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Pursuant to Rule 424(b)1
Registration No. 333-49011
PROSPECTUS
$125,000,000
ADVANCED ACCESSORY SYSTEMS, LLC
AAS CAPITAL CORPORATION
9 3/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
Advanced Accessory Systems, LLC ("AAS") and AAS Capital Corporation have
issued $125,000,000 aggregate principal amount of our 9 3/4% Series B Senior
Subordinated Notes due 2007 (the "Notes"). The Notes are direct obligations of
both of us.
We will pay interest on the Notes, in arrears, in cash on April 1 and
October 1. We began paying interest on the Notes on April 1, 1998. We may redeem
the Notes subject to certain limitations described in this Prospectus.
The Notes are unsecured and are subordinated in right of payment to all of
our existing and future senior debt. Our domestic subsidiaries as of this date
guarantee the Notes. The guarantees of our domestic subsidiaries are unsecured
obligations and are subordinated in right of payment for all of their existing
and future senior debt. Our foreign subsidiaries do not guarantee the Notes.
We will not receive any proceeds from the sale of the Notes.
We prepared this Prospectus for use by Chase Securities Inc. ("CSI") in
connection with offers and sales in market-making transactions. CSI may act as a
principal or agent in these market-making transactions. Such sales will be made
at prices related to prevailing market prices at the time of sale. See "Plan of
Distribution."
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR INFORMATION YOU SHOULD CONSIDER
BEFORE INVESTING IN THE NOTES.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OF DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is April 26, 2001
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MARKET DATA USED THROUGHOUT THIS PROSPECTUS WAS OBTAINED THROUGH OUR
RESEARCH, SURVEYS OR STUDIES PURCHASED BY US OR THE INITIAL PURCHASERS (AS
DEFINED). THE RESEARCH WAS ALSO CONDUCTED BY THIRD PARTIES OR OBTAINED FROM
INDUSTRY OR GENERAL PUBLICATIONS. WE HAVE NOT INDEPENDENTLY VERIFIED MARKET DATA
PROVIDED BY THIRD PARTIES OR INDUSTRY OR GENERAL PUBLICATIONS. SIMILARLY,
INTERNAL COMPANY SURVEYS, WHICH WE BELIEVE TO BE RELIABLE, HAVE NOT BEEN
VERIFIED BY ANY INDEPENDENT SOURCES.
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FORWARD LOOKING STATEMENTS
SOME OF THE STATEMENTS CONTAINED IN THIS PROSPECTUS DISCUSS FUTURE
EXPECTATIONS, CONTAIN PROJECTIONS OR RESULTS OF OPERATIONS AND FINANCIAL
CONDITION OR STATE OTHER "FORWARD-LOOKING" INFORMATION. THE FORWARD-LOOKING
STATEMENTS ARE SUBJECT TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY THE STATEMENTS. THE FORWARD-LOOKING INFORMATION IS BASED ON
VARIOUS FACTORS AND WAS DERIVED FROM USING NUMEROUS ASSUMPTIONS. IMPORTANT
FACTORS THAT COULD CAUSE OUR ACTUAL RESULTS TO BE MATERIALLY DIFFERENT FROM THE
FORWARD-LOOKING STATEMENTS ARE DISCLOSED UNDER THE HEADING "RISK FACTORS" AND
THROUGHOUT THIS PROSPECTUS.
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AVAILABLE INFORMATION
To register the Notes, we filed a Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933 (the "Securities
Act"). This Prospectus does not contain complete information about us, nor does
it contain all of the information contained in the Registration Statement. For
information about the contracts, agreements and other documents we refer to in
this Prospectus, you should consult the Exhibits to the Registration Statement.
You may review the Registration Statement without charge at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York,
New York 10048. You may get your own copy at the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, for a fee. You may inspect the materials contained in the
Registration Statement on the Internet at http://www.sec.gov.
We are subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and we will
file reports and other information with the Commission. You may inspect or
obtain a copy of such materials filed by us with the Commission at the offices
listed above.
If we cease to be subject to the reporting requirements of the Exchange
Act, we have agreed that, as long as the Notes remain outstanding, we will file
with the Commission and give holders of the Notes copies of the financial
information that would have been contained in annual reports and quarterly
reports, that we would have been required to file with the Commission. The
financial information will include annual reports containing consolidated
financial statements, together with an opinion expressed by an independent
accounting firm, as well as quarterly reports containing unaudited condensed
consolidated financial statements for the first three quarters of each fiscal
year. We will also make the reports available to prospective purchasers of the
Notes, securities analysts and broker-dealers upon their request.
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PROSPECTUS SUMMARY
The following summary highlights selected information from this Prospectus
and may not contain all of the information that is important to you. This
Prospectus includes specific terms of the Notes we sold, as well as information
regarding our business, certain recent transactions entered into by us and
detailed financial data. We encourage you to read this Prospectus in its
entirety. Unless otherwise indicated, the words "Company", "we" "ours", and "us"
refer to Advanced Accessory Systems, LLC and its subsidiaries, including AAS
Capital Corporation.
Our subsidiaries include the following:
- SportRack, LLC ("SportRack" or "SportRack, LLC").
- SportRack Accessories, Inc. ("SportRack Accessories") formerly SportRack
International, Inc.
- Brink International B.V. ("Brink" or, "Brink International, B.V.").
- Valley Industries, LLC ("Valley" or, "Valley Industries, LLC").
- ValTek, LLC ("ValTek" or, "ValTek, LLC").
- AAS Capital Corporation ("Capital Corp." or "AAS Capital Corporation").
THE COMPANY
GENERAL
We are one of the world's largest suppliers of towing and rack systems and
related accessories for the automotive original equipment manufacturer ("OEM")
market and the automotive aftermarket. Our products include a complete line of
towing systems including accessories such as trailer balls, ball mounts,
electrical harnesses, safety chains and locking hitch pins. We also make rack
systems and accessories which can be installed on vehicles to carry items such
as bicycles, skis, luggage, surfboards and sailboards. In 2000, approximately
50% of our net sales were generated from products sold for light trucks. For the
year ended December 31, 2000, net sales and EBITDA (as defined), were $318.8
million and $44.5 million, respectively.
COMPETITIVE ADVANTAGES
Leading Global Market Position. Based on our knowledge of our industry, we
believe that we are one of the world's largest suppliers of towing systems and
of rack systems. Based on our knowledge of our industry, we believe that we are;
- The largest supplier of towing systems in Europe.
- The second largest supplier of towing systems in North America.
- One of the two largest suppliers of rack systems to automotive OEMs in
North America.
We have 27 engineering, manufacturing and distribution facilities
strategically located in North America and Europe. By virtue of our size and
global presence, we believe that we benefit from several competitive advantages,
including the ability to:
- Satisfy local design, production, quality and timing requirements of
global OEMs.
- Provide "one-stop shopping" for customers' product and service
requirements.
- Optimize plant production.
- Maximize our raw material purchasing power.
- Spread our selling, administrative and product development expenses over
a large base of net sales.
- Develop and maintain state-of-the-art production facilities.
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Strong Relationships with Customer Base. We have an established position as
a Tier 1 supplier of towing and/or rack systems to most of the OEMs
manufacturing in North America and/or Europe, including DaimlerChrysler, General
Motors, Toyota, Opel, Volvo, Isuzu, Ford, BMW, Subaru, Fiat, Mitsubishi, Nissan,
Volkswagen, SEAT, Skoda, Daewoo and Kia. In our case, "Tier 1" means that we
supply our products directly to the manufacturer of the vehicle. We supply
DaimlerChrysler with substantially all its North American towing systems and
rack systems and accessories. We also supply General Motors with approximately
50% of its rack system requirements. Tier 1 status and strong customer
relationships are important elements in achieving continued profitable growth
because, as OEMs narrow their supplier bases, well regarded, existing suppliers
have an advantage in gaining new contracts. As OEM relationships turn into
strategic partnerships, Tier 1 suppliers like us with system integration
capabilities have an advantage in retaining existing contracts as well as
participating in the design phase for new vehicles, which is integral to
becoming a supplier for such new vehicles. We are also a leading supplier of
towing and rack systems to automotive aftermarket wholesalers, retailers and
installers, such as U-Haul, Pep Boys, Balkamp, Advance Auto Parts, Coast
Distribution Systems, Discount Auto Parts, Ace Hardware, Norauto, Brezan,
Feuvert and Canadian Tire.
Comprehensive Product Line. We advertise ourselves as a leading supplier of
a growing range of products and services. By offering over 2,000 towing system
models, our products fit virtually every light vehicle produced in North America
and Europe. We are one of a limited number of European manufacturers with such a
broad product line that also satisfies European Community ("EC") regulatory
safety standards. We believe that competitors whose products do not satisfy such
standards face substantial design and testing costs to offer a comparable
product line that meets these safety standards. We provide OEMs with fixed rack
systems for approximately half of the light truck models produced in North
America that utilize vehicle-specific fixed racks. We believe that our broad
product offerings also facilitate strategic partnerships with automotive
aftermarket wholesalers, retailers and installers.
Design and Engineering Expertise. We have an engineering and research and
development staff that develops new products and processing technologies. We
work directly with OEM designers to simplify vehicle assembly and reduce vehicle
cost and weight. We are responsible for many industry innovations, including
lighter, less obtrusive, round tube towing hitches as well as push button and
pull lever stanchions on fixed rack systems. We believe that our design and
engineering capabilities provide significant value to our customers by:
- Shortening OEM new product development cycles.
- Lowering OEM manufacturing costs.
- Providing technical expertise.
- Permitting aftermarket customers to maintain lower inventory levels.
We believe that our design innovations have helped to produce products that
are durable and easy to install.
High Quality, Low Cost Manufacturing Position. We believe that we are one
of the highest quality, lowest cost suppliers of towing and rack systems in
North America and Europe. We have received numerous quality and performance
awards, including:
- DaimlerChrysler's Gold Award.
- General Motors' Supplier of the Year Award.
- Ford's Q-1 Award.
- Toyota's Distinguished Supplier Award.
- KIA's Preferred Supplier Award.
- Nissan's Superior Supplier Performance Award.
Supplier quality systems are currently being standardized across OEMs
through the ISO-9000 and QS-9000 programs. We have achieved ISO-9000 or QS-9000
certification for 13 of our 21 manufacturing and
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engineering facilities, and we are in the process of obtaining certification for
other facilities. Our low cost position is the result of our strict cost
controls and continuous improvement programs. OEMs typically prefer stable
suppliers who can generate productivity gains that can be shared to reduce their
costs. Our low cost position is closely integrated with our quality driven
manufacturing operations. Our low cost position allows us to profitably deliver
high quality, easy to install and competitively priced components on a
just-in-time basis. Our focus on low cost manufacturing also provides benefits
when selling products to the less price sensitive aftermarket.
BUSINESS STRATEGY
Our objective is to strengthen our position as a leading global supplier of
automotive exterior accessories, thereby increasing revenue and cash flow. To
accomplish our goals, we intend to pursue the following strategies:
Increase Global Market Share. Our plan to increase our global market share
is as follows:
- Attract international customers by having operations in both North
America and Europe.
- Make newly acquired product lines available to our current customers.
- Continually develop new and more profitable products which we can sell to
our existing customers and use to attract new customers.
Maintain and Enhance Strong Customer Relationships. We intend to strengthen
and expand our relationships with global automotive OEMs and aftermarket
customers by:
- Continuing to develop new OEM and aftermarket products.
- Building on our position as a low cost supplier of quality accessory
products.
- Offering new products to our existing customers.
- Working with aftermarket customers to develop new marketing strategies.
Pursue Strategic Acquisitions. We will continue to pursue strategic
acquisitions to:
- Respond to our customers increasing preference for "one stop" producers.
- Add new products and services we believe our customers will value.
- Expand geographically.
INDUSTRY OVERVIEW
Our products are sold as standard accessories or options for a variety of
light vehicles. In 2000, we estimate that approximately 50% of our net sales
were generated from products sold for light trucks. Our research indicates that
growth in this market, and in towing systems and rack systems in particular,
resulted in large part from the increased production and sale of light trucks,
which in 2000 accounted for approximately 52% of total light vehicle production
in North America as compared to 32% in 1986. According to DRI/ McGraw-Hill
Ward's Global Automotive Group, production of light trucks in North America and
Western Europe has outpaced overall production in the light vehicle market. We
cannot give you any assurance that such production rates of light trucks will
continue or will continue to outpace overall production.
The strong growth in production of light trucks is attributable to several
factors, including:
- The more sizeable and comfortable interiors and aesthetically pleasing
modern designs offered by light trucks.
- The changing lifestyle of an aging population.
- The versatile product offerings targeted toward both the luxury and
economy market sectors.
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- The increasing acceptance of light truck use for everyday transportation.
- The durability and special performance capabilities of light trucks.
As automobile and light truck manufacturers have faced increased global
competition, they have sought to significantly improve quality, reduce costs and
shorten the development time required for new vehicle models. These changes have
altered the OEM/supplier relationship and benefited larger suppliers that have
strong product engineering and development capabilities, superior quality
products, lower unit costs and the ability to deliver products on a timely
basis. As a result, we believe that we will continue to benefit from the
following automotive OEM and aftermarket trends:
- Consolidation of supplier base by OEMs.
