% (40.5)%
--- --- -----
--- --- -----
The Company has approximately $305,000 of state tax credit carryforwards
which expire in 2013, and $1.8 million of Wisconsin net operating loss
carryforwards which expire in 2011 and 2012, and $900,000 of foreign net
operating loss carryforwards which expire in 2013.
8. GEOGRAPHIC AND PRODUCT LINE INFORMATION:
The Company designs and manufactures aluminum die cast components and
assemblies for the global automotive industry and operates in a single
reportable business segment, automotive products. The Company internally
evaluates its business principally by product category; however, because of
similar economic characteristics of the operations, including the nature of
products, production process and customers, those operations have been
aggregated following the provisions of SFAS No. 131 for segment reporting
purposes.
F-17
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
8. GEOGRAPHIC AND PRODUCT LINE INFORMATION: (CONTINUED)
The following is a summary of sales, based on location of production, and
long-lived assets by geographic location (in thousands):
YEARS ENDED DECEMBER 31
---------------------------------------------
1998 1997
---------------------- ---------------------
LONG- LONG-
LIVED LIVED
SALES ASSETS SALES ASSETS
---------- ---------- ---------- ---------
North America................................. $ 208,000 $ 79,703 $ 169,510 $ 66,371
Europe........................................ 87,690 67,802 -- --
---------- ---------- ---------- ---------
$ 295,690 $ 147,505 $ 169,510 $ 66,371
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Sales to customers in various geographic locations were as follows (in
thousands):
YEARS ENDED
DECEMBER 31
----------------------
1998 1997
---------- ----------
North America......................................................... $ 186,328 $ 143,753
Europe................................................................ 106,608 23,812
Other foreign locations............................................... 2,754 1,945
---------- ----------
$ 295,690 $ 169,510
---------- ----------
---------- ----------
The Company sells its products primarily directly to automobile
manufacturers. Customers that accounted for a significant portion of
consolidated sales for the years ended December 31, 1998 and 1997 and for the
nine months ended December 31, 1996 were as follows:
YEARS ENDED DECEMBER NINE MONTHS
31 ENDED
-------------------- DECEMBER 31,
1998 1997 1996
--------- --------- ------------
Ford............................................................ 58% 60% 58%
GM.............................................................. 20% 39% 42%
As of December 31, 1998 and 1997, receivables from these customers
represented 68% and 100% of total accounts receivable, respectively.
9. EMPLOYEE BENEFIT PLANS:
The Company has a noncontributory defined contribution retirement plan
covering substantially all U.S. employees after one year of service. Under the
terms of the plan, contributions made by the Company are based on the number of
hours worked by each participant. The Company's contribution for 1997 was at the
rate of 70 cents per hour of qualified service, which increased to 85 cents in
1998, and increases to $1.00 in 1999. The expense for the years ended December
31, 1998 and 1997 was $1.2 million and $926,000, respectively.
F-18
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
9. EMPLOYEE BENEFIT PLANS: (CONTINUED)
The Company also sponsors a 401(k) savings plan covering substantially all
U.S. employees. Company contributions are not provided under the 401(k) plan.
The Company sponsors a defined benefit pension plan covering certain
employee groups at Morris Ashby. The change in benefit obligation and plan
assets consisted of the following as of December 31, 1998 (in thousands):
CHANGE IN BENEFIT OBLIGATION
- -----------------------------------------------------------------------------------
Benefit obligation at January 12, 1998............................................. $ 25,402
Service cost....................................................................... 1,827
Interest cost...................................................................... 1,983
Actuarial loss..................................................................... 4,557
Plan participants' contributions................................................... 627
Benefits paid...................................................................... (1,520)
---------
Benefit obligation at the end of the year.......................................... $ 32,876
---------
---------
CHANGE IN PLAN ASSETS
- -----------------------------------------------------------------------------------
Fair value of plan assets at January 12, 1998...................................... $ 21,711
Actual return on plan assets....................................................... 2,532
Employer contributions............................................................. 1,505
Plan participants' contributions................................................... 592
Benefits paid...................................................................... (1,585)
---------
Fair value of plan assets at the end of the year................................... $ 24,755
---------
---------
The Company's plan has benefits in excess of the plan assets. The funded
status of the Company's plan is as follows as of December 31, 1998 (amounts in
thousands):
Funded status...................................................... $ (8,120)
Unrecognized actuarial loss........................................ 6,132
---------
Accrued benefit cost............................................... $ 1,988
---------
---------
The following assumptions were used to account for the plan assets for the
year ended December 31, 1998 (in thousands):
Discount rate........................................................ 5.5%
Expected return on plan assets....................................... 9.0%
Rate of compensation increase........................................ 4.0%
F-19
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
9. EMPLOYEE BENEFIT PLANS: (CONTINUED)
The components of net periodic benefit costs are as follows for the year
ended December 31, 1998 (in thousands):
Service cost....................................................... $ 1,827
Interest cost...................................................... 1,983
Expected return on plan assets..................................... (1,976)
---------
Net periodic benefit costs......................................... $ 1,834
---------
---------
The Company became obligated under this plan upon the acquisition of Morris
Ashby (see Note 3).
On March 16, 1998, the Company adopted the 1998 Stock Option Plan (the
Option Plan) and the 1998 Performance Stock Option Plan (the Performance Plan)
pursuant to which the Company's board of directors may grant stock options to
key officers and employees. Both plans constitute a continuation and restatement
of the 1996 Stock Option Plan and 1996 Performance Stock Option Plan,
respectively.
The Option Plan authorizes grants of options to purchase up to 4,516 shares
of authorized, but unissued Class A common stock. Stock options are granted with
an exercise price equal to the stock's fair market value at the date of grant.
All stock options have 10-year terms, vest at a rate of 20% per year and become
fully exercisable after five years from the date of grant. Vesting accelerates
upon a change of control, as defined, or optionee termination due to death,
disability or retirement after age 65 with 15 or more years of service.
The Performance Plan authorizes grants of options to purchase up to 4,516
shares of Class A common stock. Stock options are granted with an exercise price
of $1,000 per share. All stock options vest from the date of the Performance
Plan through April 2005 and become exercisable when certain financial hurdles
are achieved. In December 1998, 2,250 options were granted under the Performance
Plan.
A summary of stock option information under the Option Plan as of December
31, 1998 is as follows:
WEIGHTED
AVERAGE
OPTIONS EXERCISE
DATE OF GRANT OUTSTANDING EXERCISE PRICE PRICE
- ----------------------------------------------------------------------- ------------- ---------------- -----------
Option Plan:
August 1996.......................................................... 1,222 $ 1,000
June 1997............................................................ 822 1,531
February 1998........................................................ 900 2,767
Performance Plan:
December 1998........................................................ 2,250 1,000
----- ----------------
Options outstanding as of December 31, 1998............................ 5,194 $ 1,000-$2,767 $ 1,390
----- ---------------- -----------
----- ---------------- -----------
Options exercisable as of December 31, 1998............................ 653 $ 1,000-$1,531 $ 1,135
----- ---------------- -----------
----- ---------------- -----------
There are 3,838 shares of Class A common stock available for grant as of
December 31, 1998.
The pro forma effect on net income for the years ended December 31, 1998 and
1997 using the fair value based method of accounting for employee stock options
under SFAS No. 123 was not significant.
In April 1999, all outstanding options were redeemed by the Company in
connection with the transaction described in Note 13.
F-20
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
10. LEASES:
The Company is obligated at December 31, 1998 under various capital leases
for certain machinery and equipment, including vehicles, that expire at various
dates through 2004. There were no capital lease obligations at December 31,
1997. Amortization of assets held under capital leases is included with
depreciation expense.
The Company also leases buildings, vehicles, machinery and equipment under
noncancelable operating leases expiring on various dates through 2013. Total
rent expense from operating leases, including month-to-month leases, was
$852,000 and $252,000 for the years ended December 31, 1998 and 1997,
respectively.
Aggregate future minimum lease payments as of December 31, 1998 relating to
capital leases and noncancelable operating leases with an initial term in excess
of one year are as follows (in thousands):
CAPITAL OPERATING
LEASES LEASES
--------- -----------
1999..................................................................... $ 1,700 $ 711
2000..................................................................... 1,491 584
2001..................................................................... 1,200 512
2002..................................................................... 834 502
2003..................................................................... 715 452
Thereafter............................................................... 213 1,991
--------- -----------
Total minimum lease payments..................................... $ 6,153 $ 4,752
--------- -----------
--------- -----------
Less- Amount representing interest (at rates ranging from 6.2% to
11.8%)................................................................. 833
---------
Present value of net minimum capital lease payments.............. 5,320
Less- Current installments of obligations under capital leases........... 1,380
---------
Obligations under capital leases, excluding current
installments................................................... $ 3,940
---------
---------
11. RELATED-PARTY TRANSACTIONS:
The Company paid $325,000, $200,000 and $150,000 of financial advisory fees
to Windward Capital Partners, L.P., an entity affiliated through common
ownership, in the years ended December 31, 1998 and 1997 and during the period
ended December 31, 1996. The Company pays the outside members of the board of
directors fees based on meeting attendance and services provided. Director fees
paid were $440,000, $370,000 and $156,000 in the years ended December 31, 1998
and 1997 and during the period ended December 31, 1996. In connection with the
transaction discussed in Note 13, the Company entered into a management
agreement with Hidden Creek Industries which requires annual payment of
$500,000.
In 1997, prior to its equity investment of capital into the Company,
Windward Capital Partners, L.P. advanced the Company $1.2 million for costs
incurred to obtain financing commitments in connection with the acquisition of
Morris Ashby. As of December 31, 1997, this advance remained
F-21
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
11. RELATED-PARTY TRANSACTIONS: (CONTINUED)
unpaid and is included in accounts payable in the 1997 consolidated balance
sheet. The advance was repaid in January 1998.
12. FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS:
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable, accrued liabilities and the revolving credit facilities
approximate fair value, because of the short maturity of these instruments. The
fair value of long-term debt is based on quoted market prices for the same or
similar issues or on the current rates offered to the Company for a term equal
to the same remaining maturities. As of December 31, 1998 and 1997, the fair
value of the Company's long-term debt was determined to be the same as the
carrying amount. It is not practicable to estimate the fair value of the
redeemable convertible preferred stock due to the unique terms and conditions of
this security.
The Company uses derivative financial instruments for the purpose of
reducing its exposure to adverse fluctuations in foreign exchange rates and does
not use them for trading purposes. Off-balance-sheet derivative financial
instruments as of December 31, 1998 consist of foreign currency forward
contracts to sell pesetas with a notional value of approximately $19.1 million
and a fair value of approximately $70,000. The fair value is based on quoted
market prices. The Company did not have any off-balance-sheet derivative
financial instruments as of December 31, 1997. The Company enters into foreign
currency forward contracts to eliminate foreign exchange risk on long-term
intercompany loans. These contracts serve as a hedge of the Company's net
investment in the foreign operations and, accordingly, gains and losses on such
contracts are recorded as a component of accumulated other comprehensive
income--foreign currency translation adjustment in the accompanying consolidated
statement of stockholders' investment and comprehensive income.
13. EVENTS SUBSEQUENT TO DECEMBER 31, 1998:
RECAPITALIZATION
On April 21, 1999, the Company completed a recapitalization transaction (the
Recapitalization). Pursuant to the Recapitalization Agreement, immediately prior
to the Recapitalization, each share of Class B, Class C and Class D common stock
was converted into one share of Class A common stock. In addition, each share of
Convertible Redeemable 7% Series A preferred stock was converted into one share
of Series B preferred stock and 2.26372 shares of Class A common stock, and the
Company restated its Articles of Incorporation to authorize 20,000 shares of
Class A common stock, 30,000 shares of Class B common stock, 2,000 shares of
Class C common stock, 15,000 shares of Class D-1 common stock, 7,500 shares of
nonvoting Class D-2 common stock and 1,000 shares of Class E common stock.
Concurrently with the above transactions, new investors acquired 1,650.06 shares
of Class A common stock, 17,099.89 shares of Class B common stock, 4,274.97
shares of Class C common stock, 5,509.97 shares of Class D-1 common stock,
5,699.96 shares of Class D-2 common stock and 2,802.48 shares of Class E common
stock for total consideration of $156.0 million. In addition, the Company
borrowed $295.0 million pursuant to a new Senior Credit Facility and $130.0
million pursuant to a Subordinated Financing Facility.
The proceeds from the equity investment, the Senior Credit Facility and the
Subordinated Financing Facility were used to retire $184.0 million of existing
indebtedness, $12.3 million to redeem
F-22
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
13. EVENTS SUBSEQUENT TO DECEMBER 31, 1998: (CONTINUED)
the outstanding Series B preferred stock, $336.5 million to repurchase certain
shares of Class A common stock and $21.5 million to redeem all outstanding
options and $6.9 million of transaction fees. As a result of the
Recapitalization, approximately 87% of all classes of the combined capital stock
of the Company were acquired which represented 85% of the voting control. The
prior owners retained a carry-over interest of 13% of all classes of combined
capital stock. This redemption of stock options was recorded as compensation
expense at the date of the Recapitalization. A subsequent additional payment of
$5.9 million was made to those persons who were stockholders prior to the
Recapitalization based on a post-closing determination of working capital as of
the closing date of the Recapitalization.