- Emergence of EC safety standards.
- Increased levels of manufacturing in North America by foreign companies.
During the later part of 2000, sales in the North American automotive
industry began to decline and some of our major customers adjusted production in
the 4th quarter of 2000 to reduce their inventory of unsold vehicles. This
lowering of production negatively impacted our sales during the 4th quarter of
2000. This trend has continued during the early part of 2001.
It is anticipated that U.S. auto sales for 2001 will be in the range of
15.5 million to 16.5 million vehicles, down from 17.4 million vehicles in 2000.
In addition, DaimlerChrysler, our largest customer, incurred substantial
losses in its North American Operations. During the first quarter of 2001,
DaimlerChrysler announced a restructuring plan to return its North American
Operations to profitability in 2002. This restructuring plan includes the
reduction of 26,000 employees and a 15% reduction in materials cost of 2003.
Effective January 1, 2001, we agreed to reduce prices on products sold to
DaimlerChrysler and have been able to partially offset these price reductions
through reductions in our materials cost. We continue to work with
DaimlerChrysler to help identify other potential cost savings to
DaimlerChrysler.
MANAGEMENT AND OWNERSHIP
An affiliate of J.P. Morgan Partners, LLC ("JPMP") and certain members of
our management formed the Company in September 1995 to make strategic
acquisitions of automotive exterior accessory manufacturers and to integrate
those acquisitions into a global enterprise that would be a preferred supplier
to the automotive industry. Our senior management team has an average of over 20
years of experience in manufacturing and marketing automotive-related products.
We believe that members of our management team have strong and successful track
records in the operation of their respective businesses. Members of our senior
management own, in the aggregate, approximately 21% of our issued and
outstanding voting securities on a fully diluted basis.
JPMP is the private equity group of J.P. Morgan Chase & Co., one of the
largest bank holding companies in the United States, and is one of the largest
private equity organizations in the United States, with over $20 billion under
management. Through its affiliates, JPMP invests in leveraged buyouts,
recapitalizations and venture capital opportunities by providing equity and
mezzanine debt capital. Affiliates of JPMP own approximately 41% of our issued
and outstanding voting securities on a fully diluted basis.
ACQUISITION HISTORY
In September 1995, our subsidiary, SportRack, acquired substantially all of
the net assets of the MascoTech Accessories division (the "MascoTech Division")
of MascoTech, Inc. ("MascoTech"). The MascoTech Division was a North American
supplier of rack systems and accessories to the automotive OEM market and
aftermarket.
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In October 1996, we acquired all of the capital stock of Brink B.V. (the
"Brink Acquisition"), a private company with limited liability incorporated
under the laws of The Netherlands and a European supplier of towing systems to
the automotive OEM market and aftermarket. In December 1996, ownership of Brink
B.V. and its subsidiaries was transferred to our newly formed subsidiary, Brink
International B.V.
In August 1997, we formed Valley to acquire the net assets of Valley
Industries, Inc. ("Valley Industries"), a North American supplier of towing
systems to the automotive OEM market and aftermarket (the "Valley Acquisition").
In July 1997 we completed two smaller acquisitions though a subsidiary of
SportRack called SportRack Accessories, Inc. SportRack Accessories acquired from
Bell Sports Corporation ("Bell") the net assets of Bell's sportrack division, a
Canadian supplier of rack systems and accessories to the automotive aftermarket.
JPMP was a significant equity investor in Bell. SportRack International also
acquired the capital stock of Nomadic Sports, Inc. ("Nomadic"), a Canadian
supplier of rack systems and accessories to the automotive OEM market and
aftermarket. The acquisitions of the sportrack division of Bell and the capital
stock of Nomadic are collectively referred to in this Prospectus as the
"SportRack Accessories Acquisition."
In January 1998, we formed Ellebi S.r.l. ("Ellebi") to acquire the net
assets of a division of Ellebi S.p.A. (the "Ellebi Acquisition"). Ellebi is an
Italian supplier of towing systems to the European automotive OEM market and
aftermarket.
In February 1998, our subsidiary, SportRack International, Inc., acquired
the net assets of Transfo-Rakzs, Inc. (the "Transfo-Rakzs Acquisition"), a
Canadian supplier of rear hitch rack carrying systems and related products to
the automotive aftermarket.
In February 2000, our subsidiary, Valley Industries, LLC, acquired the net
assets of Titan Industries, Inc. ("Titan"). Titan is a North American supplier
of trailer balls and other towing related accessories to the automotive
aftermarket.
In September 2000, our subsidiary, SportRack Accessories, Inc., acquired
(the "Barrecrafters Acquisition") the net assets of the Wiswall Hill Corporation
("Wiswall Hill" or "Barrecrafters"). Wiswall Hill is a North American supplier
of rack systems and accessories to the automotive aftermarket under its popular
brand name, Barrecrafters.
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Capital Corp. is a Delaware corporation and is a wholly owned subsidiary of
the Company. Capital Corp. has no assets, no liabilities other than with respect
to the Notes and does not conduct any operations. The Notes are the joint and
several obligations of AAS and Capital Corp.
Our principal executive offices are located at 12900 Hall Road, Suite 200,
Sterling Heights, Michigan 48313 and our telephone number is (810) 997-2900.
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SUMMARY DESCRIPTION OF THE NOTES
Issuers....................... Advanced Accessory Systems, LLC and AAS Capital
Corporation
Notes Outstanding............. $125,000,000 aggregate principal amount of
9 3/4% Series B Senior Subordinated Notes due
2007.
Maturity...................... October 1, 2007.
Interest Payment Dates........ April 1, and October 1.
Sinking Fund.................. None.
Optional Redemption........... We may not redeem the Notes prior to October 1,
2002. On or after October 1, 2002 we may redeem
some or all of the Notes at the redemption
prices set forth in this Prospectus. See
"Description of Notes -- Optional Redemption."
Change of Control............. Upon the occurrence of a Change of Control, we
must make an offer to repurchase the Notes at a
price equal to 101% of the principal amount,
plus interest. See "Description of the Notes --
Change of Control."
Subsidiary Guarantees......... Our domestic subsidiaries fully and
unconditionally on a joint and several basis
guarantee our obligations to pay principal and
interest on the Notes. Before we may pay any
principal or interest on the Notes, we must
first have paid all principal and interest due
under our existing Senior Indebtedness,
including any Senior Indebtedness we may incur
in the future. See "Description of the Notes --
Guarantees of the Notes."
Ranking....................... The Notes are not secured by any collateral.
The Notes and the guarantees of our
subsidiaries rank below all of our and our
subsidiary guarantors' senior debt. Therefore,
if we default, your right to payment under the
Notes will be junior to the rights of holders
of our and our subsidiary guarantors' senior
debt to collect money we owe them at the time.
In addition, if we do not pay you under the
terms of the Notes, we may not be able to make
additional borrowings and our senior debt may
become due and payable immediately. The Notes
will effectively rank below all liabilities
(including trade payables) of our subsidiaries
which are not guarantors. On December 31, 2000
the aggregate amount of senior debt was $51.0
million. See "Description of the Notes --
Ranking" and "-- Subordination of the Notes."
Certain Covenants............. The indenture under which the Notes were issued
(the "Indenture") contains certain covenants
that, among other things, limit our ability to:
- Incur additional indebtedness.
- Pay dividends on or redeem our membership
interests or make certain payments to others.
- Make investments.
- Sell our assets or membership units to third
parties.
- Enter into transactions with our affiliates.
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- Consolidate, merge or transfer all or
substantially all of our assets.
The covenants are subject to a number of significant exceptions and
qualifications. See "Description of the Notes -- Certain Covenants."
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RISK FACTORS
In addition to other matters set forth in this Prospectus, you should
carefully consider the following factors before purchasing the Notes.
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND
PREVENT US FROM PAYING YOU
Indebtedness in relation to our members' equity is high. Our indebtedness
at December 31, 2000 was $175.6 million. Our ratio of indebtedness to total
capital was 0.9 to 1.0. Our ratio of earnings to fixed charges was 1.36 to 1.0
for the year ended December 31, 2000. Our net income for the year ended December
31, 2000 was $7.8 million. In addition, the Amended and Restated Credit
Agreement and the Indenture subject us to certain restrictions if we incur
additional debt to finance acquisitions or capital expenditures or for other
purposes. See "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources," "Description of the Credit Facilities" and "Description of the
Notes."
Our high level of debt in relation to our members' equity may have
important consequences for us. These consequences include:
- Our ability to obtain additional financing for acquisitions, working
capital, capital expenditures, or other purposes on terms favorable to
us, or at all, may be impaired.
- We must use a substantial portion of our cash flow to pay our interest
expense and repay our debts. This will reduce the funds that would
otherwise be available to us for our operations and future business
opportunities.
- Our existing capital structure requires cash interest and debt
amortization payments estimated to be approximately $27.1 million in 2001
and payments decreasing from approximately $24.4 million in 2002 to $12.2
million in 2006.
- A substantial decrease in our net operating cash flows or an increase in
our expenses could make it difficult for us to meet our debt payments and
force us to modify our operations.
- We may have a higher amount of debt in relation to our members' equity
than our competitors, which may place us at a competitive disadvantage.
- Our high amount of debt in relation to our members' equity may make us
more vulnerable than our competitors to a downturn in our business cycle
or the economy generally.
- Any inability to repay our debts or obtain additional financing when we
needed it would have a material adverse effect on us.
Our ability to pay principal and interest on the Notes and to pay our other
debts will depend upon our future operating performance. Our performance will be
affected by prevailing economic conditions and other financial and business
factors. Some of these factors are beyond our control. Our ability to obtain
revolving credit borrowings under the Amended and Restated Credit Agreement or
any other financing agreement we might enter into may be dependent upon certain
factors beyond our control. We anticipate that we will be able to meet our debt
obligations in the foreseeable future. We base this on our expectations of
current and expected levels of operations, operating cash flows and our
borrowings under the Amended and Restated Credit Agreement. If we can not make
payments on our indebtedness, we will be forced to takes actions such as
reducing or delaying acquisitions and/or capital expenditures, selling assets,
selling more of our equity or restructuring or refinancing our indebtedness,
including the Notes. There is no assurance that we could take any of these
actions on satisfactory terms to us, or at all.
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RESTRICTIVE DEBT COVENANTS LIMIT OUR ABILITY TO OBTAIN FINANCING AND OTHER
ACTIVITIES
The Amended and Restated Credit Agreement and the Indenture impose
restrictions which limit our ability to:
- Declare dividends or redeem or repurchase membership interests.
- Prepay or redeem debt, including the Notes.
- Incur liens.
- Make loans and investments.
- Incur additional debt.
- Amend or otherwise alter debt and other material agreements.
- Make capital expenditures.
- Engage in mergers, acquisitions and asset sales.
- Enter into transactions with affiliates; and
- Alter the business we conduct.
The indebtedness outstanding under the Amended and Restated Credit
Agreement is guaranteed by all of our domestic subsidiaries and is secured by a
first priority lien on substantially all of our current and future properties
and assets and the current and future properties and assets of our domestic
subsidiaries. This includes a pledge of all of the shares of our current and
future domestic subsidiaries, and up to 65% of the shares of our current and
future foreign subsidiaries and certain of the tangible and intangible assets of
our current and future foreign subsidiaries. In addition, under the Amended and
Restated Credit Agreement, we are required to comply with financial covenants
with respect to:
- a maximum leverage ratio;
- a minimum fixed charge coverage ratio;
- a minimum net worth;
- capital expenditures; and
- rentals.
If we were unable to borrow under the Amended and Restated Credit Agreement
due to a default or failure to meet certain specified borrowing base
prerequisites for borrowing, we could be left without sufficient liquidity.
WE MUST PAY OTHER DEBTS BEFORE WE PAY YOU
The Notes and the Guarantees are unsecured and subordinated to the prior
payment in full, in cash, of all of our Senior Indebtedness. As of December 31,
2000, the aggregate outstanding principal amount of all Senior Indebtedness was
approximately $51.0 million. In the event of a bankruptcy, liquidation or
reorganization of the Company, our assets and the assets of the Guarantors will
be available to pay obligations on the Notes only after all of our Senior
Indebtedness or the Senior Indebtedness of the Guarantors, has been paid in
full. After that, we may not have sufficient assets remaining to pay amounts due
on any or all of the Notes. In addition, we may not pay principal or premium, if
any, or interest on the Notes if any Senior Indebtedness is not paid when due or
any other default on any Senior Indebtedness occurs and the maturity of the
Senior Indebtedness is accelerated in accordance with its terms. However, if the
amount owed is paid in full or the default has been cured or waived and such
acceleration has been rescinded then we can pay what we owe on the Notes. In
addition, if any default occurs with respect to certain Senior Indebtedness and
certain other conditions are satisfied, we may not make any payments on the
Notes for a designated period of time. Finally, if any judicial proceeding is
pending because of default in payment on any Senior Indebtedness, or other
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default with respect to certain Senior Indebtedness, or if the maturity of the
Notes is accelerated because of a default under the Indenture and the default
constitutes a default with respect to any Senior Indebtedness, we may not make
any payment on the Notes.
The Notes are not guaranteed by any of the Company's foreign subsidiaries.
See "Description of the Notes." Our subsidiaries which are not guarantors of the
Notes represented 30% of our net sales in 2000 and 38% of our total assets at
December 31, 2000.
OUR INTEREST PAYMENTS ON DEBT COULD INCREASE
A significant portion of our outstanding indebtedness bears interest at
variable rates. While we may enter interest rate protection agreements to limit
our exposure to increases in such interest rates, such agreements will not
eliminate the exposure to variable rates. Any increase in the interest rates on
our indebtedness will reduce funds available to us for our operations and future
business opportunities.
OUR INTEGRATION STRATEGY MIGHT NOT SUCCEED
We want to grow through acquisitions. We can not assure you that the
integration of any future acquisitions will be successful or that the
anticipated strategic benefits of any future acquisitions will be realized.
Acquisitions involve a number of special risks, including, but not limited to,
adverse short-term effects on our reported operating results, diversion of
management's attention, standardization of accounting systems, dependence on
retaining, hiring and training key personnel and unanticipated problems or legal
liabilities. Our ability to successfully implement our acquisition strategy
depends on a number of factors, some of which are beyond our control. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
We cannot assure you that we will be able to consummate acquisitions in the
future on terms acceptable to us.
WE FACE POTENTIAL RISKS BECAUSE WE HAVE OPERATIONS IN FOREIGN COUNTRIES
We manufacture and/or sell our products in Europe, Canada and Mexico. In
2000, approximately 30% of our net sales were derived from operations conducted
outside the United States. These sales are principally in currencies other than
U.S. dollars. Foreign operations are subject to certain risks that can
materially affect our sales, profits, cash flows and financial position. These
risks include currency exchange rate fluctuations, inflation, changes in import
duties, exchange controls and variable political conditions. In particular,
currency exchange rate fluctuations may impact the revenues and gross margins of
our foreign operations. Moreover, most of our foreign subsidiaries' indebtedness
is denominated in U.S. dollars and exchange rate fluctuations and other factors
may affect the amount and availability of dollars to service such debt. We are
currently not a party to any material currency hedging agreements. In addition,
a highly inflationary economy may also give rise to increased production costs
without correspondingly increased prices, especially if products are exported to
countries with low inflation rates. See Note 13 of the notes to our consolidated
financial statements.
THE INTERESTS OF OUR CONTROLLING MEMBERS MAY CONFLICT WITH YOUR INTERESTS
JPMP and its affiliates in the aggregate own approximately 49.9% of our
issued and outstanding voting securities and has the option to convert its 5,133
nonvoting Class A-1 Units to an equal number of voting Class A Units. In
addition, pursuant to the Members' Agreement (as defined), affiliates of JPMP
have the ability to appoint a majority of the members of our Board of Managers.
See "Management -- Members' Agreement." Accordingly, JPMP can exert substantial
influence on the direction and future operations of the Company. See "Security
Ownership of Certain Beneficial Owners and Management" and "Plan of
Distribution."
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OUR CUSTOMERS CAN EXERT PRESSURE ON US
We compete in the global OEM supplier industry, which is characterized by a
small number of OEMs which are able to exert considerable pressure on OEM
suppliers, including us. Sales to OEM customers were approximately 68% of our
aggregate net sales in 2000. In addition, sales to DaimlerChrysler and General
Motors were approximately 32% and 11%, respectively, of our aggregate net sales
in 2000. Sales to these customers consist of a large number of different parts,
tooling and other services, which are sold to separate divisions and operating
groups within each customer's organizations. Although we have purchase orders
from these customers, these purchase orders generally provide for supplying the
customer's requirements for a particular model or model year rather than for
manufacturing a specific quantity of products. The loss of either of these
customers or any of the purchase orders, or a significant decrease in demand for
certain models or a group of related models sold by any of its major customers
could have a material adverse effect on us. We expect that, in connection with
the restructuring of its North American operations, DaimlerChrysler will reduce
its aggregate purchase orders with us as compared with 2000. Failure to obtain
new business for new models or to retain or increase business on redesigned
existing models could adversely affect us. OEM customers are also able to exert
considerable pressure on component and system suppliers to reduce costs, provide
integrated systems (as opposed to just parts), finance tooling, improve quality
and provide additional design and engineering capabilities. In January of 2001,
we agreed to reduce prices on products sold to DaimlerChrysler, which requested
such reductions in connection with the restructuring of its North American
operations. We can not assure you that the additional costs of increased quality
standards, price reductions or additional engineering or systems integration
capabilities required by OEMs will not have a material adverse effect on the
financial condition or results of operations of the Company. In addition, we may
not be able to pass on increases in the cost of raw materials to our OEM
customers.
The OEM supplier industry is highly cyclical and, in large part, dependent
upon the overall strength of consumer demand for light trucks and passenger
cars. We can not assure you that the automotive industry, for which we supply
components and systems, will not experience downturns in the future. An economic
recession typically impacts substantially leveraged companies like us more than
similarly situated companies with less leverage. A decrease in overall consumer
demand for motor vehicles in general or specific types of vehicles could have a
material adverse effect on our financial condition and results of operations.
OUR AGREEMENT TO REDUCE PRICES FOR OUR LARGEST CUSTOMER, AS WELL AS FUTURE PRICE
ACCOMMODATIONS, MAY IMPACT OUR PROFITABILITY IN 2001.
In 2000, our largest customer, DaimlerChrysler, incurred substantial losses
in its North American operation. During the first quarter of 2001,
DaimlerChrysler announced a restructuring plan to return the Chrysler Group to
profitability in 2002, including a 15% reduction in materials costs by 2003.
Effective January 1, 2001, we agreed to reduce prices on products sold to
DaimlerChrysler. Difficulties experienced by DaimlerChrysler, as well as any
future price accommodation to them or any of our other customers, may impact our
gross margins.
SOME OF OUR EMPLOYEES ARE UNIONIZED
Approximately 150 of our employees in the United States at the Port Huron,
Michigan facility are represented by the Teamsters Union. Collective bargaining
agreements with the Teamsters Union affecting these employees expire in April
2004. As is common in many European jurisdictions, substantially all of our
employees in Europe are covered by country-wide collective bargaining
agreements. While we believe that our relations with our employees are
satisfactory, a dispute with our employees could have a material adverse effect
on us.
LABOR DISPUTES AT OUR CUSTOMERS AND OTHER SUPPLIERS OF OUR CUSTOMERS COULD
ADVERSELY AFFECT US
Many of our OEM and other Tier 1 supplier customers, and other suppliers to
our customers, are unionized, and work stoppages, slowdowns or other labor
disputes experienced by, and the labor relations policies of, OEMs and other
Tier 1 suppliers could have an adverse effect on our financial condition and our
results of operations.
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WE MAY NOT BE ABLE TO PAY THE NOTES UPON CHANGE OF CONTROL
Upon a Change of Control, we are required to offer to purchase all
outstanding Notes at 101% of the principal amount of the Notes plus accrued and
unpaid interest to the date of purchase. The source of funds for any such
purchase will be our available cash or cash generated from operations or other
sources, including borrowing, sales of assets, sales of equity or funds provided
by a new controlling person. However, we can not assure you that sufficient
funds will be available at the time of any Change of Control to make any
required repurchases of Notes tendered, or that, if applicable, restrictions in
the Amended and Restated Credit Agreement will allow us to make such required
repurchases. See "Description of the Notes -- Change of Control."
OUR INDUSTRY IS HIGHLY COMPETITIVE
Our industry is highly competitive. A large number of actual or potential
competitors exist, some of which are larger than us and have substantially
greater resources than we have. See "Business -- Competition." Our business may
be adversely affected by increased competition in the markets in which we
currently operate or in markets in which we will operate in the future, and we
can not assure you that we will be able to improve or maintain our profit
margins. In addition, we principally compete for new business both at the
beginning of the development of new models and upon the redesign of existing
models by our major customers. New model development generally begins two to
four years prior to the marketing of such models to the public.
OEMs have increasingly stressed the need for suppliers with global
capabilities. We can not assure you that by further expanding into international
markets we will be successful either in competing with other suppliers, domestic
or foreign, or in maintaining our relationship with various OEMs, such that our
international operations will be profitable.
ENVIRONMENTAL REGULATION IMPOSES RISKS AND COSTS ON US
Our operations are subject to federal, state, local and foreign laws and
regulations governing the protection of the environment, including those
regulating discharges into the air and water, the management of wastes, the
cleanup of contamination, and the control of noise and odors. Like all
companies, we are subject to potentially significant fines or penalties if we
fail to comply with these environmental regulatory requirements. Under certain
environmental laws, a current or previous owner or operator of real property,
and parties that generate or transport hazardous substances that are disposed of
at real property, may be held liable for the cost to investigate or clean up
such substances on or under the property. We may be subject to liability,
including liability for cleanup costs, if contamination is discovered at one of
our facilities or at a landfill or other location where we have disposed of
wastes. We have made and will continue to make capital expenditures to comply
with current and future environmental requirements. Because environmental
requirements are becoming increasingly stringent, our expenditures for
environmental compliance may increase and we may incur material costs associated
with environmental compliance in the future. See "Business -- Environmental
Regulation."
YOU MAY BE RESTRICTED BY BLUE SKY REGULATIONS
In order to comply with the securities laws of certain jurisdictions, the
Notes may not be offered or resold by any Holder unless the Notes have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and the requirements of such
exemption have been satisfied. We do not currently intend to register or qualify
the resale of the Notes in any such jurisdictions. However, an exemption is
generally available for sales to registered broker-dealers and certain
institutional buyers. Other exemptions under applicable state securities laws
may also be available.
AN ACTIVE TRADING MARKET FOR THE NOTES MAY NOT DEVELOP
The Notes are a class of securities with no established trading market. We
do not intend to list the Notes on any national securities exchange or to seek
the admission thereof to trading in the NASDAQ National
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Market. We have been advised by CSI that CSI currently intends to make a market
in the Notes. CSI is not obligated to do so. Any market-making activities with
respect to the Notes may be discontinued at any time without notice.
Market-making activity is subject to the limits imposed by the Securities Act
and the Exchange Act. We can not assure you that an active public or other
market will develop for the Notes. If a trading market does not develop or is
not maintained, you may experience difficulty in reselling the Notes or you may
be unable to sell them at all. If a market develops for the Notes, future
trading prices of the Notes will depend on many factors, including among other
things, prevailing interest rates, our financial condition and results of
operations, and the market for similar notes. Depending on those and other
factors, the Notes may trade for less than what you paid for them.
USE OF PROCEEDS
We will not receive any proceeds from any sales of the Notes.
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CAPITALIZATION
The following table sets forth our actual capitalization as of December 31,
2000. You should read information set forth below in conjunction with the
"Selected Historical Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements of the Company, and the notes thereto, included elsewhere in this
Prospectus.
AS OF
DECEMBER 31, 2000
-----------------
(IN THOUSANDS)
Cash........................................................ $ 3,315
========
Long-term debt (including current maturities):
Amended and Restated Credit Agreement(1):
Revolving Credit Facility(2)........................... $ 11,343
Tranche A Term Loan.................................... 5,326
Tranche B Term Loan.................................... 12,370
Acquisition Facility................................... 14,438
Canadian Credit Agreement(1)(2)...........................
Term Note.............................................. 7,525
Revolving Note......................................... --
Notes(3).................................................. 124,633
--------
Total long-term debt................................... 175,635
Mandatorily redeemable warrants(4).......................... 5,010
Members' equity............................................. 5,896
--------
Total capitalization................................... $186,541
========
- -------------------------
(1) See "Description of the Credit Facilities."
(2) The Company has up to $25.0 million available under the Revolving Credit
Facility of which $7.5 million is unutilized at December 31, 2000.
Borrowings by SportRack Accessories under the revolving note of the Canadian
Credit Agreement (as defined) are counted against availability under the
Revolving Credit Facility.
(3) The principal amount of the Notes is $125.0 million. The Notes are presented
net of unamortized discount of $367,000.
(4) Represents the value assigned to certain warrants issued in connection with
certain senior subordinated debt. This senior subordinated debt was repaid
with proceeds from the Notes. The warrants are being accreted to their
redemption value through periodic charges to members' equity.
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SELECTED HISTORICAL FINANCIAL DATA
The information below presents historical financial data of the Company and
has been derived from our audited financial statements and include:
- The operations of Brink subsequent to the Brink Acquisition on October
31, 1996.
- The operations of the sportrack division of Bell and Nomadic subsequent
to the SportRack International Acquisition on July 2, 1997 and July 24,
1997, respectively.
- The operations of Valley subsequent to the Valley Acquisition on August
5, 1997.
- The operations of Ellebi subsequent to the Ellebi Acquisition on January
2, 1998.