The Company's Senior Credit Facility provides for total borrowings of up to
$370.0 million, including (a) $105.0 million of term loans consisting of a $70.0
million U.S. dollar-denominated term loan and a pound sterling-denominated term
loan in an amount equal to the pound sterling equivalent (determined as of the
date such loan was made) of U.S. $17.5 million, which are available to French,
and a pound sterling-denominated term loan in an amount equal to the pound
sterling equivalent (determined as of the date such loan was made) of U.S. $17.5
million, which is available to Morris Ashby (collectively, the tranche A term
loan), (b) a $190.0 million tranche B term loan, and (c) a $75.0 million
revolving credit facility. Initial interest rates as of April 30, 1999 on
borrowings under the Senior Credit Facility ranged from 7.375% to 8.078%. The
Senior Credit Facility requires the Company to maintain certain financial tests
including minimum interest coverage, minimum net worth and maximum leverage
tests.
Borrowings under the tranche A term loan are due and payable April 21, 2005
and borrowings under the Tranche B term loan are due and payable October 21,
2006. The revolving credit facility is available until April 21, 2005. The
Senior Credit Facility is secured by all of the assets and by all present and
future subsidiaries of French in each case, with exceptions for certain foreign
subsidiaries.
The Company's Subordinated Financing Facility provides for total borrowings
of $130.0 million. The Subordinated Financing Facility has a final maturity of
October 21, 2008. As of April 30, 1999 borrowings under the Subordinated
Financing Facility were at 11.35%.
Pursuant to the Recapitalization, the historical basis of all assets and
liabilities will be retained for financial reporting purposes, and the
repurchase of the existing common stock and issuance of new common stock will be
accounted for as an equity transaction. In addition, the Company incurred
approximately $6.9 million of fees and expenses to complete the
Recapitalization. These costs will be included in stockholders investment as a
cost of the Recapitalization.
On May 25, 1999, the Company completed an offering of $175 million of
11 1/2% Senior Subordinated Notes due 2009 (Subordinated Notes). Net proceeds of
the offering, approximately $169.6 million, combined with $0.4 million of cash
were used to retire the $130 million Subordinated Financing facility and $40
million of the tranche B term loan. In conjunction with the recapitalization and
offering, the Company recorded an extraordinary loss, net of tax, of $8,112. The
loss includes the write off of unamortized debt issuance costs and original
issue discount related to indebtedness that was retired.
F-23
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
13. EVENTS SUBSEQUENT TO DECEMBER 31, 1998: (CONTINUED)
POTENTIAL ACQUISITION
In March 1999, we entered into a non-binding letter of intent to acquire a
Mexican supplier of aluminum die castings to DaimlerChrysler and GM for
approximately $13 million. Completion of this acquisition is subject to our
satisfactory completion of due diligence, negotiation of a definitive agreement,
regulatory approval and the approval of our senior lenders. If we complete this
acquisition, we would expect closing to occur in the third quarter of 1999. We
expect that we would finance this acquisition with available borrowings under
our revolving credit facility.
14. CONSOLIDATING GUARANTOR AND NON-GUARANTOR INFORMATION:
The following consolidating financial information presents balance sheet,
statement of operations and cash flow information related to the Company's
business. Each Guarantor is a direct wholly owned domestic subsidiary of the
Company and has fully and unconditionally guaranteed the 11 1/2% senior
subordinated notes issued by J.L. French Automotive Casting, Inc., on a joint
and several basis. Separate financial statements and other disclosures
concerning the Guarantors have not been presented because management believes
that such information is not material. As all subsidiaries of the Company are
guarantors for 1997 and 1996, separate consolidating guarantor and non-guarantor
financial statements have not been presented for such periods.
J. L. FRENCH AUTOMOTIVE CASTING, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
1998
(AMOUNTS IN THOUSANDS)
J.L. FRENCH
AUTOMOTIVE NON-
CASTINGS, GUARANTOR GUARANTOR
INC. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
------------ ----------- ----------- ------------ ------------
Revenues...................................... $ -- $ 208,000 $ 87,690 $ -- $ 295,690
Cost of sales................................. -- 152,440 68,600 -- 221,040
------------ ----------- ----------- ------------ ------------
Gross profit................................ -- 55,560 19,090 -- 74,650
Selling, general and administrative
expenses.................................... 193 6,817 9,792 -- 16,802
Amortization of intangible assets............. 20 15,234 1,607 -- 16,861
------------ ----------- ----------- ------------ ------------
Operating income............................ (213) 33,509 7,691 -- 40,987
Interest expense.............................. (32) 13,896 6,669 -- 20,533
------------ ----------- ----------- ------------ ------------
Income before income taxes, equity in
earnings (losses) of subsidiaries and
extraordinary loss........................ (181) 19,613 1,022 -- 20,454
Provision (benefit) for income taxes.......... (65) 7,649 715 -- 8,299
Equity in earnings (losses) of subsidiaries... 11,466 -- -- (11,466) --
------------ ----------- ----------- ------------ ------------
Income before extraordinary loss............ 11,350 11,964 307 (11,466) 12,155
Extraordinary loss............................ -- 805 -- -- 805
------------ ----------- ----------- ------------ ------------
Net income (loss)........................... $ 11,350 $ 11,159 $ 307 $ (11,466) $ 11,350
------------ ----------- ----------- ------------ ------------
------------ ----------- ----------- ------------ ------------
F-24
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
14. CONSOLIDATING GUARANTOR AND NON-GUARANTOR INFORMATION: (CONTINUED)
J. L. FRENCH AUTOMOTIVE CASTING, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31,
1998
(AMOUNTS IN THOUSANDS)
J.L. FRENCH
AUTOMOTIVE NON-
CASTINGS, GUARANTOR GUARANTOR
INC. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
------------ ----------- ----------- ------------ ------------
OPERATING ACTIVITIES:
Net income (loss).......................... $ 11,350 $ 11,159 $ 307 $ (11,466) $ 11,350
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities--
Depreciation and amortization............ 20 27,933 8,084 -- 36,037
Other non-cash........................... 104 1,527 743 -- 2,374
Earnings of subsidiaries................. (11,466) -- -- 11,466 --
Change in other operating activities..... 6,743 (29,055) 11,392 214 (10,706)
------------ ----------- ----------- ------------ ------------
Net cash provided by operating
activities........................... 6,751 11,564 20,526 214 39,055
------------ ----------- ----------- ------------ ------------
INVESTING ACTIVITIES:
Acquisitions, net.......................... (38,965) -- (74,085) 38,272 (74,778)
Capital expenditures, net.................. -- (26,033) (8,607) -- (34,640)
------------ ----------- ----------- ------------ ------------
Net cash provided by (used for)
investing activities................. (38,965) (26,033) (82,692) 38,272 (109,418)
------------ ----------- ----------- ------------ ------------
FINANCING ACTIVITIES:
Borrowings on revolving credit
facilities............................... -- 56,300 140,973 -- 197,273
Repayments on revolving credit
facilities............................... -- (41,300) (138,570) -- (179,870)
Long-term borrowings....................... -- 45,000 29,474 -- 74,474
Repayment of long-term borrowings.......... -- (59,625) (4,532) -- (64,157)
Other financing activities................. (4,243) -- -- -- (4,243)
Capital investment......................... 36,395 -- 38,018 (38,019) 36,394
------------ ----------- ----------- ------------ ------------
Net cash provided by (used for)
financing activities................. 32,152 375 65,363 (38,019) 59,871
------------ ----------- ----------- ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS........................... -- -- 649 (467) 182
------------ ----------- ----------- ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS...... (62) (14,094) 3,846 -- (10,310)
CASH AND CASH EQUIVALENTS, beginning of
period..................................... 84 14,354 -- -- 14,438
------------ ----------- ----------- ------------ ------------
CASH AND CASH EQUIVALENTS, end of period..... $ 22 $ 260 $ 3,846 $ -- $ 4,128
------------ ----------- ----------- ------------ ------------
------------ ----------- ----------- ------------ ------------
F-25
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
14. CONSOLIDATING GUARANTOR AND NON-GUARANTOR INFORMATION: (CONTINUED)
J.L. FRENCH AUTOMOTIVE CASTING, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS AS OF DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS)
J.L. FRENCH
AUTOMOTIVE NON-
CASTINGS, GUARANTOR GUARANTOR
INC. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
------------ ----------- ----------- ------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents................... $ 22 $ 260 $ 3,846 $ -- $ 4,128
Accounts receivable, net.................... -- 34,897 20,345 -- 55,242
Inventories................................. -- 9,712 7,365 -- 17,077
Customer tooling-in-progress................ -- 2,335 5,678 -- 8,013
Other current assets........................ -- 1,470 559 -- 2,029
------------ ----------- ----------- ------------ ------------
Total current assets...................... 22 48,674 37,793 -- 86,489
------------ ----------- ----------- ------------ ------------
Property, Plant & Equipment, net.............. -- 79,703 67,802 147,505
Investment in Subsidiaries.................... 138,003 -- -- (138,003) --
Intangible and Other Assets................... 3,226 99,469 68,104 -- 170,799
------------ ----------- ----------- ------------ ------------
$ 141,251 $ 227,846 $ 173,699 $ (138,003) $ 404,793
------------ ----------- ----------- ------------ ------------
------------ ----------- ----------- ------------ ------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable............................ $ -- $ 11,257 $ 16,557 $ -- $ 27,814
Accrued liabilities......................... 498 8,792 14,039 -- 23,329
Current portion of long-term debt........... -- 6,000 7,113 -- 13,113
------------ ----------- ----------- ------------ ------------
Total current liabilities................. 498 26,049 37,709 -- 64,256
------------ ----------- ----------- ------------ ------------
Long-Term Debt................................ -- 129,234 69,233 -- 198,467
Other Current Liabilities..................... 104 (3,090) 8,151 -- 5,165
Inter-Company................................. 5,174 (24,025) 18,644 207 --
------------ ----------- ----------- ------------ ------------
Total liabilities......................... 5,776 128,168 133,737 207 267,888
------------ ----------- ----------- ------------ ------------
Convertible Redeemable Series A Preferred
Stock....................................... 12,217 -- -- -- 12,217
Common Stock.................................. -- -- -- -- --
Additional Paid-In-Capital.................... 109,034 84,857 38,018 (122,875) 109,034
Retained Earnings............................. 14,224 14,821 307 (15,128) 14,224
Accumulated and Other Comprehensive Income.... -- -- 1,637 (207) 1,430
------------ ----------- ----------- ------------ ------------
Total stockholders' investment............ 123,258 99,678 39,962 (138,210) 124,688
------------ ----------- ----------- ------------ ------------
$ 141,251 $ 227,846 $ 173,699 $ (138,003) $ 404,793
------------ ----------- ----------- ------------ ------------
------------ ----------- ----------- ------------ ------------
F-26
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a condensed summary of actual quarterly results of
operations for 1997 and 1998 (in thousands):
GROSS OPERATING NET
REVENUES PROFIT INCOME INCOME
---------- --------- ----------- ---------
1997:
First......................................... $ 40,911 $ 12,839 $ 6,264 $ 1,621
Second........................................ 44,956 14,613 8,172 2,817
Third......................................... 42,317 12,598 6,108 1,661
Fourth........................................ 41,326 12,938 6,115 1,625
---------- --------- ----------- ---------
$ 169,510 $ 52,988 $ 26,659 $ 7,724
---------- --------- ----------- ---------
---------- --------- ----------- ---------
1998:
First......................................... $ 67,687 $ 16,416 $ 7,536 $ 1,299
Second........................................ 77,876 20,680 12,194 4,406
Third......................................... 72,905 14,716 6,375 (130)
Fourth........................................ 77,222 22,838 14,882 5,775
---------- --------- ----------- ---------
$ 295,690 $ 74,650 $ 40,987 $ 11,350
---------- --------- ----------- ---------
---------- --------- ----------- ---------
F-27
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
1998
JUNE 30, ------------
1999
-----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................................... $ 27,357 $ 4,128
Accounts receivable, net............................................................ 65,860 55,242
Inventories......................................................................... 15,805 17,077
Other current assets................................................................ 19,132 10,042
----------- ------------
Total current assets.............................................................. 128,154 86,489
PROPERTY, PLANT AND EQUIPMENT, net.................................................... 144,087 147,505
INTANGIBLE AND OTHER ASSETS, net...................................................... 166,467 170,799
----------- ------------
Total assets...................................................................... $ 438,708 $ 404,793
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT (DEFICIT)
CURRENT LIABILITIES:
Accounts payable.................................................................... $ 24,985 $ 27,814
Accrued liabilities................................................................. 17,128 23,329
Current portion of long-term debt................................................... 11,398 13,113
----------- ------------
Total current liabilities......................................................... 53,511 64,256
LONG-TERM DEBT, excluding current portion............................................. 460,078 198,467
OTHER NONCURRENT LIABILITIES.......................................................... 3,454 5,165
----------- ------------
Total liabilities................................................................. 517,043 267,888
CONVERTIBLE REDEEMABLE SERIES A PREFERRED STOCK....................................... -- 12,217
----------- ------------
STOCKHOLDERS' INVESTMENT (DEFICIT):
Common stock........................................................................ -- --
Additional paid-in capital.......................................................... -- 109,034
Retained earnings (deficit)......................................................... (77,031) 14,224
Accumulated other comprehensive income--foreign currency translation adjustment..... (1,304) 1,430
----------- ------------
Total stockholders' investment (deficit)........................................ (78,335) 124,688
----------- ------------
Total liabilities and stockholders' investment (deficit)........................ $ 438,708 $ 404,793
----------- ------------
----------- ------------
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
F-28
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED JUNE
30,
----------------------
1999 1998
---------- ----------
Sales..................................................................................... $ 165,689 $ 145,563
Cost of sales............................................................................. 123,406 108,467
---------- ----------
Gross profit............................................................................ 42,283 37,096
Selling, general and administrative expenses.............................................. 10,228 8,882
Recapitalization expenses................................................................. 21,151 --
Amortization expense...................................................................... 5,505 8,484
---------- ----------