- The operations of Tranfo-Rakzs subsequent to the Transfo-Rakzs
Acquisition on February 7, 1998.
- The operations of Titan subsequent to the Titan Acquisition on February
22, 2000.
- The operations of Barrecrafters subsequent to the Barrecrafters
Acquisition on September 5, 2000.
The following table should be read in conjunction with our financial
statements and notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2000(4) 1999 1998(3) 1997(2) 1996(1)
------- ---- ------- ------- -------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $318,817 $314,142 $292,145 $189,352 $ 81,466
Cost of sales(5)................................... 239,090 227,889 215,441 136,230 53,607
-------- -------- -------- -------- --------
Gross profit..................................... 79,727 86,253 76,704 53,122 27,859
Selling, administrative and product development
expenses(5)...................................... 45,527 50,258 50,839 31,350 13,413
Amortization of intangible assets.................. 3,297 3,245 3,551 2,336 2,475
Impairment charge(5)............................... -- -- 7,863 -- --
-------- -------- -------- -------- --------
Operating income................................. 30,903 32,750 14,451 19,436 11,971
Other (income) expense
Interest expense................................. 17,950 17,453 18,633 12,627 4,312
Foreign currency (gain) loss(6).................. 5,386 7,912 (4,995) 6,097 1,330
Other, net....................................... 52 1,990 -- -- (80)
-------- -------- -------- -------- --------
Income before minority interest, extraordinary
charge and income taxes........................ 7,515 5,395 813 712 6,409
Provision (benefit) for income taxes(7)............ (278) 417 903 (2,856) (491)
-------- -------- -------- -------- --------
Income before minority interest and extraordinary
charge......................................... 7,793 4,978 (90) 3,568 6,900
Minority interest.................................. -- -- -- 97 69
-------- -------- -------- -------- --------
Income before extraordinary charge............... 7,793 4,978 (90) 3,471 6,831
Extraordinary charge(8)............................ -- -- -- 7,416 1,970
-------- -------- -------- -------- --------
Net income (loss)................................ $ 7,793 $ 4,978 $ (90) $ (3,945) $ 4,861
======== ======== ======== ======== ========
OTHER DATA:
Cash flows from operating activities............... $ 21,416 $ 25,014 $ 21,879 $ 6,982 $ 9,917
EBITDA(9).......................................... 44,546 46,539 38,364 27,916 16,448
Depreciation....................................... 10,346 10,418 10,857 6,144 2,002
Capital expenditures............................... 10,445 11,775 9,998 7,751 3,124
Ratio of EBITDA to interest expense................ 2.48x 2.67x 2.06x 2.21x 3.81x
Ratio of earnings to fixed charges(10)............. 1.36x 1.29x 1.04x 1.06x 2.43x
BALANCE SHEET DATA (AT END OF PERIOD)
Cash............................................... $ 3,315 $ 8,718 $ 11,240 $ 27,348 $ 2,514
Working capital.................................... 34,791 36,825 49,232 65,803 14,368
Total assets....................................... 242,497 251,213 258,981 265,558 148,359
Total debt, including current maturities........... 175,635 178,498 187,524 197,126 93,142
Mandatorily redeemable warrants.................... 5,010 4,810 4,409 3,507 3,498
Distributions to Members........................... 6,090 4,720 195 2,945 3,692
Members' equity.................................... 5,896 10,331 15,147 16,444 18,463
(footnotes on following page)
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(1) In October 1996, we acquired Brink. We accounted for the Brink Acquisition
in accordance with the purchase method of accounting. Accordingly, the
operating results of Brink are included in our consolidated operating
results subsequent to October 31, 1996.
(2) We acquired the net assets of the sportrack division of Bell on July 2,
1997, Nomadic on July 24, 1997, and the net assets of Valley Industries on
August 5, 1997. The SportRack Accessories Acquisition and Valley
Acquisition have been accounted for in accordance with the purchase method
of accounting. Accordingly, the operating results of SportRack Accessories
and Valley are included in our consolidated operating results subsequent to
the respective acquisition dates.
(3) We acquired the towbar segment of Ellebi S.p.A. on January 2, 1998 and the
net assets of Transfo-Rakzs on February 7, 1998. We accounted for the
Ellebi Acquisition and Transfo-Rakzs Acquisition in accordance with the
purchase method of accounting. Accordingly, the operating results of Ellebi
and Transfo-Rakzs are included in our consolidated operating results
subsequent to the respective acquisition dates.
(4)We acquired the net assets of Titan Industries, Inc. on February 22, 2000
and the net assets of Barrecrafters on September 5, 2000. We accounted for
the Titan Acquisition and Barrecrafters Acquisition in accordance with the
purchase method of accounting. Accordingly, the operating results of Titan
and Barrecrafters are included in our consolidated operating results
subsequent to the respective acquisition dates. The impact of these
acquisitions on the consolidated results was not material.
(5) In June 1998, information became available that indicated that certain
assets acquired from Bell in connection with the SportRack Accessories
Acquisition (accounts receivable, inventory and tooling) had a fair value
less than originally recorded. The SportRack Accessories Acquisition was
renegotiated and a $2.0 million reimbursement was received from Bell.
Accounts receivable, inventory and tooling were reduced by $6.5 million and
additional goodwill of $4.5 million, net of the $2.0 million reimbursement
from Bell, was recorded. During the second half of 1998, management further
reassessed the operations of SportRack Accessories, restructured the
operations, and recorded restructuring charges totaling $1.9 million.
Restructuring charges have been included in cost of sales ($1.1 million)
and in selling, administrative and product development expenses ($832,000)
in our consolidated statement of operations. All restructuring costs were
incurred as of December 31, 1998. Concurrent with the reassessment of the
SportRack Accessories operations, management reviewed the carrying value of
goodwill and other intangible assets, determined that future cash flows
would not be sufficient to recover recorded amounts, and recorded an
impairment charge of $7.9 million.
(6) Primarily represents net currency gains and loss on indebtedness of our
foreign subsidiaries denominated in currencies other than their functional
currency.
(7) We are a limited liability company and, as such, our earnings and the
earnings of our domestic subsidiaries are included in the taxable income of
our unit holders and no federal income tax provision is required. Our
foreign subsidiaries provide for income taxes on their results of
operations.
(8) In connection with the indebtedness extinguished as a result of the Brink
Acquisition, a prepayment penalty of $220,000 and unamortized deferred debt
issuance costs of $1.8 million were charged to operations during 1996. In
connection with indebtedness extinguished as a result of issuing the Notes,
a prepayment penalty of $1.4 million, $3.1 million of unamortized debt
discount, and unamortized deferred debt issuance costs of $3.2 million were
charged to operations during 1997. The debt extinguishment charges in 1997
were reduced by $365,000 representing the income tax benefit recognized by
Brink.
(9) EBITDA is defined as operating income plus depreciation and amortization
adjusted in 1998 for the non-cash portion of impairment and restructuring
charges ($9.5 million for the year ended December 31, 1998), which
definition may not be comparable to similarly titled measures reported by
other companies. EBITDA is presented because it is generally accepted as
providing useful information regarding a company's ability to service
and/or incur indebtedness. However, you should not consider EBITDA in
isolation from or as an alternative to net income, cash flows from
operating activities and other consolidated income or cash flow statement
data prepared in accordance with generally accepted accounting principles
or as a measure of profitability or liquidity. In addition, funds depicted
by the
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EBITDA measurement are not fully available for discretionary use because of
debt service requirements, expenditures for capital replacement and
expansion, and the need to conserve funds for other commitments and
uncertainties.
(10) For purposes of determining the ratio of earnings to fixed charges,
"earnings" are defined as income (loss) before minority interest,
extraordinary charge and income taxes, plus fixed charges. "Fixed charges"
consist of interest expense on all indebtedness (including amortization of
deferred debt issuance costs) and the component of operating lease rental
expense that management believes is representative of the interest
component of rent expense.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
An affiliate of JPMP and certain members of the Company's management formed
the Company in September 1995 to make strategic acquisitions of automotive
exterior accessory manufacturers and to integrate those acquisitions into a
global enterprise that would be a preferred supplier to the automotive industry.
RECENT ACQUISITIONS
In January 1998, the Company through Brink International B.V., acquired the
net assets of the towbar segment Ellebi S.p.A., an Italian supplier of towing
systems to the automotive OEM market and aftermarket.
In February 1998, the Company through SportRack International, Inc.,
acquired the net assets of Transfo-Rakzs, a Canadian supplier of rear hitch rack
carrying systems and related products to the automotive aftermarket.
In February 2000, the Company through Valley, acquired the net assets of
Titan Industries, Inc. ("Titan"). Titan is a North American Supplier of trailer
balls and other towing related accessories to the automotive aftermarket.
In September 2000, the Company through SportRack International, acquired
the net assets of the Wiswall Hill Corporation ("Wiswall Hill" or
"Barrecrafters"). Wiswall Hill is a North American supplier of rack systems and
accessories to the automotive aftermarket under its popular brand name,
Barrecrafters.
SUMMARY RESULTS OF OPERATIONS
The following table presents the major components of the statement of
operations together with percentages of each component as a percentage of net
sales.
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2000 1999 1998
----------------- ----------------- -----------------
(DOLLARS IN THOUSANDS)
Net sales.............................. $318,817 100.0% $314,142 100.0% $292,145 100.0%
Gross profit......................... 79,727 25.0 86,253 27.5 76,704 26.3
Selling, administrative and product
development expenses................. 45,527 14.3 50,258 16.0 50,839 17.4
Amortization of intangible assets...... 3,297 1.0 3,245 1.0 3,551 1.2
Impairment charge...................... -- -- -- -- 7,863 2.7
Operating income..................... 30,903 9.7 32,750 10.4 14,451 4.9
Interest expense....................... 17,950 5.6 17,453 5.6 18,633 6.4
Foreign currency (gain) loss........... 5,386 1.7 7,912 2.5 (4,995) (1.7)
Income before income taxes............. 7,515 2.4 5,395 1.7 813 0.3
Income tax provision (benefit)......... (278) 0.1 417 0.1 903 0.3
Net income (loss)...................... 7,793 2.4 4,978 1.6 (90) 0.0
RESULTS OF OPERATIONS
2000 COMPARED TO 1999
Net sales. Net sales for 2000 were $318.8 million, representing an increase
of $4.7 million, or 1.5%, over net sales for 1999. This increase resulted from
increased sales to OEMs of approximately $14.5 million and increased sales to
the aftermarket of $2.4 million. Partially offsetting the Company's increased
sales volume was the effect of declining exchange rates between the U.S. Dollar
and the currencies used by the Company's foreign subsidiaries totaling $12.2
million. For example, the average value of the European Euro, the
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functional currency of Brink, as compared to the U.S. Dollar declined by 13.4%
during 2000 as compared to 1999, resulting in a similar decrease in sales as
reported in U.S. Dollars.
During the fourth quarter of 2000, the Company's sales to North American
OEM's were lower than expected as a result of several temporary plant
shut-downs. The shut-downs were instituted by the OEM's as a measure to reduce
inventory levels which had increased as a result of lower automotive sales
during the period.
Gross profit. Gross profit for 2000 was $79.7 million, representing a
decrease of $6.5 million, or 7.6%, from the gross profit for 1999. Gross profit
as a percentage of net sales was 25.0% in 2000 compared to 27.5% in 1999. The
decrease in the gross margin percentage is attributable to decreased
productivity for the North American OEM towing business related to a
reorganization of the manufacturing facility in order to better meet customer
delivery and quality requirements. Additionally, higher costs were incurred
during the year at the same facility due to an increase in outsourcing of
component parts. Brink had higher material costs during the year attributable to
increased cost of steel during the year as compared with that of 1999. The gross
profit percentage was also reduced due to proportionately lower sales for Brink
which has a greater gross margin percentage as compared with the Company as a
whole. Reduced sales for Brink are attributable to the decline in the exchange
rate between the Dutch Guilder and the U.S. Dollar for 2000 compared with 1999.
Selling, administrative and product development expenses. Selling,
administrative and product development expenses for 2000 were $45.5 million,
representing a decrease of $4.7 million, or 9.4%, compared with the selling,
administrative and product development expenses for 1999. Selling,
administrative and product development expenses as a percentage of net sales
decreased to 14.3% in 2000 from 16.0% in 1999. This decrease is partly due to a
decrease of an estimated liability related to a contingent obligation to a
customer totaling $1.9 million. The reduction was also attributable to reduced
corporate expenditures including severance compensation recorded during the
first quarter of 1999 related to the departure of the Company's former President
and Chief Executive Officer and proportionately lower sales of Brink which has
greater selling, administrative and product development expenses as a percentage
of sales as compared with the Company as a whole. Offsetting the lower percent
were legal and accounting costs of approximately $900,000 related to a potential
recapitalization of the Company's equity securities during the year.
Operating income. Operating income for 2000 was $30.9 million, a decrease
of $1.8 million, or 5.6%, compared with operating income for 1999. Operating
income as a percentage of net sales decreased to 9.7% in 2000 from 10.4% in
1999. This decrease reflects the decrease in gross profit, partially offset by
the decrease in selling, general and product development expenses as a
percentage of net sales.