Operating income........................................................................ 5,399 19,730
Interest expense, net..................................................................... 13,823 8,844
---------- ----------
Income (loss) before provision (benefit) for income taxes............................... (8,424) 10,886
Provision (benefit) for income taxes...................................................... (3,369) 4,376
---------- ----------
Income (loss) before extraordinary item................................................. (5,055) 6,510
Extraordinary loss on early extinguishment of debt, net of income taxes................... 8,112 805
---------- ----------
Net income (loss)....................................................................... $ (13,167) $ 5,705
---------- ----------
---------- ----------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-29
J. L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
SIX MONTHS
ENDED JUNE 30,
----------------------
1999 1998
---------- ----------
OPERATING ACTIVITIES:
Net income (loss)....................................................................... $ (13,167) $ 5,705
Adjustments to reconcile net income to net cash provided by (used for) operating
activities--
Depreciation and amortization......................................................... 16,565 17,535
Extraordinary loss.................................................................... 8,112 805
Other noncash items................................................................... 2,543 969
Changes in operating items............................................................ (22,980) (13,636)
---------- ----------
Net cash provided by (used for) operating activities................................ (8,927) 11,378
---------- ----------
INVESTING ACTIVITIES:
Acquisitions, net....................................................................... -- (71,740)
Capital expenditures, net............................................................... (12,157) (16,815)
---------- ----------
Net cash used for investing activities.............................................. (12,157) (88,555)
---------- ----------
FINANCING ACTIVITIES:
Borrowings (repayments) on revolving credit facilities.................................. (21,435) 27,745
Long-term borrowings.................................................................... 600,933 71,824
Repayment of long-term borrowings....................................................... (321,695) (58,142)
Recapitalization........................................................................ (355,009) --
Capital investment...................................................................... 156,000 34,383
Other................................................................................... (15,498) (4,839)
---------- ----------
Net cash provided by (used for) financing activities................................ 43,296 70,971
---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS.............................. 1,017 (3,086)
---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS................................................... 23,229 (9,292)
CASH AND CASH EQUIVALENTS, beginning of period............................................ 4,128 14,438
---------- ----------
CASH AND CASH EQUIVALENTS, end of period.................................................. $ 27,357 $ 5,146
---------- ----------
---------- ----------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-30
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
The accompanying condensed consolidated financial statements of J. L. French
Automotive Castings, Inc. and its wholly owned subsidiaries (collectively,
French or the Company) have been prepared by French without audit. The
information furnished in the condensed consolidated financial statements
includes normal recurring adjustments and reflects all adjustments which are, in
the opinion of management, necessary for a fair presentation of such financial
statements. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. Although French believes that the
disclosures are adequate to make the information presented not misleading, it is
suggested that these condensed consolidated financial statements be read in
conjunction with the audited financial statements and the notes thereto included
in this offering memorandum.
Sales and operating results for the six months ended June 30, 1999 and 1998
are not necessarily indicative of the results to be expected for the full year.
2. COMPREHENSIVE INCOME:
The table below presents comprehensive income, defined as changes in the
equity of the Company for the six month periods ended June 30, 1999 and 1998 (in
thousands):
1999 1998
--------- ---------
Net income (loss)........................................ $ (13,167) $ 5,705
Change in translation adjustment......................... (2,734) 1,430
--------- ---------
Comprehensive income..................................... $ (15,901) $ 7,135
--------- ---------
--------- ---------
3. RECAPITALIZATION TRANSACTION:
On April 21, 1999, the Company completed a recapitalization transaction (the
Recapitalization). Pursuant to the Recapitalization Agreement, immediately prior
to the Recapitalization, each share of Class B, Class C and Class D common stock
was converted into one share of Class A common stock. In addition, each share of
Convertible Redeemable 7% Series A preferred stock was converted into one share
of Series B preferred stock and 2.26372 shares of Class A common stock, and the
Company restated its Articles of Incorporation to authorize 20,000 shares of
Class A common stock, 30,000 shares of Class B common stock, 2,000 shares of
Class C common stock, 15,000 shares of Class D-1 common stock, 7,500 shares of
nonvoting Class D-2 common stock and 1,000 shares of Class E common stock.
Concurrently with the above transactions, new investors acquired 1,650.06 shares
of Class A common stock, 17,099.89 shares of Class B common stock, 4,274.97
shares of Class C common stock, 5,509.97 shares of Class D-1 common stock,
5,699.96 shares of Class D-2 common stock and 2,802.48 shares of Class E common
stock for total consideration of $156.0 million. In addition, the Company
borrowed $295.0 million pursuant to a new Senior Credit Facility and $130.0
million pursuant to a Subordinated Financing Facility.
The proceeds from the equity investment, the Senior Credit Facility and the
Subordinated Financing Facility were used to retire $184.0 million of existing
indebtedness, $12.3 million to redeem the outstanding Series B preferred stock,
$336.5 million to repurchase certain shares of Class A
F-31
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. RECAPITALIZATION TRANSACTION: (CONTINUED)
common stock, $21.5 million to redeem all outstanding options and approximately
$6.9 million of fees associated with the transaction. This redemption of stock
options was recorded as compensation expense at the date of the
Recapitalization. As a result of the Recapitalization, approximately 87% of all
classes of the combined capital stock of the Company were acquired which
represented 85% of the voting control. Subsequent to June 30, 1999, an
additional payment of $5.9 million was made to those persons who were
stockholders prior to the Recapitalization based on a post-closing determination
of working capital as of the closing date of the Recapitalization.
The Recapitalization, along with other recurring changes in retained
earnings, was included in stockholders' deficit during the six months ended June
30, 1999. The following is a rollforward of stockholders' deficit for such
period (in thousands):
Beginning balance as of January 1, 1999........................... $ 124,688
Equity investment................................................. 156,000
Recapitalization.................................................. (342,792)
Net loss.......................................................... (13,167)
Other changes..................................................... (3,064)
---------
Ending balance as of June 30, 1999................................ $ (78,335)
---------
---------
The Company's Senior Credit Facility provides for total borrowings of up to
$370.0 million, including (a) a $105.0 million of term loans consisting of a
$70.0 million U.S. dollar-denominated term loan and a pound sterling-denominated
term loan in an amount equal to the pound sterling equivalent (determined as of
the date such loan was made) of U.S. $17.5 million, which are available to
French, and a pound sterling-denominated term loan in an amount equal to the
pound sterling equivalent (determined as of the date such loan was made) of U.S.
$17.5 million, which is available to Morris Ashby (collectively, the tranche A
term loan), (b) a $190.0 million tranche B term loan, and (c) a $75.0 million
revolving credit facility. Initial interest rates as of April 30, 1999 on
borrowings under the Senior Credit Facility ranged from 7.375% to 8.078%. The
Senior Credit Facility requires the Company to maintain certain financial tests
including minimum interest coverage, minimum net worth and maximum leverage
tests. The debt is guaranteed only by our domestic subsidiaries (guarantors).
Borrowings under the tranche A term loan are due and payable April 21, 2005
and borrowings under the Tranche B term loan are due and payable October 21,
2006. The revolving credit facility is available until April 21, 2005. The
Senior Credit Facility is secured by all of the assets and by all present and
future subsidiaries of French in each case, with exceptions for certain foreign
subsidiaries.
The Company's Subordinated Financing Facility provides for total borrowings
of $130.0 million. The Subordinated Financing Facility has a final maturity of
October 21, 2008.
Pursuant to the Recapitalization, the historical basis of all assets and
liabilities will be retained for financial reporting purposes, and the
repurchase of the existing common stock and issuance of new common stock will be
accounted for as an equity transaction. In addition, the Company incurred
approximately $6.9 million of fees and expenses to finance the Recapitalization.
These costs were included in stockholders' investment as a cost of the
Recapitalization.
F-32
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. RECAPITALIZATION TRANSACTION: (CONTINUED)
On May 25, 1999, the Company completed an offering of $175.0 million of
11 1/2% Senior Subordinated Notes due 2009 (Subordinated Notes). Net proceeds of
the offering, approximately $169.6 million, combined with $.4 million of cash
were used to retire the $130.0 million Subordinated Financing Facility, $2.5
million of the tranche A term loan and $37.5 million of the tranche B term loan.
The Subordinated Notes are guaranteed by French and its domestic subsidiaries.
The Subordinated Notes contain certain restrictive covenants, and the Company
was in compliance with all such covenants at June 30, 1999.
In conjunction with the Recapitalization, offering and the resulting debt
repayments, the Company recorded an extraordinary loss, net of tax, of $8,112
during the second quarter of 1999. The loss includes the write-off of
unamortized debt issuance costs and original issue discount related to
indebtedness that was repaid.
4. CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION:
The following consolidating financial information presents balance sheet,
statement of operations and cash flow information related to the Company's
businesses. Each Guarantor is a direct wholly owned subsidiary of the Company
and has fully and unconditionally guaranteed the 11.5% senior subordinated notes
issued by J.L. French Automotive Casting, Inc, on a joint and several basis.
Separate financial statements and other disclosures concerning the Guarantors
have not been presented because management believes that such information is not
material.
F-33
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION: (CONTINUED)
J. L. FRENCH AUTOMOTIVE CASTING, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE
30, 1998
(AMOUNTS IN THOUSANDS)
J.L. FRENCH
AUTOMOTIVE NON-
CASTINGS, GUARANTOR GUARANTOR
INC. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
------------- ----------- ----------- ------------ ------------
Revenues...................................... $ -- $ 102,286 $ 43,277 $ -- $ 145,563
Cost of sales................................. -- 75,399 33,068 -- 108,467
------ ----------- ----------- ------------ ------------
Gross profit................................ -- 26,887 10,209 -- 37,096
Selling, general and administrative
expenses.................................... 75 2,802 6,005 -- 8,882
Amortization of intangible assets............. -- 7,548 936 -- 8,484
------ ----------- ----------- ------------ ------------
Operating income (loss)..................... (75) 16,537 3,268 -- 19,730
Interest expense (income)..................... (24) 7,149 1,719 -- 8,844
------ ----------- ----------- ------------ ------------
Income (loss) before income taxes, equity in
earnings (losses) of subsidiaries and
extraordinary loss........................ (51) 9,388 1,549 -- 10,886
Provision (benefit) for income taxes.......... -- 3,756 620 -- 4,376
Equity in earnings (losses) of subsidiaries... 5,756 -- -- (5,756) --
------ ----------- ----------- ------------ ------------
Income before extraordinary loss............ 5,705 5,632 929 (5,756) 6,510
Extraordinary loss............................ -- 805 -- -- 805
------ ----------- ----------- ------------ ------------
Net income (loss)........................... $ 5,705 $ 4,827 $ 929 $ (5,756) $ 5,705
------ ----------- ----------- ------------ ------------
------ ----------- ----------- ------------ ------------
F-34
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION: (CONTINUED)
J. L. FRENCH AUTOMOTIVE CASTING, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR SIX MONTHS ENDED JUNE 30,
1998
(AMOUNTS IN THOUSANDS)
J.L. FRENCH
AUTOMOTIVE NON-
CASTINGS, GUARANTOR GUARANTOR
INC. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
------------ ----------- ----------- ------------ -------------
OPERATING ACTIVITIES:
Net income (loss)........................... $ 5,705 $ 4,827 $ 929 $ (5,756) $ 5,705
Adjustments to reconcile net income to net
cash provided by (used for) operating
activities--
Depreciation and amortization............. -- 13,719 3,816 -- 17,535
Other non-cash............................ -- 2,074 (300) -- 1,774
(Income)/loss from investment in
subsidiaries............................ (5,756) -- -- 5,756 --
Change in other operating
activities.............................. 6,288 (33,442) 10,155 3,363 (13,636)
------------ ----------- ----------- ------------ -------------
Net cash provided by (used for)
operating activities.................. 6,237 (12,822) 14,600 3,363 11,378
------------ ----------- ----------- ------------ -------------
INVESTING ACTIVITIES:
Acquisitions, net........................... (38,658) -- (73,032) 39,950 (71,740)
Capital expenditures, net................... -- (13,969) (2,846) -- (16,815)
------------ ----------- ----------- ------------ -------------
Net cash provided by (used for) investing
activities.............................. (38,658) (13,969) (75,878) 39,950 (88,555)
------------ ----------- ----------- ------------ -------------
FINANCING ACTIVITIES:
Borrowings on revolving credit facilities,
net....................................... -- 26,107 1,638 -- 27,745
Long-term borrowings........................ -- 45,000 26,824 -- 71,824
Repayment of long-term borrowings........... -- (57,482) (660) -- (58,142)
Capital investment.......................... 36,194 -- 38,139 (38,950) 34,383
Other....................................... (3,855) (210) (774) -- (4,839)
------------ ----------- ----------- ------------ -------------
Net cash provided by (used for) financing
activities.............................. 32,339 13,415 65,167 (39,950) 70,971
------------ ----------- ----------- ------------ -------------
EFFECT OF EXCHANGE RATES ON CASH AND CASH
EQUIVALENTS................................. -- -- 277 (3,363) (3,086)
------------ ----------- ----------- ------------ -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS....... (82) (13,376) 4,166 -- (9,292)
CASH AND CASH EQUIVALENTS, beginning of
period...................................... 84 14,354 -- -- 14,438
------------ ----------- ----------- ------------ -------------
CASH AND CASH EQUIVALENTS, end of period...... $ 2 $ 978 $ 4,166 $ -- $ 5,146
------------ ----------- ----------- ------------ -------------
------------ ----------- ----------- ------------ -------------
F-35
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION: (CONTINUED)
J. L. FRENCH AUTOMOTIVE CASTING, INC.
CONDENSED CONSOLIDATING BALANCE SHEETS AS OF JUNE 30, 1999
(AMOUNTS IN THOUSANDS)
J.L. FRENCH
AUTOMOTIVE NON-
CASTINGS, GUARANTOR GUARANTOR
INC. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
------------ ----------- ----------- ------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents................... $ 7,733 $ 15,403 $ 4,221 $ -- $ 27,357
Accounts receivable, net.................... 3,612 43,876 18,372 -- 65,860
Inventories................................. -- 7,338 8,467 -- 15,805
Other current assets........................ 1,407 14,181 3,544 -- 19,132
------------ ----------- ----------- ------------ ------------
Total current assets...................... 12,752 80,798 34,604 -- 128,154
------------ ----------- ----------- ------------ ------------
Property, Plant & Equipment, net.............. -- 80,685 63,402 -- 144,087
Investment in Subsidiaries.................... 133,814 -- -- (133,814) --
Intangible and Other Assets................... 7,571 96,624 62,272 -- 166,467
------------ ----------- ----------- ------------ ------------
$ 154,137 $ 258,107 $ 160,278 $ (133,814) $ 438,708
------------ ----------- ----------- ------------ ------------
------------ ----------- ----------- ------------ ------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT (DEFICIT)
Current Liabilities:
Accounts payable............................ $ -- $ 10,715 $ 14,270 $ -- $ 24,985
Accrued liabilities......................... 1,822 7,529 7,777 -- 17,128
Current portion of long-term debt........... 7,320 -- 4,078 -- 11,398
------------ ----------- ----------- ------------ ------------
Total current liabilities................. 9,142 18,244 26,125 -- 53,511
------------ ----------- ----------- ------------ ------------
Long-Term Debt................................ 404,762 -- 55,316 -- 460,078
Other Noncurrent Liabilities.................. (3,090) -- 6,544 -- 3,454
Inter-Company................................. (179,646) 143,818 35,828 -- --
------------ ----------- ----------- ------------ ------------
Total liabilities......................... 231,168 162,062 123,813 -- 517,043
------------ ----------- ----------- ------------ ------------
Common Stock.................................. -- -- -- -- --
Additional Paid-In-Capital.................... -- 84,857 38,018 (122,875) --
Accumulated Deficit........................... (77,031) 11,188 (249) (10,939) (77,031)
Accumulated and Other Comprehensive Income.... -- -- (1,304) -- (1,304)
------------ ----------- ----------- ------------ ------------
Total stockholders' investment (deficit).... (77,031) 96,045 36,465 (133,814) (78,335)
------------ ----------- ----------- ------------ ------------
$ 154,137 $ 258,107 $ 160,278 $ (133,814) $ 438,708
------------ ----------- ----------- ------------ ------------
------------ ----------- ----------- ------------ ------------
F-36
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION: (CONTINUED)
J. L. FRENCH AUTOMOTIVE CASTING, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE
30, 1999
(AMOUNTS IN THOUSANDS)
J.L. FRENCH
AUTOMOTIVE NON-
CASTINGS, GUARANTOR GUARANTOR
INC. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
------------ ----------- ----------- ------------ ------------
Revenues...................................... $ -- $ 117,169 $ 48,520 $ -- $ 165,689
Cost of sales................................. -- 84,299 39,107 -- 123,406
------------ ----------- ----------- ------------ ------------
Gross profit................................ -- 32,870 9,413 -- 42,283
Selling, general and administrative
expenses.................................... 88 4,584 5,556 -- 10,228
Recapitalization expenses..................... 5,411 15,740 -- -- 21,151
Amortization of intangible assets............. 4 4,647 854 -- 5,505
------------ ----------- ----------- ------------ ------------
Operating income (loss)..................... (5,503) 7,899 3,003 -- 5,399
Interest expense.............................. 3,527 7,360 2,936 -- 13,823
------------ ----------- ----------- ------------ ------------
Income (loss) before income taxes, equity in
earnings (losses) of subsidiaries and
extraordinary loss........................ (9,030) 539 67 -- (8,424)
Provision (benefit) for income taxes.......... (3,612) 216 27 -- (3,369)
Equity in earnings (losses) of subsidiaries... (3,663) -- -- 3,663 --
------------ ----------- ----------- ------------ ------------
Income before extraordinary loss............ (9,081) 323 40 3,663 (5,505)
Extraordinary loss............................ 4,086 4,026 -- -- 8,112
------------ ----------- ----------- ------------ ------------
Net income (loss)........................... $ (13,167) $ (3,703) $ 40 $ 3,663 $ (13,167)
------------ ----------- ----------- ------------ ------------
------------ ----------- ----------- ------------ ------------
F-37
J.L. FRENCH AUTOMOTIVE CASTINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION: (CONTINUED)
J. L. FRENCH AUTOMOTIVE CASTING, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR SIX MONTHS ENDED JUNE 30,
1999
(AMOUNTS IN THOUSANDS)
J.L. FRENCH
AUTOMOTIVE NON-
CASTINGS, GUARANTOR GUARANTOR
INC. COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
------------ ----------- ----------- ------------ ------------
OPERATING ACTIVITIES:
Net income (loss).......................... $ (13,167) $ (3,703) $ 40 $ 3,663 $ (13,167)
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities--
Depreciation and amortization.............. 4 11,684 4,877 -- 16,565
Other non-cash............................. 4,086 6,569 -- -- 10,655
Income (loss) in subsidiary................ 3,663 -- -- (3,663) --
Change in other operating activities....... (43,560) 8,613 11,465 502 (22,980)
------------ ----------- ----------- ------------ ------------
Net cash provided by (used for) operating
activities............................. (48,974) 23,163 16,382 502 (8,927)
------------ ----------- ----------- ------------ ------------
INVESTING ACTIVITIES:
Capital expenditures, net ................. -- (8,020) (4,137) -- (12,157)
------------ ----------- ----------- ------------ ------------
Net cash used for investing activities... -- (8,020) (4,137) -- (12,157)
------------ ----------- ----------- ------------ ------------
FINANCING ACTIVITIES:
Repayments on revolving credit
facilities............................... -- (15,000) (6,435) -- (21,435)
Long-term borrowings....................... 582,491 -- 18,442 -- 600,933
Repayment of long-term borrowings.......... (170,000) (126,625) (25,070) -- (321,695)
Recapitalization........................... (199,009) -- -- -- (199,009)
Other...................................... (157,123) 141,625 -- -- (15,498)
------------ ----------- ----------- ------------ ------------
Net cash provided by (used for) financing
activities............................. 56,359 -- (13,063) -- 4,329
------------ ----------- ----------- ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS......................... 326 -- 1,193 (502) 1,017
------------ ----------- ----------- ------------ ------------
NET CHANGES IN CASH AND CASH EQUIVALENTS..... 7,711 15,143 375 -- 23,229
CASH AND CASH EQUIVALENTS, beginning of
period..................................... 22 260 3,846 -- 4,128
------------ ----------- ----------- ------------ ------------
CASH AND CASH EQUIVALENTS, end of period..... $ 7,733 $ 15,403 $ 4,221 $ -- $ 27,357
------------ ----------- ----------- ------------ ------------
------------ ----------- ----------- ------------ ------------
F-38
MORRIS ASHBY PLC
Report of Independent Accountants
To the Board of Directors and Shareholders of Morris Ashby plc
- --------------------------------------------------------------------------------
In our opinion, the accompanying consolidated balance sheets and the related
consolidated profit and loss accounts and statements of cash flows present
fairly, in all material respects, the financial position of Morris Ashby plc and
its subsidiaries ("the Company") at 31 March 1997 and 1996, and the results of
their operations and their cash flows for each of the two years in the period
ended 31 March 1997, in conformity with accounting principles generally accepted
in the United Kingdom. These consolidated 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 of these financial statements in accordance with auditing standards
generally accepted in the United Kingdom which do not differ in any material
respect from auditing standards generally accepted in the United States. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
Accounting principles generally accepted in the United Kingdom vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the determination of
consolidated net income expressed in pounds sterling for each of the two years
in the period ended 31 March 1997 and the determination of consolidated
shareholders' equity also expressed in pounds sterling at 31 March 1997 and 31
March 1996 to the extent summarised in Note 23 to the consolidated financial
statements.
DRAFT FOR DISCUSSION PURPOSES ONLY
Birmingham, England
8 July 1997, except for note 23 which is as of 9 August 1999
- --------------------------------------------------------------------------------
F-39
MORRIS ASHBY PLC
Consolidated Profit and Loss Account
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
1997 1996
Notes L'000 L'000
TURNOVER 2 39,805 36,255
Cost of sales (30,284) (28,414)
--------- ---------
GROSS PROFIT 9,521 7,841
Distribution costs (678) (660)
Administrative expenses (5,012) (4,031)
--------- ---------
OPERATING PROFIT 3,831 3,150
Interest receivable and similar income 4 17
Interest payable and similar charges (339) (145)
--------- ---------
PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION 3 3,496 3,022
Tax on profit on ordinary activities 4 (796) (684)
--------- ---------
PROFIT ON ORDINARY ACTIVITIES
AFTER TAXATION FOR THE FINANCIAL YEAR 2,700 2,338
Dividends 5 (1,024) (896)
--------- ---------
RETAINED PROFITS 16 1,676 1,442
--------- ---------
EARNINGS PER SHARE 6 22.5P 19.6p
--------- ---------
The above amounts arise solely from continuing activities.
The profit for the financial year includes all recognised gains and losses in
the year. The historical cost profit on ordinary activities before taxation is
not materially different from the above figures.