Interest expense. Interest expense for 2000 was $18.0 million, an increase
of $497,000 from interest expense for 1999. The increase is due to interest
costs totaling $450,000 recorded for an estimated contingent legal liability
which is more fully discussed below in the discussion of other expense. The
effect of reduced average borrowings during 2000 as compared with 1999 was
offset by higher interest rates charged on the Company's variable rate
indebtedness.
Foreign currency loss. Foreign currency loss in 2000 was $5.4 million,
compared to a foreign currency loss of $7.9 million in 1999. The Company's
foreign currency loss is primarily related to Brink, which has indebtedness
denominated in U.S. Dollars. During 2000, the U.S. Dollar strengthened
significantly in relation to the European Euro, the functional currency of
Brink. At December 31, 1999, the exchange rate of the European Euro to the U.S.
Dollar was 0.99:1, whereas at December 31, 2000 the exchange rate was 1.06:1, or
a 7.1% decline in the relative value of the Euro during the period. In 1999, the
relationship between the two currencies was more volatile. At December 31, 1998,
the exchange rate of the European Euro to the U.S. Dollar was 0.85:1, whereas at
December 31, 1999 the exchange rate was 0.99:1, or a 16.5% decline in the
relative value of the Euro.
Other expense. In February 1996, the Company commenced an action against
certain individuals alleging breach of contract under the terms of an October
1992 Purchase Agreement and the individuals' respective Employment Agreements
with the predecessor of the Company. In March 1996, the individuals filed a
separate lawsuit against the Company alleging breach of contract under the
Purchase and their respective Employment agreements. On May 7, 1999, a jury in
the United States District Court for the Eastern District of Michigan
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reached a verdict against the Company and awarded the individuals approximately
$3.8 million plus interest and reasonable attorney fees. The Company plans to
file an appeal once a judgment is entered by the court. During the first quarter
of 1999, the Company increased its estimated accrual for this matter by $2.0
million which charge is included in other expense. No amounts have been paid as
of December 31, 2000.
Provision (benefit) for income taxes. The Company and certain of its
domestic subsidiaries have elected to be taxed as limited liability companies
for federal income tax purposes. As a result of this election, the Company's
domestic taxable income accrues to the individual members. Certain of the
Company's domestic subsidiaries and foreign subsidiaries are subject to income
taxes in their respective jurisdictions. During 2000, the Company had a loss
before income taxes for its taxable subsidiaries totaling $3.0 million and
recorded a benefit for income taxes of $278,000. The effective tax rate differs
from the U.S. federal income tax rate primarily due to changes in valuation
allowances on the deferred tax assets of SportRack Accessories and differences
in the tax rates of foreign countries. During 1999, the Company had a loss
before income taxes for its taxable subsidiaries totaling $5.6 million and
recorded a provision for income taxes of $403,000.
Net income. Net income for 2000 was $7.8 million, as compared to net income
of $5.0 million in 1999, an increase of $2.8 million. The change in net income
is primarily attributable to decreases in operating expenses, foreign currency
losses and other expense offset by a decrease in gross profit.
Other. During the second quarter of 2000 one of the Company's significant
OEM customers recalled approximately 380,000 trucks to replace or reinforce
their trailer hitches, which were supplied by the Company. The recall affects
1998-2000 model year vehicles built between January 1998 and September 1999. The
Company worked with the customer to provide technical and other support in
response to the recall. Management can not estimate at this time what the
financial impact will be to the Company, if any, as a result of the recall.
1999 COMPARED TO 1998
Net Sales. Net sales for 1999 were $314.1 million, representing an increase
of $22.0 million, or 7.5%, over net sales for 1998. This increase resulted from
increased sales to OEM's of approximately $10.1 million and increased
aftermarket sales of $10.9 million. Increased OEM sales are attributable to
higher production volumes by the OEM's on the Company's existing programs.
Increases in aftermarket sales are primarily attributable to new customers in
the retail market and new business with an existing customer in the installer
business. Offsetting the Company's increased sales volume is a decrease of
approximately $3.1 million related to the effect of declining exchange rates
between the U.S. Dollar and the currencies used by the Company's foreign
subsidiaries.
Gross Profit. Gross profit for 1999 was $86.3 million, representing an
increase of $9.5 million, or 12.4%, over the gross profit for 1998. This
increase resulted from the increase in net sales. Gross profit as a percentage
of net sales was 27.5% in 1999 compared to 26.3% in 1998. The increase in the
gross profit percent resulted primarily from reduced material costs, primarily
steel, and the effect of higher net sales on fixed overhead costs.
Selling, administrative and product development expenses. Selling,
administrative and product development expenses for 1999 were $50.3 million,
representing a decrease of $581,000, or 1.1%, over the selling, administrative
and product development expenses for 1998. Selling, administrative and product
development expenses as a percentage of net sales decreased to 16.0% in 1999
from 17.4% in 1998. This decrease resulted primarily from the effect of higher
net sales on fixed costs, decreased selling, administrative and product
development expenses of SportRack International resulting from the restructuring
of the subsidiary's operations during the fourth quarter of 1998 and the
restructuring charges (as further discussed below) related to the operations of
SportRack Accessories incurred in 1998.
Operating income. Operating income for 1999 was $32.8 million, an increase
of $18.3 million, or 126.6%, over operating income for 1998. In addition to the
increase in net sales, this increase was due to an impairment and restructuring
charge in 1998. Excluding the impairment and restructuring charges, operating
income in 1998 would have been $24.2 million and there would have been an
increase in operating income during 1999 of
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$8.6 million. Operating income as a percentage of net sales increased to 10.5%
in 1999 from 8.3% in 1998, excluding the impairment and restructuring charge.
This increase reflects the increase in gross profit, and decrease in selling,
general and product development expenses as a percentage of net sales.
Interest expense. Interest expense for 1999 was $17.5 million, a decrease
of $1.2 million, or 6.3%, compared to interest expense for 1998. The decrease
was primarily due to lower outstanding senior indebtedness attributable to
scheduled principal payments made during 1999 partially offset by higher average
line of credit borrowings during 1999 as compared with 1998, and higher interest
rates on the Company's variable rate debt.
Foreign currency (gain) loss. Foreign currency loss in 1999 was $7.9
million, compared to a foreign currency gain of $5.0 million in 1998. The
Company's foreign currency loss is primarily related to Brink which has
indebtedness denominated in U.S. Dollars. During 1999 the U.S. Dollar
strengthened significantly in relation to the European Euro, the functional
currency of Brink. At December 31, 1998, the exchange rate of the European Euro
to the U.S. Dollar was 0.85:1, whereas at December 31, 1999 the exchange rate
was 0.99:1, or a 16.5% decline in the relative value of the Euro.
Provision for income taxes. The Company and certain of its domestic
subsidiaries have elected to be taxed as limited liability companies for federal
income tax purposes. As a result of this election, the Company's domestic
taxable income accrues to the individual members. Certain of the Company's
domestic subsidiaries and foreign subsidiaries are subject to income taxes in
their respective jurisdictions. During 1999, the Company had a loss before
income taxes for its taxable subsidiaries totaling $5.6 million and recorded a
provision for income taxes of $417,000. The effective tax rate differs from the
U.S. federal income tax rate primarily due to changes in valuation allowances on
the deferred tax assets of SportRack International recorded during 1999,
non-deductible goodwill and differences in the tax rates of foreign countries.
During 1998, the Company had a loss before income taxes for its taxable
subsidiaries totaling $9.2 million and recorded a provision for income taxes of
$903,000.
Net income. Net income for 1999 was $5.0 million, as compared to a net loss
of $90,000 in 1998, an increase of $5.1 million. The change in net income is
primarily attributable to increased operating income, decreased interest expense
and decreased provision for income taxes offset by a foreign currency loss in
1999 compared with the foreign currency gain during 1998.
NORTH AMERICAN AUTOMOTIVE INDUSTRY
During the later part of 2000, sales in the North American automotive
industry began to decline and some of the Company's major customers adjusted
production in the 4th quarter of 2000 to reduce their inventory of unsold
vehicles. This lowering of production negatively impacted the Company's sales
during the 4th quarter of 2000. This trend has continued during the early part
of 2001.
It is anticipated that U.S. auto sales for 2001 will be in the range of
15.5 million to 16.5 million vehicles, down from 17.4 million vehicles in 2000.
In addition, DaimlerChrysler, the Company's largest customer, incurred
substantial losses at its North American operations. During the first quarter of
2001, DaimlerChrysler announced a restructuring plan to return the Chrysler
Group to profitability in 2002. This restructuring plan includes the reduction
of 26,000 employees and a 15% reduction in materials cost by 2003. Effective
January 1, 2001, the Company agreed to reduce prices on products sold to
DaimlerChrysler and has been able to partially offset these price reductions
through reductions in its materials costs. The Company continues to work with
DaimlerChrysler to help identify other potential cost savings to
DaimlerChrysler.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity requirements are to service its debt and
meet its working capital and capital expenditure needs. The Company's
indebtedness at December 31, 2000 was $175.6 million including current
maturities of $11.8 million. The Company expects to be able to meet its
liquidity requirements
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through cash provided by operations and through borrowings available under the
Second Amended and Restated Credit Agreement ("U.S. Credit Facility").
Working Capital and Cash Flows
Working capital and key elements of the consolidated statement of cash
flows are:
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
Working Capital............................................. $ 34,791 $ 36,825 $ 46,370
Cash flows provided by operating activities................. 21,416 25,014 21,879
Cash flows (used for) investing activities.................. (13,249) (11,775) (31,618)
Cash flows provided by (used for) financing activities...... (14,982) (18,185) (8,367)
Working Capital
Working capital decreased by $2.0 million to $34.7 million at December 31,
2000 from $36.8 million at December 31, 1999 due to decreases in cash and
accounts receivable of $5.4 million and $3.4 million, respectively, and
decreases attributable to the decline of the exchange rates between the
functional currencies of the Company's foreign subsidiaries against the U.S.
Dollar totaling $400,000. These decreases were offset by increases in inventory
and other current assets of $4.1 million and $1.5 million, respectively, and
decreases in accounts payable and accrued liabilities of $199,000 and $763,000,
respectively, and a decrease in the current maturities of long-term debt of
$638,000.
Cash decreased by $5.4 million to $3.3 million at December 31, 2000 from
$8.7 million at December 31, 1999 primarily due to investing and financing
activities of $13.2 million and $15.0 million, respectively, offset by cash
provided by operating activities of $21.0 million. Accounts receivable decreased
primarily as a result of a reduction in sales levels during the fourth quarter
of 2000 as compared with the fourth quarter of 1999. This sales decline was
primarily due to reduced sales to North American OEM's during the period as they
reduced production schedules and closed several plants on a temporary basis to
correct for their growing inventory levels and to adjust for a slowing
automotive sales market. This trend continued in the first quarter of 2001. The
increase in inventory is primarily related to a greater quantity of hitches on
hand to ensure timely delivery to OEM and aftermarket customers and reflecting
an increased cost per hitch attributable to lower productivity levels. The
increase in other current assets is primarily related to increased investment in
customer reimbursable tooling reflecting a greater number of new products under
development as of December 31, 2000 as compared with 1999.
Operating Activities
Cash flow provided by operating activities for 2000 was $21.4 million,
compared to $25.0 million in 1999 and $21.9 million in 1998. Cash flow for 2000
decreased from 1999 due to an increased investment in working capital and
non-current assets and the declining exchange rate between the U.S. Dollar and
the functional currency of the Company's foreign subsidiaries. Cash flow
provided by operating activities increased in 1999 from that of 1998 due to
improved operating performance for the year and lower working capital for the
year.
The Company's European and Canadian subsidiaries have income tax net
operating loss carryforwards ("NOLs") of approximately $7.3 million and $10.8
million, respectively, at December 31, 2000. The European NOLs have no
expiration date and the Canadian NOLs expire in 2004 through 2007. Management
believes that it is more likely than not that a portion of the deferred tax
assets of the Canadian subsidiaries will not be realized and a valuation
allowance of $4.9 million has been recorded against such assets. No valuation
allowance has been recorded for the European NOLs as it is management's belief
that it is more likely than not that the related deferred tax asset will be
realized.
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Investing Activities
Investing cash flows include acquisitions of property and equipment of
$10.4 million, $11.8 million and $10.0 million in 2000, 1999 and 1998,
respectively. The higher capital expenditures during 1999 were primarily due to
the expansion of the Company's manufacturing facility in Shelby Township,
Michigan to accommodate increased manufacturing capacity needs for new and
existing OEM roof rack programs. The Company estimates that capital expenditures
for 2001 will be primarily for the expansion of capacity, productivity and
process improvements and maintenance. The Company's 2001 capital expenditures
are anticipated to include approximately $5.0 million for replacing and
upgrading existing equipment. The Company's ability to make capital expenditures
is subject to restrictions in the Amended and Restated Credit Agreement,
including a maximum of $12.5 million of capital expenditures annually.