- --------------------------------------------------------------------------------
F-40
MORRIS ASHBY PLC
Balance Sheets
As at 31 March 1997
- --------------------------------------------------------------------------------
Notes Group Company
1997 1996 1997 1996
L'000 L'000 L'000 L'000
FIXED ASSETS
Tangible assets 7 22,925 17,978 21,862 17,082
Investments in group undertakings 9 - - 2,355 2,355
--------- --------- --------- ---------
22,925 17,978 24,217 19,437
CURRENT ASSETS
Stocks 10 3,298 2,381 3,230 2,287
Debtors 11 7,604 8,141 7,965 8,563
Cash at bank and in hand 1,120 - 1,119 -
--------- --------- --------- ---------
12,022 10,522 12,314 10,850
CREDITORS (amounts falling due within one
year) 12 (15,192) (12,156) (19,595) (16,554)
--------- --------- --------- ---------
NET CURRENT LIABILITIES (3,170) (1,634) (7,281) (5,704)
--------- --------- --------- ---------
TOTAL ASSETS LESS CURRENT LIABILITIES 19,755 16,344 16,936 13,733
CREDITORS (amounts falling due
after more than one year) 13 (3,645) (1,877) (4,077) (2,321)
PROVISIONS FOR LIABILITIES AND CHARGES 14 (437) (571) (401) (498)
--------- --------- --------- ---------
15,673 13,896 12,458 10,914
--------- --------- --------- ---------
CAPITAL AND RESERVES - EQUITY INTERESTS
Share capital 15 1,205 1,198 1,205 1,198
Share premium 16 5,803 5,709 5,803 5,709
Revaluation reserve 16 130 131 130 131
Capital reserve 16 376 376 364 364
Profit and loss account 16 8,159 6,482 4,956 3,512
--------- --------- --------- ---------
SHAREHOLDERS' FUNDS 21 15,673 13,896 12,458 10,914
--------- --------- --------- ---------
Approved by the Board on 8 July 1997
N J Gardner
DIRECTOR
- --------------------------------------------------------------------------------
F-41
MORRIS ASHBY PLC
Cash Flow Statement
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
1997 1996
Notes L'000 L'000 L'000 L'000
NET CASH INFLOW FROM OPERATING ACTIVITIES 22(1) 7,593 5,071
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 4 17
Interest paid (206) (40)
Interest element of finance lease rental payments (150) (98)
--------- ---------
(352) (121)
TAXATION
UK Corporation tax paid (724) (741)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets (6,511) (4,472)
Sale of tangible fixed assets 76 89
--------- ---------
(6,435) (4,383)
---------
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertakings - (117)
Net overdraft acquired with subsidiary - (379)
--------- ---------
- (496)
EQUITY DIVIDENDS PAID (918) (831)
--------- ---------
NET CASH OUTFLOW BEFORE FINANCING (836) (1,501)
FINANCING
Issue of ordinary share capital 101 15
Debt due within one year:
Increase in loans 22(2) 200 -
Debt due beyond a year:
Increase in loans 22(2) 650
Repayment of loan notes 22(2) (285) -
Capital element of finance lease rental payments 22(2) (533) (349)
Amounts received under finance lease arrangements 22(2) 2,160 -
--------- ---------
NET CASH INFLOW/(OUTFLOW) FROM FINANCING 2,293 (334)
--------- ---------
INCREASE/(DECREASE) IN CASH 22(3) 1,457 (1,835)
--------- ---------
The notes to the cash flow statement are shown in note 22 to the financial
statements.
The group have adopted the revised FRS1 "Cash Flow Statements" and accordingly
certain comparative figures have been reanalysed.
- --------------------------------------------------------------------------------
F-42
MORRIS ASHBY PLC
Notes to the Accounts
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
1 ACCOUNTING POLICIES
BASIS OF CONSOLIDATION AND ACCOUNTING
The consolidated financial statements incorporate the financial statements of
the company and its subsidiaries made up to 31 March year end. The financial
statements have been prepared under the historical cost convention as modified
by the revaluation of certain fixed assets, and comply with applicable
Accounting Standards.
DEPRECIATION OF FIXED ASSETS
Depreciation is provided on a straight line basis to write off the cost or
valuation of fixed assets over their expected useful lives at the following
annual rates:
Freehold property - at a rate of 2% (no depreciation on land)
Leasehold property - by equal annual instalments over the lease period
Plant and machinery - at rates varying from 10 per cent to 33 1/3 per cent.
No depreciation is charged on assets in the course of construction.
GOODWILL
Goodwill on acquisition, representing the amount by which the acquisition cost
exceeds the fair value of the net assets acquired, is written off to reserves in
the year of acquisition.
GOVERNMENT GRANTS
Government grants are treated as a deferred creditor and are credited to the
profit and loss account over the lives of the fixed assets to which they relate.
LEASED ASSETS
Amounts due under finance leases are disclosed as a debtor and the interest
element of the finance charge is credited to the profit and loss account over
the primary hire period in respect of assets held for leasing to third parties.
Fixed assets acquired under hire purchase agreements and finance lease
agreements are recorded in the balance sheet as fixed tangible assets at their
equivalent capital value and depreciated over the useful life of the asset. The
corresponding liability is recorded as a creditor and the interest element of
the finance charge is charged to the profit and loss account over the primary
lease period.
STOCKS
Stocks have been valued at the lower of cost and net realisable value. Cost
includes raw materials, labour and, where applicable, a proportion of direct
overheads.
Tooling stocks are valued as costs to date net of payments on account and any
anticipated losses. Profit recognition is deferred until the tool is complete.
TURNOVER
Turnover represents the invoiced value of sales excluding sales within the group
and value added tax.
DEFERRED TAXATION
Provision is only made for deferred taxation to the extent that it is considered
that a liability will crystallise in the foreseeable future.
RESEARCH AND DEVELOPMENT
Expenditure on research and development is charged to revenue in the year in
which it is incurred.
- --------------------------------------------------------------------------------
F-43
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
1 ACCOUNTING POLICIES (CONTINUED)
PENSION COSTS
Contributions to the group's defined benefit pension scheme are charged to the
profit and loss account so as to spread the cost of pensions over the service
lives of employees in the scheme. Variations from the regular cost are spread
over the expected remaining service lives of current employees in the scheme.
The pension cost is assessed in accordance with the advice of qualified
actuaries. Differences between the charge and the contributions paid to the
pension scheme are included in provisions for liabilities and charges.
Contributions are also paid into a defined contribution pension scheme. These
costs are charged to the profit and loss account on an accruals basis.
FOREIGN CURRENCIES
Assets and liabilities denominated in foreign currencies are translated into
sterling or the rates of exchange ruling at the end of the financial year.
Foreign currency transactions during the year are translated into sterling at
the rate of exchange ruling on the date of the transaction. All profit and
losses on exchange realised during the year are dealt with through the profit
and loss account.
2 SEGMENT INFORMATION
1997 1996
The geographical analysis of the group's turnover by destination is as follows: L'000 L'000
UK 31,859 29,574
Other European countries 6,434 6,245
Other 1,512 436
--------- ---------
39,805 36,255
--------- ---------
The group operates a single class of business from the United Kingdom.
- --------------------------------------------------------------------------------
F-44
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
3 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION IS STATED AFTER
CHARGING/(CREDITING):
1997 1996
L'000 L'000
Staff costs:
Wages and salaries 11,672 10,616
Social security costs 1,070 983
Other pension costs (Note 17) 742 592
--------- ---------
13,484 12,191
--------- ---------
Details of directors' emoluments and share options are included in the Report of the
Remuneration Committee on pages F-48 to F-49.
Depreciation of tangible fixed assets - leased (plant and machinery) 345 263
- owned 1,853 1,458
Research and development 134 168
Fees paid to Price Waterhouse:
Audit fees (including L45,000 in respect of the company (1996 - L'45,000)) 50 48
Non-audit fees 45 53
Interest payable:
Bank loans and overdrafts 159 27
Loan notes 47 13
Finance lease charges 133 105
Operating lease rentals for land and buildings (expiring after five years) 120 120
Income from government grants (18) (17)
--------- ---------
1997 1996
4 TAX ON PROFIT ON ORDINARY ACTIVITIES L'000 L'000
Corporation tax:
On profit for the year at 33% (1996 - 33%) 879 687
Adjustment in respect of prior year 85 (21)
Deferred tax (Note 14) (168) 18
--------- ---------
796 684
--------- ---------
1997 1996
5 DIVIDENDS L'000 L'000
Interim paid 2.6p (1996 - 2.45p) per 10p Ordinary share 313 291
Final proposed 5.9p (1996 - 5.05p) per 10p Ordinary share 711 605
--------- ---------
1,024 896
--------- ---------
6 EARNINGS PER SHARE
Earnings per share are based on the profit on ordinary activities after taxation
for the year amounting to L2,700,000 (1996 - L2,338,000) divided by the average
number of 12,025,648 (1996 - 11,910,264) Ordinary shares in issue during the
year.
- --------------------------------------------------------------------------------
F-45
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
7 FIXED ASSETS
Long Short Assets
Freehold leasehold leasehold Plant in the
land and land and land and and course of
buildings buildings buildings machinery construction Total
L'000 L'000 L'000 L'000 L'000 L'000
GROUP
Cost or valuation:
At 31 March 1996 2,165 3,060 - 21,309 924 27,458
Transfers - (52) 282 703 (933) -
Additions 22 - - 4,340 2,837 7,199
Disposals - - - (245) - (245)
--------- --------- ----------- ----------- ------------- ---------
At 31 March 1997 2,187 3,008 282 26,107 2,828 34,412
--------- --------- ----------- ----------- ------------- ---------
Depreciation:
At 31 March 1996 73 172 - 9,235 - 9,480
Transfers - (11) 11 - - -
Charge for the year 35 34 15 2,114 - 2,198
On disposals - - - (191) - (191)
--------- --------- ----------- ----------- ------------- ---------
At 31 March 1997 108 195 26 11,158 - 11,487
--------- --------- ----------- ----------- ------------- ---------
Net book amount:
At 31 March 1997 2,079 2,813 256 14,949 2,828 22,925
--------- --------- ----------- ----------- ------------- ---------
At 31 March 1996 2,092 2,888 - 12,074 924 17,978
--------- --------- ----------- ----------- ------------- ---------
Included within the plant and machinery are assets purchased under finance
leases with original cost of L4,392,000 (1996 - L2,521,000) and accumulated
depreciation of L867,000 (1996 - L733,000).
- --------------------------------------------------------------------------------
F-46
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
Long Short Assets
Freehold leasehold leasehold Plant in the
land and land and land and and course of
buildings buildings buildings machinery construction Total
L'000 L'000 L'000 L'000 L'000 L'000
COMPANY
Cost or valuation:
At 31 March 1996 1,767 3,060 - 20,176 924 25,927
Transfers - (52) 282 703 (933) -
Additions 22 - - 4,048 2,837 6,907
Disposals - - - (232) - (232)
--------- --------- --------- ---------- ----------- ---------
At 31 March 1997 1,789 3,008 282 24,695 2,828 32,602
--------- --------- --------- ---------- ----------- ---------
Depreciation:
At 31 March 1996 34 172 - 8,639 - 8,845
Transfers - (11) 11 - - -
Charge for the year 30 34 15 1,994 - 2,073
On disposals - - - (178) - (178)
--------- --------- --------- ---------- ----------- ---------
At 31 March 1997 64 195 26 10,455 - 10,740
--------- --------- --------- ---------- ----------- ---------
Net book amount:
At 31 March 1997 1,725 2,813 256 14,240 2,828 21,862
--------- --------- --------- ---------- ----------- ---------
At 31 March 1996 1,733 2,888 - 11,537 924 17,082
--------- --------- --------- ---------- ----------- ---------
Group and company long leasehold land and buildings include assets valued on an
open market existing use basis as at 31 March 1987 at L525,000 (1996 -
L525,000). The historic cost of these assets was L416,000 (1996 - L416,000) and
the historic cost depreciation charge L1,000 (1996 - L1,000).
Included within the company plant and machinery are assets purchased under
finance leases with original cost of L6,175,000 (1996 - L4,167,000) and
accumulated depreciation of L1,841,000 (1996 - L1,633,000).
- --------------------------------------------------------------------------------
F-47
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
8 CAPITAL COMMITMENTS
Group Company
1997 1996 1997 1996
L'000 L'000 L'000 L'000
Future capital expenditure authorised and contracted for 7,579 1,645 7,579 1,645
--------- --------- --------- ---------
9 INVESTMENTS IN GROUP UNDERTAKINGS
Company
1997 1996
L'000 L'000
Shares at cost 2,101 2,101
Long term loan to group undertaking 254 254
--------- ---------
2,355 2,355
--------- ---------
The subsidiary undertakings, all of which are included in the consolidated
accounts, are as follows:
Principal
country of Percentage
Business operation held
Wilson & Royston Limited Tool Manufacturers United Kingdom 100%
MAC Leasing Limited Leasing United Kingdom 100%
Morris Ashby Castings Limited High Pressure Diecasting United Kingdom 100%
Kaye (Presteigne) Limited Gravity and HIgh Pressure Diecasting United Kingdom 100%
Burdon and Miles Limited High Pressure Diecasting United Kingdom 100%
UJP Tools Limited Tooling Manufacturers United Kingdom 100%
Marketing computer prediction
Foundry Computational Services Limited software United Kingdom 51%
All the shares are ordinary shares. The voting rights held in respect of each
subsidary are in the same proportion as the shares held.
Morris Ashby Castings, Kaye (Presteigne), Burdon and Miles and UJP Tools are
dormant companies which trade as agents of Morris Ashby plc.
- --------------------------------------------------------------------------------
F-48
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
10 STOCKS
Group Company
1997 1996 1997 1996
L'000 L'000 L'000 L'000
Raw materials and consumables 703 553 703 553
Work in progress:
- - Castings 1,344 688 1,344 688
- - Tooling 1,050 841 982 747
Finished goods and goods for resale 201 299 201 299
--------- --------- --------- ---------
3,298 2,381 3,230 2,287
--------- --------- --------- ---------
Tooling stocks are disclosed net of L2,453,000 of payments on account (1996 -
L1,182,000).
The estimated replacement cost of stocks does not materially exceed the balance
sheet amount.
11 DEBTORS
Group Company
1997 1996 1997 1996
L'000 L'000 L'000 L'000
Trade debtors 7,184 7,880 7,046 7,543
Amounts owed by group undertakings - - 498 699
Other debtors 83 158 65 127
Prepayments and accrued income 214 103 178 97
Advance corporation tax recoverable 123 - 178 97
--------- --------- --------- ---------
7,604 8,141 7,965 8,563
--------- --------- --------- ---------
Group other debtors includes L9,000 (1996 - L9,000) due under finance leases due
within a year and L9,000 (1996 - L18,000) due after more than one year.
- --------------------------------------------------------------------------------
F-49
MORRIS ASHBY plc
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
12 CREDITORS (AMOUNTS FALLING DUE WITHIN ONE YEAR)
Group Company
-------------------- --------------------
1997 1996 1997 1996
L'000 L'000 L'000 L'000
Bank loans and overdrafts 232 369 200 303
Payments on account 906 657 795 515
Trade creditors 7,714 5,516 7,268 5,466
Amounts owed to group undertakings - - 5,107 4,828
Amounts owed to group undertakings under finance leases - - 92 88
Other creditors 64 240 63 224
Corporation tax payable 715 477 666 458
Advance corporation tax payable 256 227 256 227
Taxation and social security 2,319 1,805 2,266 1,737
Accruals and deferred income 1,538 1,807 1,514 1,762
Lease obligations 737 453 657 341
Proposed dividends 711 605 711 605
--------- --------- --------- ---------
15,192 12,156 19,595 16,554
--------- --------- --------- ---------
13 CREDITORS (AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR)
Group Company
-------------------- --------------------
1997 1996 1997 1996
L'000 L'000 L'000 L'000
Bank loan (between 2 and 5 years) 650 - 650 -
Amounts owed to group undertakings under finance leases - - 432 524
Accruals and deferred income 42 60 42 60
Lease obligations (between 2 and 5 years) 1,910 1,087 1,910 1,007
Lease obligations (due after 5 years) 598 - 598 -
Loan notes (between 2 and 5 years) 445 730 445 730
--------- --------- --------- ---------
3,645 1,877 4,077 2,321
--------- --------- --------- ---------
Accruals and deferred income relate to grants received for capital expenditure
incurred. The grants are being amortised over 10 years.
The loan notes, issued as part consideration for the acquisition of Wilson &
Royston, are secured by a guarantee from Barclays Bank plc.
- --------------------------------------------------------------------------------
F-50
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
14 PROVISION FOR LIABILITIES AND CHARGES
Group Company
----------------------------------------- ------------------------------
Pensions and Pensions and
Deferred similar Deferred similar
taxation obligations Total taxation obligations
At 31 March 1996 108 463 571 35 463
Current year charge/(utilisation) (168) (62) (230) (89) (62)
ACT set-off 96 - 96 54 -
--
----- --- ----- ---
At 31 March 1997 36 401 437 - 401
--
----- --- ----- ---
Total
At 31 March 1996 498
Current year charge/(utilisation) (151)
ACT set-off 54
-----
At 31 March 1997 401
-----
The full potential amount of deferred taxation calculated at 31% (1996 - 33%),
compared to the actual, are as follows:
Group
----------------------------------------------
Full Provision
Partial Provision --------------------
------------------------ 1997 1996
1997 L'000 1996 L'000 L'000 L'000
Accelerated capital allowances 107 492 1,936 1,783
Potential capital gain on revaluation surplus - - 110 117
Short-term timing differences (16) (233) (144) (213)
Advance corporation tax recoverable (55) (151) - -
--- --- --------- ---------
36 108 1,902 1,687
--- --- --------- ---------
Company
----------------------------------------------
Full Provision
Partial Provision --------------------
------------------------ 1997 1996
1997 L'000 1996 L'000 L'000 L'000
Accelerated capital allowances - 304 1,714 1,545
Potential capital gain on revaluation surplus - - 110 117
Short-term timing differences - (215) (129) (195)
Advance corporation tax recoverable - (54) - -
--- --- --------- ---------
- 35 1,695 1,467
--- --- --------- ---------
- --------------------------------------------------------------------------------
F-51
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
15 SHARE CAPITAL
1997
L'000 1996 L'000
Authorised:
Ordinary shares of 10p each 1,550 1,550
--------- -----------
Allotted and fully paid:
Ordinary shares of 10p each 1,205 1,198
--------- -----------
During the year, 69,880 shares were issued through the exercise of share
options. 64,200 of these were to directors as disclosed in the Report of the
Remuneration Committee, 5,300 were issued at 90p each and the remaining 380 at
167p.
At 31 March 1997 the total number of Ordinary shares under the Employee Share
Option Scheme was 14,100 (1996 - 83,600):
Ordinary shares
---------------------------------
31 March 31 March Price per
Date of grant Period exercisable 1997 1996 share
11 April 1991 to 11 April
11 April 1988 1998 14,100 25,400 90p
8 July 1993 8 July 1996 to 8 July 2003 - 58,200 156p
---------- ----------
14,100 83,600
---------- ----------
At 31 March 1997 the total number of Ordinary shares under the Savings Related
Share Option Scheme 1996 was 409,353 (1996 - 409,733):
Ordinary shares
---------------------------------
31 March 31 March Price per
Date of grant Period exercisable 1997 1996 share
1 December 1994 1 December 1999 to 1 June 2000 281,973 282,353 167p
1 December 1994 12 December 2001 to 1 June 2002 127,380 127,380 167p
---------- ----------
409,353 409,733
---------- ----------
- --------------------------------------------------------------------------------
F-52
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
16 RESERVES
Group
------------------------------------------------------------------
Share premium Revaluation Capital Profit and
account reserve reserve loss account Total
L'000 L'000 L'000 L'000 L'000
At 31 March 1996 5,709 131 376 6,482 12,698
Premium on share issues 94 - - - 94
Transfers - (1) - 1 -
Retained earnings - - - 1,676 1,676
--------------- ------------ --------- ------------- ---------
At 31 March 1997 5,803 130 376 8,159 14,468
--------------- ------------ --------- ------------- ---------
The cumulative goodwill written off against the profit and loss reserve on
acquisitions in L1,125,000 (1996 - L1,125,000).
Company
------------------------------------------------------------------
Share premium Revaluation Capital Profit and
account reserve reserve loss account Total
L'000 L'000 L'000 L'000 L'000
At 31 March 1996 5,709 131 364 3,512 9,716
Premium on share issues 94 - - - 94
Transfers (1) - 1 -
Retained earnings - - - 1,443 1,443
--------------- ------------ --------- ------------- ---------
At 31 March 1997 5,803 130 364 4,956 11,253
--------------- ------------ --------- ------------- ---------
As permitted by Section 230 of the Companies Act 1985 the company has not
presented its own profit and loss account. The amount of the profit for the
financial year dealt within the accounts of the holding company is L2,467,000
(1996 - L2,275,000).
17 PENSION COSTS
The group operates a funded defined benefits pension scheme known as the Morris
Ashby plc Pension Scheme. The assets of this scheme are held in a separate
trustee administered fund. The latest actuarial valuation of this scheme was
carried out by independent actuaries as at 6 April 1996 using the projected unit
method. The principal assumptions adopted were that the long term annual rate of
return on investments would be 9.0%, that salary increases would average 7.0%
per annum and that pensions in payment guaranteed to increase at 5.0% per annum
have been assumed to increase at 5.0% per annum, pensions increasing in line
with Limited Price Indexation have been assumed to increase at 4.25% per annum.
In addition the actuary has also taken into account changes which have been
agreed with the Trustee and relevant members. These are that pension increases
for directors will be restricted to 5.0% per annum and the inclusion of a cap on
pensionable earnings for existing directors.
At the date of the latest actuarial valuation, the market value of the assets of
the scheme was L9.6 million. The actuarial value of those assets was sufficient
to cover 91% of the value of the projected benefits to which members will be
entitled for their membership up to the valuation date allowing for expected
future increases in earnings. The deficiency on a current funding level basis
was L851,000. On the recommendations of the actuary, company contributions will
be paid at the rate of 14.0% of pensionable salaries so as to eliminate the
deficit over a 10 year period.
- --------------------------------------------------------------------------------
F-53
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
17 PENSION COSTS (CONTINUED)
The SSAP 24 pension charge for the year was L717,000 (1996 - L585,000) which is
after charging an additional L35,000 as a result of the actuarial deficit (1996
- - L28,000).
Actual contributions during the year at the annual rate of 14.7% of pensionable
salaries, were L62,000 above the SSAP 24 pension charge. Hence the reduced
pension provision - see Note 14.
The group also operates a funded defined contribution pension scheme. The assets
of the scheme are held seperately from those of the company in an independently
administered fund. The pension cost charge represents contributions payable by
the company to the fund and amounted to L25,000 (1996 - L8,000).
18 EMPLOYEES
The average number of persons employed by the group during the year was:
1997 1996
Witham 246 207
Presteigne 236 255
Cheshunt 150 152
Birmingham 21 21
Brighouse 11 9
--------- ---------
664 644
--------- ---------
19 CONTINGENT LIABILITIES
The company has guaranteed the liabilities of its subsidiaries to Barclays Bank
Plc. As at year end, the subsidiaries had no liabilities owing to Barclays Bank
plc (1996 - LNil).
20 OPERATING LEASES
At March 31, 1997, there were annual lease commitments under operating leases
which expire as follows:
1997 1996
LAND AND Land and
BUILDINGS OTHER Buildings Other
L'000 L'000 L'000 L'000
Within 1 year - 1 - 11
Between 2 and 5 years - 54 - 31
More than 5 years 120 - 120 -
---------- --------- ---------- ---------
120 55 120 42
---------- --------- ---------- ---------
- --------------------------------------------------------------------------------
F-54
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
21 MOVEMENT IN SHAREHOLDERS' FUNDS
Group Company
1997 1997
L'000 1996 L'000 L'000 1996 L'000
Profit for the financial year 2,700 2,338 2,467 2,275
Dividends (1,024) (896) (1,024) (896)
--------- ----------- --------- -----------
1,676 1,442 1,443 1,379
Share capital subscribed (net of expenses) 7 247 7 247
Share options exercised 94 15 94 15
Goodwill written off - (789) - -
--------- ----------- --------- -----------
Net addition to Shareholders' funds 1,777 915 1,544 1,641
Opening Shareholders' funds 13,896 12,981 10,914 9,273
--------- ----------- --------- -----------
Closing Shareholders' funds 15,673 13,896 12,458 10,914
--------- ----------- --------- -----------
22 CASH FLOW STATEMENT
(1) Reconciliation of operating profit to net cash inflow
from operating activities
1997
L'000 1996 L'000
Operating profit 3,831 3,150
Depreciation 2,198 1,721
Profit on disposal of fixed assets (22) (29)
Movement in pension provision (62) (70)
Amortization of Government Grants (18) (17)
--------- -----------
5,927 4,755
Working capital movements:
(Increase)/decrease in stocks (917) 444
Decrease/(increase) in debtors 677 (513)
Increase in creditors 1,906 385
--------- -----------
Net cash inflow from continuing operating activities 7,593 5,071
--------- -----------
- --------------------------------------------------------------------------------
F-55
MORRIS ASHBY plc
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
22 CASH FLOW STATEMENT (CONTINUED)
(2) Analysis of net debt
At Cash Other AT
31 March 1996 flow movements 31 MARCH 1997
L'000 L'000 L'000 L'000
Cash at bank and in hand - 1,120 - 1,120
Overdrafts (369) 337 - (32)
---------
1,457
Debt due within one year - (200) - (200)
Debt due beyond a year (730) (365) - (1,095)
Finance leases (1,540) (1,627) (78) (3,245)
---------
(2,192)
-------------- --------- ----------- ---------------
(2,639) (735) (78) (3,452)
-------------- --------- ----------- ---------------
Cash flows relating to finance leases are composed of cash inflows of L2,160,000
from assets sold and leased back and cash outflows of L533,000 from capital
elements of finance lease rental payments.
Other movements represent new finance lease arrangements in respect of assets
with a capital value at the inception of the lease of L78,000.
(3) Movement in Group net debt
1997 1996
L'000 L'000
Increase/(decrease) in cash 1,457 (1,835)
Cash (inflow)/outflow from increase in debt and lease financing (2,192) 349
--------- ---------
Movement in debt resulting from cash flows (735) (1,486)
Finance leases acquired with subsidiary - (185)
New finance leases (78) (252)
Loan notes issued on aquisition - (730)
--------- ---------
Movement in net debt (813) (2,653)
Net debt at 31 March 1996 (2,639) 14
--------- ---------
Net debt at 31 March 1997 (3,452) (2,639)
--------- ---------
23 SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United Kingdom
("UK GAAP"), which differ in certain material respects from generally accepted
accounting principles in the United States ("US GAAP"). Such differences involve
methods for measuring the amounts shown in the financial statements, as well as
additional disclosures required by US GAAP.