Investing cash flows in 2000 and 1998 include $2.8 million and $22.8
million, respectively, for the acquisitions of Titan and Barrecrafters during
2000 and the acquisitions of the Ellebi and Tranfo-Rakzs during 1998.
Financing Activities
During 2000, financing cash flows included net borrowings on the Company's
revolving line of credit totaling $11.3 million offset by payments of principal
on the Company's term indebtedness of $13.9 million, distributions to members in
amounts sufficient to meet the tax liability on the Company's domestic taxable
income which accrues to individual members totaling $6.1 million and repurchase
of membership units of $6.4 million. Principal payments included $12.5 million
in scheduled repayments and a $1.4 million mandatory prepayment required as a
result of the Company having excess cash flows during 1999 as defined by the
Second Amended and Restated Credit Agreement.
During 1999, financing cash flows included payments of principal on the
Company's term indebtedness of $9.3 million, distributions to members in amounts
sufficient to meet the tax liability on the Company's domestic taxable income
which accrues to individual members totaling $4.7 million and repurchase of
membership units of $4.3 million. Principal payments included $5.9 million in
scheduled repayments and a $3.4 million mandatory prepayment required as a
result of the Company having excess cash flows during 1998 as defined by the
Second Amended and Restated Credit Agreement. Repurchase of membership units
included repurchases from the Company's former Chief Executive Officer of $4.3
million.
During 1998, financing cash flows were primarily limited to scheduled
payments of principal on the Company's term indebtedness of $3.7 million and net
repayments of borrowings under the Company's revolving loans of $4.5 million.
Debt and Credit Sources
Borrowings under the Company's U.S. Credit Facility and the Company's First
Amended and Restated Credit Agreement ("Canadian Credit Facility") bear interest
at floating rates, which require interest payments on varying dates depending on
the interest rate option selected by the Company. Under the terms of these
credit facilities, the Company will be required to make principal payments
totaling approximately $11.8 million in 2001, $10.1 million in 2002, $20.5
million in 2003 and $8.7 million in 2004. The Notes bear interest at 9.75% which
is payable semiannually in arrears. See "Note 4" to the Company's "Consolidated
Financial Statements" for additional information regarding the U.S. Credit
Facility, the Canadian Credit Facility and the Senior Subordinated Notes.
The Company expects that its primary sources of cash will be from operating
activities and borrowings under the U.S. Credit Facility and Canadian Credit
Facility each of which provide the Company with revolving notes. As of December
31, 2000, the Company had $11.3 million borrowed under the revolving note of the
U.S. Credit Facility and had an outstanding letter of credit of $6.4 million. No
amounts were borrowed under the revolving note of the Canadian Credit Facility.
Available borrowing capacity under the revolving notes was $7.3 million as of
December 31, 2000. Future acquisitions, if any, may require additional third
party
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financing and there can be no assurances that such funds would be available on
terms satisfactory to the Company, if at all.
The Company's ability to satisfy its debt obligations will depend upon its
future operating performance, which will be affected by prevailing economic
conditions and financial, business, and other factors, certain of which are
beyond its control, as well as the availability of revolving credit borrowings
under the Amended and Restated Credit Agreement or a successor facility. The
Company anticipates that, based on current and expected levels of operations,
its operating cash flow, together with borrowings under the U.S. Credit Facility
and the Canadian Credit Facility, should be sufficient to meet its debt service,
working capital and capital expenditure requirements for the foreseeable future,
although no assurances can be given in this regard, including as to the ability
to increase revenues or profit margins. If the Company is unable to service its
indebtedness, it will be forced to take actions such as reducing or delaying
acquisitions and/or capital expenditures, selling assets, restructuring or
refinancing its indebtedness, or seeking additional equity capital. There is no
assurance that any of these remedies can be effected on satisfactory terms, if
at all, including, whether, and on what terms, the Company could raise equity
capital. See "Forward Looking Statements".
The Company conducts operations in several foreign countries including
Canada, The Netherlands, Denmark, the United Kingdom, Sweden, France, Germany,
Poland, Spain, the Czech Republic and Italy. Net sales from international
operations during 2000 were approximately $96.7 million, or 30.3% of the
Company's net sales. At December 31, 2000, assets associated with these
operations were approximately 38.4% of total assets, and the Company had
indebtedness denominated in currencies other than the U.S. dollar of
approximately $7.5 million.
The Company's international operations may be subject to volatility because
of currency fluctuations, inflation and changes in political and economic
conditions in these countries. Most of the revenues and costs and expenses of
the Company's operations in these countries are denominated in the local
currencies. The financial position and results of operations of the Company's
foreign subsidiaries are measured using the local currency as the functional
currency. Certain of the Company's foreign subsidiaries have debt denominated in
currencies other than their functional currency. As the exchange rates between
the currency of the debt and the subsidiaries functional currency change the
Company is subject to foreign currency gains and losses.
The Company may periodically use foreign currency forward option contracts
to offset the effects of exchange rate fluctuations on cash flows denominated in
foreign currencies. The Company has no outstanding foreign currency forward
options at December 31, 2000 and does not use derivative financial instruments
for trading or speculative purposes.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). The Company adopted this statement at the
beginning of fiscal 2001. This pronouncement is not expected to have a material
impact on the Company's results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks which exist as a part of its
ongoing business operations. Primary exposures include fluctuations in the value
of foreign currency investments in subsidiaries, volatility in the translation
of foreign currency earnings to U.S. Dollars and movements in Federal Funds
rates and the London Interbank Offered Rate ("LIBOR"). The Company uses
derivative financial instruments, where appropriate, to manage these risks. The
Company, as a matter of policy, does not engage in trading or speculative
transactions.
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BUSINESS
THE COMPANY
The Company is one of the world's largest suppliers of towing and rack
systems and related accessories for the automotive original equipment
manufacturer ("OEM") market and the automotive aftermarket. The Company's
products include a complete line of towing systems including accessories such as
trailer balls, ball mounts, electrical harnesses, safety chains and locking
hitch pins. The Company's broad offering of rack systems includes fixed and
detachable racks and accessories which can be installed on vehicles to carry
items such as bicycles, skis, luggage, surfboards and sailboards. The Company's
products are sold as standard accessories or options for a variety of light
vehicles. In 2000, the Company estimates that approximately 50% of its net sales
were generated from products sold for light trucks. For the year ended December
31, 2000, the Company's net sales and EBITDA, as adjusted, were $318.8 million
and $44.5 million, respectively.
PRODUCTS
The principal product lines of the Company are towing systems and rack
systems and related accessories. In 2000, towing systems and towing accessories
constituted approximately 59% and rack systems and rack accessories constituted
approximately 41% of the Company's net sales. The Company believes it offers a
more comprehensive product line than any of its competitors. The Company has
devoted considerable resources to the engineering and designing of its products
and, as a result, considers itself a market leader in the research and new
product development of towing systems and rack systems.
Towing Systems. The Company supplies towing systems to automotive OEMs and
the automotive aftermarket which fit virtually every light vehicles used for
towing in North America and Europe. In the aggregate, the Company supplies over
2,000 different towing systems, as well as a line of towing accessories.
The Company's towing systems sold in Europe are installed primarily on
passenger cars. The Company's primary product within the European market is the
fixed ball towbar that is specifically designed to be mounted on a particular
car model in accordance with the OEM's specified mounting points. The Company
also markets sophisticated detachable ball systems which are popular with owners
of more expensive cars or cars on which the license plate would otherwise be
blocked by a fixed ball towbar. The Company's towing systems sold in Europe
currently undergo rigorous safety testing in order to satisfy EC regulatory
standards.
The Company's towing systems sold in North America are installed primarily
on light trucks. As new vehicles are introduced, the Company designs towing
systems to match the specific vehicle design. The Company has introduced many
innovative product designs such as the tubular trailer hitch which is lighter in
weight, less obtrusive and stronger than the conventional hitch. Many of the
Company's product innovations have enabled the Company to improve the
functionality and safety of towing systems while, at the same time, enhancing
the overall appearance of vehicles utilizing these towing products.
The Company also offers a line of towing accessories, including trailer
balls, ball mounts, electrical harnesses, safety chains and locking hitch pins.
Fixed Rack Systems. The Company supplies fixed roof rack systems for
individual vehicle models that are generally sold to the automotive OEMs for
installation at the factory or dealership. These rack systems are typically
installed on a model for the life of its design, which generally ranges from
four to six years. The Company has been an industry leader in developing designs
which not only complement the styling themes of a particular vehicle, but also
increase the utility and functionality of the rack system.
Most of the fixed rack systems sold by the Company are composed of side
rails which run along both sides of the vehicle's roof, feet which mount the
side rails to the vehicle's roof, and cross rails which run between the side
rails. Cross rails, which are attached to the side rails with stanchions, are
typically movable and can be used to carry a load. The Company uses advanced
materials such as lightweight, high strength plastics and roll formed aluminum
to develop durable rack systems that optimize vehicle performance. Many of these
products incorporate innovative features such as push button and pull lever
stanchions, which allow easy movement of the cross rails to accommodate various
size loads. These rack systems are utilized on a large
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number of light trucks, including Jeep Grand Cherokee and Cherokee,
DaimlerChrysler minivans, Dodge Durango, GM Suburban, Tahoe and Yukon, Mercedes
Benz M-Class and BMW X5.
Detachable Rack Systems. The Company supplies a full line of detachable
roof rack systems for distribution in both the automotive and sporting accessory
aftermarkets. A detachable rack system typically consists of cross rails which
are attached to the roof of a vehicle by removable mounting clips.
Rack System Accessories. The Company designs and manufactures lifestyle
accessories for distribution in both the automotive and sporting accessory
aftermarkets. These accessories typically attach to the Company's towing systems
or rack systems and are used for carrying items such as bicycles, skis, luggage,
surfboards and sailboards.
CUSTOMERS AND MARKETING
Management believes that the Company has strong and diverse industry
relationships which are based on its reputation for high service levels, strong
technical support, innovative product development, high quality and competitive
pricing. Sales to OEM and aftermarket customers represented approximately 68%
and 32% of the Company's net sales, respectively, in 2000. In addition, sales to
DaimlerChrysler and General Motors were approximately 32% and 11%, respectively,
of the Company's aggregate net sales in 2000.
Automotive OEMs. The Company obtains most of its new orders through a
presourcing process by which the customer invites one or a few preferred
suppliers to design and manufacture a component or system that meets certain
price, timing, functional and aesthetic parameters. Upon selection at the
development stage, the Company and the customer typically agree to cooperate in
developing the product to meet the specified parameters. Upon completion of the
development stage and the award of the manufacturing business, the Company
receives a purchase order that covers parts to be supplied for a particular car
model. Such supply arrangements typically involve annual renewals of the
purchase order over the life of the model, which is generally four to six years.
In addition, the Company enters into long-term contracts with certain OEM
customers which require the Company to make annual price reductions. The Company
competes to supply parts for successor models even though the Company may
currently supply parts on the predecessor model. Sales to OEMs are made directly
by the Company's internal sales staff and outside sales representatives.
The Company sells its products to most of the automotive OEMs selling light
vehicles in North America and/or Europe, including DaimlerChrysler, General
Motors, Toyota, Opel, Volvo, Isuzu, Ford, BMW, Subaru, Fiat, Mitsubishi, Nissan,
Volkswagen, SEAT, Skoda, Daewoo and Kia. The Company supplies DaimlerChrysler
with substantially all of its North American towing systems and rack systems and
accessories. The Company also supplies approximately 50% of the rack system
requirements of General Motors. The following chart sets forth information
regarding vehicle models on which the Company's automotive products are used or
for which the Company has been awarded business.
AWARDED BUSINESS ON
PRODUCT OEM CUSTOMER 2000 PRODUCTION(A) FUTURE PRODUCTION(B)
------- ------------ ------------------ --------------------
Towing Systems DaimlerChrysler Cherokee, Grand Cherokee, Caravan, Jeep Liberty
Voyager, Town & Country, Dodge Ram
Pick-up, Dakota, Wrangler, Durango,
Neon, PT Cruiser, Plymouth Prowler,
Ram Van, 300M, Voyager, Stratus,
Sebring
General Motors CK Pick-up, ML Van, S-10, Cavlier, Frontera, Corsa, Arena (van),
Sunfire Blazer, APV Vans, Bravada, Vectra
Jimmy, Geo Tracker, Blazer, Corsa,
Astra, Grand Priz (hatchback), Astra
(Sedan), Cadillac Seville Astra
(Station wagon), Calibra, Vectra
(Hatchback), Vectra (Sedan), Vectra
(Station wagon), Omega (Sedan), Omega
(Station wagon), Campo, Frontera,
Monterey, Zafira, Chevrolet Malibu
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AWARDED BUSINESS ON
PRODUCT OEM CUSTOMER 2000 PRODUCTION(A) FUTURE PRODUCTION(B)
------- ------------ ------------------ --------------------
Towing Systems
(cont.)