- --------------------------------------------------------------------------------
F-56
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
23 SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
The following is a summary of the material adjustments to profit on ordinary
activities after taxation and shareholders' funds that would have been required
in applying the significant differences between UK and US GAAP.
RECONCILIATION OF CONSOLIDATED PROFIT AND LOSS ACCOUNTS
IN (L000'S)
Year ended Year ended
March 31, March 31,
Notes 1997 1996
Profit on ordinary activities after taxation as reported under UK
GAAP................................................................. 2,700 2,338
US GAAP adjustments:
Goodwill............................................................. (a) (28) (28)
Pensions............................................................. (b) 112 (57)
Capitalized interest................................................. (c) (3) 85
Fixed asset revaluation.............................................. (d) 1 --
Deferred taxation.................................................... (e) (215) (464)
Stock compensation................................................... (g) (37) (55)
------- -------
Net US GAAP adjustments................................................ (170) (519)
Tax effect of net US GAAP adjustments.............................. (111) (103)
------- -------
Net income under US GAAP............................................... 2,419 1,716
------- -------
------- -------
RECONCILIATION OF CONSOLIDATED SHAREHOLDERS' FUNDS
(IN L000'S)
Year ended Year ended
March 31, March 31,
Notes 1997 1996
Total shareholders' funds as reported under UK GAAP.................... 15,673 13,896
US GAAP adjustments:
Goodwill............................................................. (a) 1,049 1,077
Pensions............................................................. (b) 32 (41)
Capitalized interest................................................. (c) 197 200
Fixed asset revaluation.............................................. (d) (130) (131)
Deferred taxation.................................................... (e) (1,866) (1,579)
Dividends............................................................ (f) 711 605
------- -------
Net US GAAP adjustments................................................ (7) 131
------- -------
Shareholders' equity under US GAAP..................................... 15,666 14,027
------- -------
------- -------
- --------------------------------------------------------------------------------
F-57
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
23 SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
MOVEMENTS IN SHAREHOLDERS' EQUITY IN ACCORDANCE WITH US GAAP
(IN L000'S)
Year ended Year ended
March 31, March 31,
1997 1996
Balance, beginning of year............................................. 14,027 12,826
Net income............................................................. 2,419 1,716
New share capital issued............................................... 7 247
Share options exercised................................................ 94 15
Stock based compensation............................................... 37 55
Dividends paid......................................................... (918) (832)
------- -------
Balance, end of year................................................... 15,666 14,027
------- -------
------- -------
A summary of the principal differences and additional disclosures applicable to
the Company are set out below:
(A) GOODWILL
Both UK GAAP and US GAAP require purchase consideration to be allocated to the
net assets acquired at their fair value on the date of acquisition, with the
difference between the consideration and the fair value of the identifiable net
assets recorded as goodwill.
Under UK GAAP, goodwill arising on acquisitions made on or before March 31, 1997
has been written off directly to reserves in the year of acquisition.
Under US GAAP, goodwill arising on acquisitions has been capitalized as an
intangible asset and amortized over a period of 40 years.
(B) PENSIONS
Under UK GAAP, the cost of providing pension benefits has been expensed over the
average expected service lives of eligible employees in accordance with the
provisions of SSAP 24, ACCOUNTING FOR PENSION COSTS. SSAP 24 aims to produce an
estimate of cost based on long-term actuarial assumptions. Variations from the
regular pension cost arising from, for example, experience deficiencies or
surpluses, are charged or credited to the profit and loss account over the
expected average remaining service lives of current employees in the schemes.
Under US GAAP, the annual pension cost comprises the estimated cost of benefits
accruing in the period as determined in accordance with the Statement of
Financial Accounting Standards (SFAS) No. 87, EMPLOYERS' ACCOUNTING FOR
PENSIONS, which requires readjustment of the significant actuarial assumptions
annually to reflect current market and economic conditions. Under SFAS No. 87, a
pension liability representing the excess benefit obligations over plan assets
has been accrued in the balance sheet. The pension benefit obligation is
calculated by using a projected unit credit method. Actuarial gains or losses
within a 10% "corridor" have not been recognised. In addition, in cases where
the accumulated benefit obligation exceeded the unamortized prior service cost,
the company has recorded the excess as a separate component of shareholders'
equity.
- --------------------------------------------------------------------------------
F-58
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
23 SUMMARY OF DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
The net periodic pension cost under US GAAP for the Company's defined benefit
pension plan is as follows:
COMPONENTS OF NET PERIODIC PENSION COST
(IN L000'S)
Year ended Year ended
March 31, 1997 March 31, 1996
----------------- ---------------
Service cost.................................................................... 576 484
Interest cost................................................................... 862 757
Actual return on plan assets.................................................... (806) (1,702)
Other........................................................................... (2) 1,110
--- ------
Net periodic pension cost....................................................... 630 649
--- ------
--- ------
The funded status under US GAAP for the Company's defined benefit pension plan
is as follows:
FUNDED STATUS
(IN L000'S)
Year ended Year ended
March 31, 1997 March 31, 1996
--------------- -----------------
Accumulated benefit obligation.................................................. 10,652 8,960
Effect of expected future compensation increases................................ 903 788
------- ------
Projected benefit obligation.................................................... 11,555 9,748
Fair value of plan assets....................................................... 11,136 9,574
------- ------
Funded status................................................................... (419) (174)
Unrecognised net (gain) loss.................................................... 179 (18)
Unrecognised transition (asset) obligation...................................... 609 696
Unrecognised prior service cost................................................. -- --
------- ------
Net amount recognised........................................................... 369 504
------- ------
------- ------
- --------------------------------------------------------------------------------
F-59
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
The assumptions used to determine pension cost for the Company's defined benefit
pension plan were as follows:
Year ended Year ended
March 31, 1997 March 31, 1996
----------------- -----------------
Discount rate................................................................... 8.5% 9.0%
Expected rate of return on plan assets.......................................... 9.0% 9.0%
Expected rate of compensation increase.......................................... 6.5% 7.0%
(C) CAPITALIZED INTEREST
Under UK GAAP, companies are permitted, but not required, to capitalize interest
costs incurred during the period of construction of an asset to be capitalized.
For UK GAAP purposes, the Company has elected not to capitalize these interest
costs. Under US GAAP, such interest must be capitalized.
The adjustment to net income under US GAAP reflects the decrease in interest
expense for the period as well as the increase in depreciation expense on the
constructed assets. The adjustment to shareholders' equity under US GAAP
reflects the amount of interest capitalized on constructed assets, net of
depreciation.
(D) FIXED ASSET REVALUATION
Under UK GAAP, companies are permitted to perform revaluations of properties on
a periodic basis and adjust the carrying values of properties to market value.
Under US GAAP, tangible fixed assets are carried at cost. However, Statement of
Financial Accounting Standard No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, requires that
companies undertake an evaluation for permanent impairment when management has
reason to believe that a permanent impairment has occurred. Furthermore, unless
an analysis of the gross, undiscounted cash flows attributable to the asset over
the remaining useful life is less than the carrying value of the asset, no
permanent impairment is recognized.
The adjustment to net income under US GAAP reflects the effect of disposals of
revalued fixed assets. The adjustment to shareholders' equity under US GAAP
reflects the elimination of the fixed asset revaluation.
(E) DEFERRED TAXATION
Under UK GAAP, a provision is recorded for deferred taxation under the partial
provision method to the extent that such taxation is expected to crystallise
within the reasonable future. This means that the full potential liability is
not necessarily provided. Additionally, deferred tax assets are recognised only
when they are expected to be recoverable within the foreseeable future.
Under US GAAP, deferred tax is provided for on a full liability basis. Under the
full liability method, deferred tax assets or liabilities are recognised for
differences between the financial and tax basis of assets and liabilities and
for tax loss carry forwards at the statutory rate at each reporting date. A
valuation allowance is established when it is more likely than not that some
portion or all of the deferred tax assets will not be realised.
(F) DIVIDENDS
Under UK GAAP, ordinary dividends are provided for in the year in respect of
which they are proposed by the Board of Directors. Under US GAAP, such dividends
are provided for in the period they are declared by the Board of Directors.
(G) STOCK COMPENSATION
Under UK GAAP, the Company does not recognize compensation expense under either
the Employee Share Option Scheme or the Savings Related Share Option Scheme.
Under US GAAP, following Accounting Principles Board Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES, the compensation expense associated with shares
issued through these schemes, in consideration for services received, is
recognized as the
- --------------------------------------------------------------------------------
F-60
MORRIS ASHBY PLC
Notes to the Accounts (continued)
For the year ended 31 March 1997
- --------------------------------------------------------------------------------
difference between the market price of the stock, at the measurement date, and
the exercise price of the option. The measurement date is defined as the
earliest date on which both the number of shares that an employee is entitled to
receive and the option or purchase price are known. Compensation costs, as
determined above, are charged to expense over the participants' vesting period.
(H) OTHER DISCLOSURES REQUIRED BY US GAAP
CASH FLOW INFORMATION
Under UK GAAP, the Company's cash flow statements are presented in accordance
with Financial Reporting Standard No. 1, as revised. These statements present
substantially the same information as is required under Statement of Financial
Accounting Standards No. 95, STATEMENT OF CASH FLOWS, in accordance with US
GAAP.
Under UK GAAP, the Company's cash balances are comprised of cash in hand and at
bank. Cash and cash equivalents are defined differently under US GAAP. For
purposes of presenting cash flow information in accordance with US GAAP, cash
equivalents are regarded as highly liquid investments with maturities of three
months or less.
Under UK GAAP, cash flows are presented for operating activities, returns on
investments and servicing of finance; taxation; capital expenditure and
financial investment; acquisitions and disposals; equity dividends paid; and
management of liquid resources and financing. US GAAP requires the
classification of cash flows resulting from operating, investing and financing
activities.
Cash flows under UK GAAP in respect of interest received, interest paid,
investment income and taxation are included within operating activities under US
GAAP. Capital expenditure and financial investment and cash flows from
acquisitions and disposals are included within investing activities. Equity
dividends paid and management of liquid resources are included within financing
activities.
A summary of the Company's operating, investing and financing activities,
classified in accordance with US GAAP, utilising the amounts shown in the UK
GAAP Company's cash flow statement, are as follows:
Year ended Year ended
March 31, 1997 March 31, 1996
--------------- ---------------
Net cash provided by (used in) operating activities............................. 8,677 4,209
Net cash provided by (used in) investing activities............................. (6,435) (4,879)
Net cash provided by (used in) financing activities............................. (1,122) (827)
------ ------
Net increase (decrease) in cash and cash equivalents............................ 1,120 (1,497)
Cash and cash equivalents under US GAAP, beginning of year...................... -- 1,497
------ ------
Cash and cash equivalents under US GAAP, end of year............................ 1,120 --
------ ------
------ ------
- --------------------------------------------------------------------------------
F-61
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
$175,000,000
11 1/2% SENIOR SUBORDINATED NOTES DUE 2009
---------------------
PROSPECTUS
---------------------
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II: INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20: INDEMNIFICATION OF DIRECTORS AND OFFICERS.
French Automotive is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware (the "DGCL")
provides that a Delaware corporation may indemnify any persons who are, or are
threatened to be made, parties 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 such corporation), by reason of the
fact that such person is or was an officer, director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided such person acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was illegal. A
Delaware corporation may indemnify any persons who are, or are threatened to be
made, a party to any threatened, pending or completed action or suit by or in
the right of the corporation by reason of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit, provided such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director has actually and reasonably incurred.
Article Six of the Restated Certificate of Incorporation of French
Automotive provides that no director of the corporation shall be personally
liable to French Automotive or its stockholders for monetary damages arising
from a breach of fiduciary duty owed to French Automotive or its stockholders,
except for liability (1) for any breach of the director's duty of loyalty to
French Automotive or its stockholders, (2) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, (3)
pursuant to Section 174 of the DGCL or (4) for any transaction from which the
director derived an improper personal benefit.
Article V of French Automotive's Amended and Restated By-laws provides that
each person who was or is made a party or is threatened to be made a party to or
is involved in any action, suit or proceeding, whether civil, criminal,
administrative, or investigative (hereinafter "a proceeding"), by reason of the
fact that he or she, or a person of whom he or she is the legal representative,
is or was a director or officer, of French Automotive or is or was serving at
the request of French Automotive as a director, officer, employee, fiduciary, or
agent of another corporation or of a partnership, joint venture, trust, or other
enterprise, shall be indemnified and held harmless by French Automotive to the
fullest extent which it is empowered to do so unless prohibited from doing so by
the DGCL against all expense, liability and loss (including attorney's fees
actually and reasonably incurred by such person in connection with such
proceeding) and such indemnification shall inure to the benefit of his or her
heirs, executors, administrators; provided, however, that French Automotive
shall indemnify any such person seeking indemnification in connection with a
proceeding initiated by such person only if such proceeding was authorized by
the board of directors of French Automotive. The right to indemnification
conferred by French Automotive's By-Laws is a contract right and includes the
right to be paid by French Automotive the expenses incurred defending any such
proceeding in advance of its final disposition. French Automotive may, by action
of its board of directors, provide indemnification to
II-1
employees and agents of French Automotive with the same scope and effect as the
indemnification of its directors and officers.
Article V of French Automotive's By-laws further provides that the rights to
indemnification and to the advancement of expenses conferred in Article V are
not exclusive of any other right which any person has under French Automotive's
Amended and Restated Certificate of Incorporation or under any statute, bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
Section 145 of the DGCL further authorizes a corporation 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 or
enterprise, against any liability asserted against him and incurred by him in
any such capacity, arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.
All of the directors and officers of French Automotive are covered by insurance
policies maintained and held in effect by French Automotive against certain
liabilities for actions taken in such capacities, including liabilities under
the Securities Act.
French Holdings, Inc. is also incorporated under the laws of the State of
Delaware. Under French Holdings, Inc.'s Restated Certificate of Incorporation,
it is required to indemnify its directors and officers to the fullest extent
authorized by the DGCL. French Holdings' Restated Certificate provides that its
directors shall not be personally liable to French Holdings or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (1) for any breach of the director's duty of loyalty to French
Holdings or its stockholders, (2) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3) under
Section 174 of the DGCL, or (4) for any transaction from which the director
derived any improper personal benefit.
J.L. French Corporation and Allotech International, Inc. are both
incorporated under the laws of the State of Wisconsin, and as such, are
obligated to indemnify their officers and directors in accordance with Wisconsin
Corporation Law. Sections 180.0850 to 180.0859 of the Wisconsin Corporate
Statutes require a corporation to indemnify any director or officer who is a
party to any threatened, pending or completed civil, criminal, administrative or
investigative action, suit, arbitration or other proceeding, whether formal or
informal, which involves foreign, federal, state or local law and which is
brought by or in the right of the corporation or by any other person. A
corporation's obligation to indemnify any such person includes the obligation to
pay any judgment, settlement, penalty, assessment, forfeiture or fine, including
any excise tax assessed with respect to an employee benefit plan, and all
reasonable expenses including fees, costs, charges, disbursements, attorney's
and other expenses except in those cases in which liability was incurred as a
result of the breach or failure to perform a duty which the director or officer
owes to the corporation and the breach or failure to perform constitutes: (1) a
willful failure to deal fairly with the corporation or its shareholders in
connection with a matter in which the director or officer has a material
conflict of interest; (2) a violation of criminal law, unless the person has
reasonable cause to believe his conduct was lawful or had no reasonable cause to
believe his conduct was unlawful; (3) a transaction from which the person
derived an improper personal profit; or (4) willful misconduct.
II-2
ITEM 21. EXHIBITS.
(a) The following exhibits are filed as part of this Registration Statement or
incorporated by reference herein:
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
1.1 Purchase Agreement, dated May 25, 1999, among J.L. French Automotive Castings, Inc., and French
Holdings, Inc., J.L. French Corporation and Allotech International, Inc. (collectively, the
"SUBSIDIARY GUARANTORS") and Banc of America Securities LLC and Chase Securities Inc. (collectively,
the "INITIAL PURCHASERS").
2.1 Recapitalization Agreement, dated March 29, 1999, by and among J.L. French Automotive Castings, Inc.,
the stockholders listed on the signature pages thereto and JLF Acquisition LLC.
2.2 Amendment No. 1 to Recapitalization Agreement, dated April 21, 1999, by and among J.L. French
Automotive Castings, Inc., JLF Acquisition LLC and Windward Capital Partners, L.P.
3.1 Restated Certificate of Incorporation of J.L. French Automotive Castings, Inc.
3.2 By-laws of J.L. French Automotive Castings, Inc.
3.3 Restated Certificate of Incorporation of French Holdings, Inc.
3.4 Amended and Restated By-laws of French Holdings, Inc.
3.5 Articles of Incorporation of J.L. French Corporation
3.6 By-laws of J.L. French Corporation
3.7 Articles of Incorporation of Allotech International, Inc.
3.8 By-laws of Allotech International, Inc.
4.1 Indenture, dated May 28, 1999, by and among J.L. French Automotive Castings, Inc., the Subsidiary
Guarantors and U.S. Bank Trust National Association, as trustee.
4.2 Registration Rights Agreement, dated May 28, 1999, by and among J.L. French Automotive Castings,
Inc., the Subsidiary Guarantors and the Initial Purchasers.
*5.1 Opinion of Kirkland & Ellis regarding the validity of the securities offered hereby.
*8.1 Opinion of Kirkland & Ellis regarding federal income tax considerations.
10.1 Credit Agreement, dated April 21, 1999, among J.L. French Automotive Castings, Inc., Automotive
Components Investments Limited, Morris Ashby Limited, the several banks and other financial
institutions from time to time parties to the agreement (the "LENDERS"), Bank of America NT&SA, as
syndication agent for the Lenders, Chase Manhattan International Limited, as administrative agent for
the English Lenders, and the Chase Manhattan Bank, as administrative agent for the Lenders.
10.2 Investor Stockholders Agreement, dated April 21, 1999, by and among J.L. French Automotive Castings,
Inc., Onex American Holdings LLC, J2R Partners III and the stockholders listed on the signature pages
thereto.
10.3 Registration Agreement, dated April 21, 1999, by and among J.L. French Automotive Castings, Inc. and
the investors listed on the signature pages thereto.
10.4 Management Agreement, dated April 21, 1999, by and between J.L. French Automotive Castings, Inc. and
Hidden Creek Industries
10.5 Sublease Agreement, dated March 25, 1998, by and between J.L. French Corporation and American Bumper
& Mfg. Co.
II-3
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
10.6 Employment Agreement, dated April 1, 1997, by and between Morris Ashby plc and Paul A. Buckley.
10.7 Employment Agreement, dated April 30, 1998, by and between Fundiciones Viuda de Ansola S.A. and Juan
Manuel Orbea Soroa.
10.8 Employment Agreement, dated April 30, 1998, by and between Ansola Acquisition Corporation, S.R.L. and
Juan Manuel Orbea.
10.9 Management Stockholders Agreement dated July 16, 1999, by and between J.L. French Automotive
Castings, Inc., Onex American Holdings LLC and the individuals named on Schedule I thereto.
10.10 Form of Stock Subscription Agreement by and between J.L. French Automotive Castings, Inc. and certain
members of management purchasing common stock (including a schedule identifying Subscription
Agreements executed by Charles M. Waldon, Paul A. Buckley, Thomas C. Dinolfo, Donald W. Porritt,
Lowell E. Shoaf and Stephen R. Southern).
12.1 Statement Regarding Computation of Earnings to Fixed Charges and Pro Forma Earnings to Fixed Charges.
21.1 Subsidiaries of J.L. French Automotive Castings, Inc.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of PricewaterhouseCoopers LLP, Birmingham, United Kingdom.
*23.6 Consents of Kirkland & Ellis (included in Exhibits 5.1 and 8.1).
24.1 Power of Attorney (included on the signature pages hereto).
*25.1 Statement of Eligibility of Trustee on Form T-1 under the Trust Indenture Act of 1939 of U.S. Bank
Trust National Association.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Tender Instructions.
- ------------------------
* To be filed by amendment.
(b) No financial statement schedules are required to be filed herewith pursuant
to this Item.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
II-4
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bonafide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering; and
(4) The undersigned registrants hereby undertake as follows: that prior
to any public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(5) The registrants undertake that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrants pursuant to the provisions described in Item 20, 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
Securities 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 directors, 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 registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue
(c) The undersigned hereby undertake to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Items 4,
10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the date of the registration statement through the date of
responding to the request.
(d) 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-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, J.L. French
Automotive Castings, Inc. duly caused this Registration Statement on Form S-4 to
be signed on its behalf by the undersigned, thereunto duly authorized, in City
of Sheboygan, State of Wisconsin, on the 10th day of August, 1999.
J.L. FRENCH AUTOMOTIVE CASTINGS, INC.
By: /s/ CHARLES M. WALDON
-----------------------------------------
Charles M. Waldon
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints S.A. Johnson, Thomas C. Dinolfo and Carl E.
Nelson, and each of them, his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any or
all amendments (including post-effective amendments) to this registration
statement and any subsequent registration statement filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and power of attorney have been signed by the following
persons in the capacities and on the dates indicated on the 10th day of August,
1999.
SIGNATURE TITLE
- ------------------------------ --------------------------
/s/ S.A. JOHNSON
- ------------------------------ Chairman and Director
S.A. Johnson
President, Chief Executive
/s/ CHARLES M. WALDON Officer (Principal
- ------------------------------ Executive Officer) and
Charles M. Waldon Director
Treasurer and Chief
/s/ THOMAS C. DINOLFO Financial Officer
- ------------------------------ (Principal Financial and
Thomas C. Dinolfo Accounting Officer)
/s/ CARL E. NELSON
- ------------------------------ Director
Carl E. Nelson
II-6
SIGNATURE TITLE
- ------------------------------ --------------------------
- ------------------------------ Director
Robert H. Barton III
- ------------------------------ Director
Dugald K. Campbell
- ------------------------------ Director
A. Kipp Koester
- ------------------------------ Director
John E. Lindahl
- ------------------------------ Director
Eric J. Rosen
- ------------------------------ Director
Karl F. Storrie
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, French Holdings,
Inc. duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in City of Sheboygan,
State of Wisconsin, on the 10th day of August, 1999.
FRENCH HOLDINGS, INC
By: /s/ CHARLES M. WALDON
-----------------------------------------
Charles M. Waldon
PRESIDENT AND DIRECTOR
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints S.A. Johnson, Thomas C. Dinolfo and Carl E.
Nelson, and each of them, his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any or
all amendments (including post-effective amendments) to this registration
statement and any subsequent registration statement filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their, or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED ON THE 10TH DAY OF AUGUST,
1999.
SIGNATURE TITLE
- ------------------------------ --------------------------
President, Chief Executive
/s/ CHARLES M. WALDON Officer
- ------------------------------ (Principal Executive
Charles M. Waldon Officer) and Director
/s/ THOMAS C. DINOLFO
- ------------------------------ Chief Financial Officer
Thomas C. Dinolfo and Director
/s/ CARL E. NELSON
- ------------------------------ Director
Carl E. Nelson
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, J.L. French
Corporation duly caused this Registration Statement on Form S-4 to be signed on
its behalf by the undersigned, thereunto duly authorized, in City of Sheboygan,
State of Wisconsin, on the 10th day of August, 1999.
J.L. FRENCH CORPORATION
By: /s/ CHARLES M. WALDON
-----------------------------------------
Charles M. Waldon
PRESIDENT AND DIRECTOR
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints S.A. Johnson, Thomas C. Dinolfo and Carl E.
Nelson, and each of them, his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any or
all amendments (including post-effective amendments) to this registration
statement and any subsequent registration statement filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended, for the offerings which
this Registration Statement relates), and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their, or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED ON THE 10TH DAY OF AUGUST,
1999.
SIGNATURE TITLE
- ------------------------------ --------------------------
President, Chief Executive
/s/ CHARLES M. WALDON Officer
- ------------------------------ (Principal Executive
Charles M. Waldon Officer) and Director
/s/ THOMAS C. DINOLFO
- ------------------------------ Chief Financial Officer
Thomas C. Dinolfo and Director
/s/ CARL E. NELSON
- ------------------------------ Director
Carl E. Nelson
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Allotech
International, Inc. duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in City of
Sheboygan, State of Wisconsin, on the 10th day of August, 1999.
ALLOTECH INTERNATIONAL, INC.
By: /s/ CHARLES M. WALDON
-----------------------------------------
Charles M. Waldon
PRESIDENT AND DIRECTOR
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints S.A. Johnson, Thomas C. Dinolfo and Carl E.
Nelson, and each of them, his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any or
all amendments (including post-effective amendments) to this registration
statement (any registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, for the offerings which this Registration
Statement relates), and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their,
or his or her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and power of attorney have been signed by the following
persons in the capacities and on the dates indicated on the 10th day of August,
1999.
SIGNATURE TITLE
- ------------------------------ --------------------------
President, Chief Executive
/s/ CHARLES M. WALDON Officer
- ------------------------------ (Principal Executive
Charles M. Waldon Officer) and Director
/s/ THOMAS C. DINOLFO
- ------------------------------ Chief Financial Officer
Thomas C. Dinolfo and Director
/s/ CARL E. NELSON
- ------------------------------ Director
Carl E. Nelson
/s/ DANIEL F. MOORSE
- ------------------------------ Director
Daniel F. Moorse
II-10