Ford Explorer, Ranger, Windstar Minivan, Focus Wagon, Ranger, Mondeo,
Focus Mondeo, Mondeo (Wagon), Scorpio Explorer
(Sedan), Scorpio (Wagon), Maverick,
Transit
Renault Laguna (Station wagon), Laguna, Laguna, Matra
Isuzu Rodeo, Trooper
Toyota 4-Runner, RAV4, Tacoma Pick-up, Landcrusier pick-up Previa, 355N
Seniena Minivan Sequoia SUV, Tundra
Pick-up Corolla, Corolla Wagon Camry,
Hi-Lux, Picnic, Previa, Carina
Hi-Ace, Celica, Yaris Verso
Nissan Pathfinder, Pick-up, Quest, Infiniti, Primera, Primera Wagon, Patrol,
XTerra Vehicle, QW Truck, Micra, Terrano, MPV, Micra Almera, Almera
Sunny, Frontier Almera, Primera, MPV, Tino MPV
Maxima, King Cab, Terrano, Mavric,
Patrol, Serena, Vanette
Mazda 121, MPV, J54, J16, 626, 323 626 Wagon, 323, Demio
Honda Passport, Acura MDX, CRV PF Van, Honda HP
Mitsubishi Montero, Montero Sport, Carisma, L200 Pajero
FIAT Almost all models
Alpha Romeo Almost all models
Lancia Almost all models
Subaru Outback, Legacy, Forester 79V
Range Rover Range Rover, Land Rover
Volvo 900 series (Sedan), 900 series 900 series, S/V 70 series
(Station wagon), 850 (Sedan), 850
SAAB 9000 series, 900 series 900 series, 9000 series, 9000
station wagon, small car 9-3,
small car 9-5, small station wagon
Hyundai Lantra, Sonata, Starex 4WD, Accent, Trajet, Lantra, Joyce
Atos Verna
Peugeot 106, 306, 406 (Sedan), 406 (Station 206, 206 Sport, 207, 306 Break
wagon), 406 (Coupe), 605, 806, J5
(Van), Boxer (Van)
Suzuki Carry
Daihatsu Gran Move, Move LCX Mini Van
KIA Clarus, Frontiers, Carnivall
SEAT Toledo
Skoda SK240
Volkswagen Golf 4, Caddy, Transporter, Polo,
Euro
Daewoo Nubira U 100
Rack Systems DaimlerChrysler Cherokee, Grand Cherokee, Caravan, Jeep Liberty, Durango, CS
Voyager, Town & Country, Durango,
Mercedes M-Class, PT Cruiser, BW 72
General Motors Suburban, Yukon, Tahoe, Astro, Safari Hummer, Trans Port, Venture,
Escalade, Denali, Avalanche, Z-71 SUV Montana Saturn SUV
Envoy, Trail Blazer, Bravada
Ford D219
Honda Acura MDX Honda HP
Nissan Pathfinder, Infinity QX4
Toyota Tacoma
Mitsubishi Montero Sport
Subaru Outback, Impreza, Legacy, Forester
KIA Sportage Sadona
Hyundi Santa Fe, Alantra, Sanada, Accent
SEAT Vario GP99
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AWARDED BUSINESS ON
PRODUCT OEM CUSTOMER 2000 PRODUCTION(A) FUTURE PRODUCTION(B)
------- ------------ ------------------ --------------------
Rack Systems
(cont.)
Scoda Octavia
Opel Astra Vectra, Astra
BMW E-53 (SUV)
- -------------------------
(a) Represents models for which the Company produced products in 2000.
(b) The amount of products produced under these awards is dependent on the
number of vehicles manufactured by the OEMs. Many of the models are versions
of vehicles not yet in production. See "Risk Factors -- Our Buyers Can Exert
Pressure On Us." There can be no assurance that any of these vehicles will
be produced or that the Company will generate certain revenues under these
awards even if the models are produced.
Automotive Aftermarket. The Company sells its products directly into the
automotive aftermarket through a number of channels, including wholesalers,
retailers and installers, through its internal sales force and outside sales
representatives. The largest of the Company's aftermarket customers include
U-Haul, Pep Boys, Balkamp, Advance Auto Parts, Coast Distribution System,
Discount Auto Parts, Ace Hardware, Norauto, Brezan, Feuvert and Canadian Tire.
The Company believes that it has established a reputation as a highly reliable
aftermarket supplier able to meet its customers' requirements for on-time
deliveries while minimizing the carrying levels of inventory. For example,
Valley began supplying towing systems to U-Haul (which the Company believes,
based on its research, is the largest installer of towing systems in the United
States) in 1994 and for the year ended December 31, 2000, supplied approximately
50% of U-Haul's towing system requirements.
PRODUCT DESIGN, DEVELOPMENT AND TESTING
The Company believes that it is a leader in the design of towing systems
and rack systems and accessories. The Company believes it offers products that
possess greater quality, reliability and performance than the products sold by
many of its competitors. The 128 members of the Company's engineering and design
staff possess strong technical skills. The Company currently holds more than 125
U.S. and foreign patents, and has numerous patent applications pending. The
expiration of such patents are not expected to have a material adverse effect on
the Company's operations.
The Company spent $9.8 million, $10.3 million and $9.6 million on
engineering, research and development in 2000, 1999, and 1998, respectively. The
Company works closely with OEMs to constantly improve design and manufacturing
technology and product functionality. When an OEM is in the process of
developing a new model, it typically approaches an established or incumbent
supplier with a request to supply the required towing system or rack system. The
Company is typically contacted two to four years prior to the start of
production of the new model. The Company's product development engineers then
work closely with the OEM to develop a product that satisfies the OEM's
aesthetic and functional requirements. This relationship also provides the
Company with a competitive advantage in the aftermarket because, in many cases,
the Company already possesses the knowledge to create a system compatible with
new model vehicles prior to release.
The Company has extensive testing capabilities which enable it to test and
certify its products. The Company subjects its products to tests which it
believes are more demanding than conditions which would occur during normal use.
The Company has specialized equipment which it has purchased or developed for
use in its testing laboratories.
Since May 1994, 14 European countries enacted the new EC regulatory
standards which require that towing systems undergo significant safety testing
prior to gaining approval for sale. This safety testing requires that a towing
system be extensively tested for fatigue and includes subjecting a towing system
to upwards of two million high load pulses. The Company does its testing in its
own laboratory under the control of an independent institute that is authorized
by the EC to approve the towing systems for sale. The quality assurance system
is regularly audited by an independent institute and by the automotive OEMs
themselves. The Company has continually been awarded the highest distinction of
achievement by the independent institute.
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MANUFACTURING PROCESS
The Company's manufacturing operations are directed toward achieving
ongoing quality improvements, reducing manufacturing and overhead costs,
realizing efficiencies and adding flexibility. The Company has organized its
production process to minimize the number of manufacturing functions and the
frequency of material handling, thereby improving quality and reducing costs. In
addition, the Company uses cellular manufacturing which improves scheduling
flexibility, productivity and quality while reducing work in process and costs.
The manufacturing operations utilized by the Company include metal cutting,
bending, cold forming, roll forming, stamping, welding, plastic injection
molding, painting, assembly and packaging. The Company performs most
manufacturing operations in-house but outsources certain processes depending on
the capabilities and capacities of individual plants and cost considerations.
For example, while some of the Company's towing systems manufacturing facilities
have painting capabilities, the Company has chosen to outsource the painting of
its rack systems.
The Company has established quality procedures at each of its facilities
and strives to manufacture the highest quality product possible. The Company has
achieved ISO-9000 or QS-9000 certification for 13 of its 21 manufacturing and
engineering facilities and is in the process of obtaining certification for
other of its facilities. The Company has received numerous quality and
performance awards from its OEM customers, including DaimlerChrysler's Gold
Award, General Motors' Supplier of the Year Award, Ford's Q-1 Award, Toyota's
Distinguished Supplier Award, KIA's Preferred Supplier Award and the Nissan
Superior Supplier Performance Award.
RAW MATERIALS
The principal raw material used in the Company's products is steel, which
is purchased in sheets, rolls, bars or tubes and represents approximately 50% of
the Company's raw material costs. The Company also purchases significant amounts
of aluminum and plastics. The Company has various suppliers globally and has not
had difficulties in procuring raw materials nor does it expect to have any
problems in the future. The Company is committed to supplier development and
long-term supplier relationships. However, most of the Company's raw material
demands are for commodities and, as such, can be purchased on the open market on
an as needed basis. The Company selects among available suppliers by comparing
cost, consistent quality and timely delivery as well as compliance with QS-9000
and ISO-9000 standards.
The Company customarily obtains its supplies through individual purchase
orders. In some instances, the Company will enter into short-term contracts with
its suppliers which generally run one year or less. However, the Company has
signed a long-term supply agreement which terminates in 2004 with one of its
painting suppliers, Crown Group, Inc. ("Crown"), under which Crown opened a
state-of-the-art paint line in a facility adjacent to the Company's Port Huron,
Michigan facility.
INDUSTRY OVERVIEW
The Company's products are sold as standard accessories or options for a
variety of light vehicles. In 2000, the Company estimates that approximately 50%
of its net sales were generated from products sold for light trucks. Growth in
this market, and in towing systems and rack systems in particular, resulted in
large part from the increased production and sale of light trucks, which in 2000
accounted for approximately 52% of total light vehicle production in North
America as compared to 32% in 1986. According to DRI/McGraw-Hill Ward's Global
Automotive Group, production of light trucks in North America and Western Europe
has outpaced overall production in the light vehicle market, resulting primarily
from the growth in minivans and SUVs, although no assurance can be given that
such production rates of light trucks will continue or will continue to outpace
overall production.
Strong growth in production of light trucks is attributable to several
factors, including (i) the more sizable and comfortable interiors and
aesthetically pleasing modern designs offered by light trucks; (ii) the changing
lifestyle of the population, which is aging and therefore devoting more time to
recreational activities;
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(iii) the versatile product offerings targeted toward both the luxury and
economy market sectors; (iv) the increasing acceptance of light truck use for
everyday transportation; and (v) the durability and special performance
capabilities (e.g. four-wheel drive) of light trucks.
RECENT DEVELOPMENTS IN THE NORTH AMERICAN AUTOMOTIVE INDUSTRY
During the later part of 2000, sales in the North American automotive
industry began to decline and some of the Company's major customers adjusted
production in the 4th quarter of 2000 to reduce their inventory of unsold
vehicles. This lowering of production negatively impacted the Company's sales
during the 4th quarter of 2000. This trend has continued during the early part
of 2001.
It is anticipated that U.S. auto sales for 2001 will be in the range of
15.5 million to 16.5 million vehicles, down from 17.4 million vehicles in 2000.
In addition, DaimlerChrysler, the Company's largest customer, incurred
substantial losses in its North American operations. During the first quarter of
2001, DaimlerChrysler announced a restructuring plan to return the Chrysler
Group to profitability in 2002. This restructuring plan includes the reduction
of 26,000 employees and a 15% reduction in materials cost by 2003. Effective
January 1, 2001, the Company agreed to reduce prices on products sold to
DaimlerChrysler and has been able to partially offset these price reductions
through reductions in its material costs. The Company continues to work with
DaimlerChrysler to help identify other potential cost savings to
DaimlerChrysler.
Automotive OEM and Aftermarket Trends
As automobile and light truck manufacturers have faced increased global
competition, they have sought to significantly improve quality, reduce costs and
shorten the development time required for new vehicle models. These changes have
altered the OEM/supplier relationship and benefited larger suppliers that have
strong product engineering and development capabilities, superior quality
products, lower unit costs and the ability to deliver products on a timely
basis. As a result, the Company believes that it has benefited and will continue
to benefit from the following automotive OEM and aftermarket trends:
Consolidation of Supplier Base by OEMs. The OEMs have significantly
consolidated their supplier base in an effort to reduce their
procurement-related costs, ensure high quality and accelerate new model
development. As a result, many smaller, poorly capitalized suppliers with
limited product lines and engineering and design capabilities have been
eliminated as direct suppliers to OEMs. Consequently, larger suppliers with
broad product lines, in-house design and engineering capabilities and the
ability to effectively manage their own supplier bases, have been able to
significantly increase their market share.
The consolidation by OEMs has altered the typical structure of supplier
contracts. In the past, OEMs supplied all design, development and manufacturing
expertise for accessory parts and were responsible for consistency of quality
and reliability of delivery. Today, however, the OEMs typically involve
potential suppliers earlier in the design and development process to encourage
suppliers to share design and development responsibility. In some cases,
sole-source supply contracts which cover the life of a vehicle or platform are
awarded. Both OEMs and suppliers benefit from the consolidation trend. Suppliers
are able to devote the resources necessary for proprietary product development
with the expectation that they will have the opportunity to profit on such
investment over the multi-year life of a contract. OEMs benefit from shared
manufacturing cost savings attributable to long, multi-year production runs at
high capacity utilization levels.
Emergence of European Community Regulatory Standards. Trends within the
European towing systems market result primarily from EC regulatory standards and
the corresponding legislative framework. Such standards provide that a towing
system must fit all the vehicle manufacturer's recommended fitting points, must
not interfere with the vision of the number plate when not in use and must meet
strict testing criteria for durability and safety. These standards have been
adopted by The Netherlands, Germany, Sweden, Italy, the United Kingdom, France,
Belgium, Luxembourg, Spain, Austria, Switzerland and Scandinavia. Other EC
countries are expected to adopt the legislation. All of the Company's towing
systems sold in Europe currently undergo rigorous safety testing in order to
satisfy these EC regulatory standards.
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Increased Levels of Manufacturing in North America by Transplants. As a
result of the relative cost advantage of producing vehicles in North America,
many foreign automobile manufacturers with manufacturing operations in the
United States ("transplants") have increased their share of North American light
vehicle production from approximately 6% in 1986 to approximately 24% in 2000.
Industry sources forecast that this trend will continue. For example, BMW
commenced manufacturing in the U.S. in 1996 and launched production of its E-53
SUV in 1999. In addition, Toyota launched production of its Tundra pickup truck
in Indiana during 1999 and launched production of its Sequoia SUV during 2000,
Honda began production of its Odyssey minivan in North America during 1999 and
began production of its Acura MD SUV during 2000. The Company believes that
increased levels of manufacturing of light trucks in North America by
transplants will benefit full service, high quality suppliers with North
American operations such as the Company.
COMPETITION
The Company's industry is highly competitive. A large number of actual or
potential competitors exist, some of which are larger than the Company and have
substantially greater resources than the Company. The Company competes primarily
on the basis of product quality, cost, timely delivery, customer service,
engineering and design capabilities and new product innovation in both the OEM
market and automotive aftermarket. The Company believes that, as OEMs continue
to strive to reduce new model development cost and time, innovation and design
and engineering capabilities will become more important as a basis for
distinguishing competitors. The Company believes it has an outstanding
reputation in both of these areas. In the automotive aftermarket, the Company
believes that its wide range of product applications is a competitive advantage.
For example, the Company has developed towing systems to fit almost every light
vehicle used for towing in North America and Europe. The Company believes its
competitive advantage in the aftermarket is enhanced by its close relationship
with OEMs, allowing the Company access to automobile design at an earlier time
than its competitors.
In the towing systems market, the Company competes with Draw-Tite Inc. and
Reese Products Inc., both of which are subsidiaries of Metaldyne Corporation,
Bosal Holding B.V., The Oris Group, Production Stamping Inc. and numerous
smaller competitors.
In the rack systems and accessories market, the Company's competitors
include JAC Holding Corp., Thule International S.A., Yakima Products Inc.,
Graber Products Inc. and several smaller competitors.
COMPETITIVE ADVANTAGES
Leading Global Market Position. Based on its knowledge of the industry, the
Company believes that it is one of the world's largest suppliers of towing
systems and one of the world's largest suppliers of rack systems. The Company
also believes, based on its knowledge of the industry, that it is the largest
supplier of towing systems in Europe and the second largest supplier of towing
systems in North America. The Company also believes that it is one of the two
largest suppliers of rack systems sold to automotive OEMs in North America. The
Company has 27 facilities strategically located in North America and Europe. By
virtue of its size and global presence, the Company believes it benefits from
several competitive advantages, including the ability to (i) satisfy local
design, production, quality and timing requirements of global OEMs; (ii) provide
"one-stop shopping" for customers' product and service requirements; (iii)
optimize plant production; (iv) maximize its raw material purchasing power; (v)
spread its selling, administrative and product development expenses over a large
base of net sales; and (vi) develop and maintain state-of-the-art production
facilities.
Strong Relationships with Customer Base. The Company has an established
position as a Tier 1 supplier of towing and/or rack systems to most of the OEMs
manufacturing in North America and/or Europe including DaimlerChrysler, General
Motors, Toyota, Opel, Volvo, Isuzu, Ford, BMW, Subaru, Fiat, Mitsubishi, Nissan,
Volkswagen, SEAT, Skoda, Daewoo and Kia. The Company supplies DaimlerChrysler
with substantially all its North American towing systems and rack systems and
accessories. The Company also supplies approximately 50% of the rack system
requirements of General Motors. Tier 1 status and strong customer relationships
are important elements in achieving continued profitable growth because, as OEMs
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narrow their supplier bases, well regarded, existing suppliers have an advantage
in gaining new contracts. The evolution of OEM relationships into strategic
partnerships provides a significant advantage to Tier 1 suppliers with system
integration capabilities (such as the Company) in retaining existing contracts
as well as in participating during the design phase for new vehicles, which is
integral to becoming a supplier for such new platforms. The Company is also a
leading supplier of towing and rack systems to automotive aftermarket
wholesalers, retailers and installers, such as U-Haul, Pep Boys, Balkamp,
Advance Auto Parts, Coast Distribution System, Discount Auto Parts, Ace
Hardware, Norauto, Brezan, Feuvert and Canadian Tire.
Comprehensive Product Line. The Company continues to position itself as a
leading supplier to its customers for a growing range of products and services.
Through its offering of over 2,000 towing system models, the Company's products
fit almost every light vehicle produced in North America and Europe. The Company
is one of a limited number of European manufacturers with such a broad product
line that also satisfies EC regulatory standards. We believe competitors whose
products do not satisfy such standards face substantial design and testing costs
to offer a comparable product line that meets these safety standards. The
Company has provided OEMs with fixed rack systems for approximately half of the
light truck models produced in North America that utilize vehicle-specific fixed
racks. The Company believes that its broad product offerings also facilitate
strategic partnerships with automotive aftermarket wholesalers, retailers and
installers.
Design and Engineering Expertise. The Company has an engineering and
research and development staff that develops new products and processing
technologies. The Company works directly with OEM designers to create innovative
solutions that simplify vehicle assembly and reduce vehicle cost and weight. The
Company is responsible for many industry innovations, including lighter, less
obtrusive, round tube towing hitches as well as push button and pull lever
stanchions on fixed rack systems. The Company believes its design and
engineering capabilities provide significant value to its customers by (i)
shortening OEM new product development cycles; (ii) lowering OEM manufacturing
costs; (iii) providing technical expertise; and (iv) permitting aftermarket
customers to maintain lower inventory levels. The Company also believes that its
design innovations have created value for end users by providing products that
are durable and easy to install and that enhance vehicle utility and appearance.
High Quality, Low Cost Manufacturing Position. The Company believes that it
is one of the highest quality, lowest cost suppliers of towing and rack systems
in North America and Europe. The Company has received numerous quality and
performance awards, including DaimlerChrysler's Gold Award, General Motors'
Supplier of the Year Award, Ford's Q-1 Award, Toyota's Distinguished Supplier
Award, KIA Preferred Supplier Award and Nissan's Superior Supplier Performance
Award. Supplier quality systems are currently being standardized across OEMs
through the ISO-9000 and QS-9000 programs. The Company has achieved ISO-9000 or
QS-9000 certification for 13 of its 21 manufacturing and engineering facilities
and is in the process of obtaining certification for other of its facilities.
The Company's low cost position is a result of its strict cost controls and
continuous improvement programs designed to enhance productivity. OEMs typically
prefer stable suppliers who can generate productivity gains that can be shared
to reduce OEM costs. The Company's cost controls are closely integrated with its
quality driven manufacturing operations, thereby allowing it to profitably
deliver high quality, easy to install and competitively-priced components on a
just-in-time basis. The Company's focus on low cost manufacturing also provides
benefits when selling products to the automotive aftermarket.
BUSINESS STRATEGY
The Company's objective is to strengthen its position as a leading global
supplier of automotive exterior accessories, thereby increasing revenue and cash
flow. In order to accomplish its goal, the Company intends to pursue the
following strategies.
Increase Global Market Share. The Company intends to capitalize on its
expanded presence in North America and Europe by marketing products to its
global automotive OEM customers. Through its past acquisitions of complementary
product lines, the Company is able to offer an expanded range of products and
services to its extended customer base. The Company also expects to secure new
customers by virtue of its
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expanded market presence and broad product and service offerings. The Company
believes its continued emphasis on new technology (both product and process),
will result in the development of innovative, towing and rack system products
which it expects to market to its expanding customer base.
Maintain and Enhance Strong Customer Relationships. The Company intends to
strengthen and expand its relationships with global automotive OEMs and
aftermarket customers by (i) continuing its commitment to innovative design and
development of products during the early stages of vehicle design and redesign;
(ii) building on its position as a low cost supplier of quality accessory
products; (iii) offering new products in existing and new geographic areas by
taking advantage of existing OEM relationships; and (iv) working with
aftermarket customers to develop new products and marketing strategies.
Pursue Strategic Acquisitions. In response to the trend in the OEM market
toward systems suppliers, the Company is focused on making strategic
acquisitions that will enhance its ability to provide integrated systems (such
as a towing or rack systems) or otherwise leverage its existing business by
providing additional product, manufacturing and service capabilities. The
Company also intends to pursue acquisitions which will expand its customer base
by providing an entree to new customers, including expansion into selected
geographic areas. The Company believes that such acquisitions should provide
additional opportunities for increased net sales and cash flow by enhancing the
Company's manufacturing and marketing capabilities.
ENVIRONMENTAL REGULATION
The Company's operations are subject to foreign, federal, state and local
environmental laws and regulations that limit the discharges into the
environment and establish standards for the handling, generation, emission,
release, discharge, treatment, storage and disposal of certain materials,
substances and wastes. In many jurisdictions, these laws are complex, change
frequently and have tended to become more stringent over time. In jurisdictions
such as the United States, such obligations, including but not limited to those
under the Comprehensive Environmental Response, Compensation & Liability Act
("CERCLA"), may be joint and several and may apply to conditions at properties
presently or formerly owned or operated by an entity or its predecessors, as
well as to conditions at properties at which waste or other contamination
attributable to an entity or its predecessors have been sent or otherwise come
to be located. The Company believes that its operations are in substantial
compliance with the terms of all applicable environmental laws and regulations
as currently interpreted. In addition, to the best of the Company's knowledge,
there are no existing or potential environmental claims against the Company nor
has the Company received any notification nor is there any current investigation
regarding, the disposal, release, or threatened release at any location of any
hazardous substance generated or transported by the Company. However, the
Company cannot predict with any certainty that it will not in the future incur
liability under environmental laws and regulations with respect to contamination
of sites currently or formerly owned or operated by the Company (including
contamination caused by prior owners and operators of such sites), or the
off-site disposal of hazardous substances.
While historically the Company has not had to make significant capital
expenditures for environmental compliance, the Company cannot predict with any
certainty its future capital expenditures for environmental compliance because
of continually changing compliance standards and technology. Future events, such
as changes in existing environmental laws and regulations or unknown
contamination of sites owned or operated by the Company (including contamination
caused by prior owners and operators of such sites), may give rise to additional
compliance costs which could have a material adverse effect on the Company's
financial condition. Furthermore, actions by foreign, federal, state and local
governments concerning environmental matters could result in laws or regulations
that could increase the cost of producing the products manufactured by the
Company or otherwise adversely affect the demand for its products. Additionally,
the Company does not currently have any insurance coverage for environmental
liabilities and does not anticipate obtaining such coverage in the future. See
"Risk Factors -- Environmental Regulation Imposes Risks and Costs on Us."
EMPLOYEES
At December 31, 2000, the Company had approximately 2,200 employees of whom
approximately 1,700 are hourly employees and approximately 500 are salaried
personnel. Approximately 150 of the Company's
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employees in the United States at the Port Huron, Michigan facility are
represented by the Teamsters Union. Collective bargaining agreements with the
Teamsters Union affecting these employees expire in April 2004. As is common in
many European jurisdictions, substantially all of the Company's employees in
Europe are covered by country-wide collective bargaining agreements. The Company
believes that its relations with its employees are good.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
For financial information about foreign and domestic operations of the
Company, see "Note 13" of the Company's "Notes to Consolidated Financial
Statements".
FACILITIES
The Company's executive offices are located in 14,550 square feet of leased
space in Sterling Heights, Michigan. The Company has 27 facilities with a total
of 2,252,954 square feet of space. The Company believes that substantially all
of its property and equipment is in good condition and that it has sufficient
capacity to meet its current and projected manufacturing and distribution needs.
The Company's facilities are as follows:
SQUARE OWNED/ LEASE
LOCATION PRINCIPAL FUNCTIONS FEET LEASED EXPIRATION**
-------- ------------------- ------ ------ ------------
North America
Shelby Township, Michigan* Manufacturing 74,800 Owned --
Shelby Township, Michigan* Manufacturing 13,000 Leased 2008
Port Huron, Michigan* Manufacturing 200,000 Owned --
Sterling Heights, Michigan* Administration and engineering 14,550 Leased 2003
Madison Heights, Michigan* Administration and manufacturing 90,000 Leased 2002
Madison Heights, Michigan* Engineering and manufacturing 18,000 Leased 2002
Shelburne, Vermont Administration, manufacturing and 73,000 Leased 2001
engineering
Wyandotte, Michigan Manufacturing 5,000 Leased 2002
Lodi, California Administration, manufacturing and 150,000 Owned --
engineering
Lodi, California Warehousing 77,760 Leased 2002
Grove City, Ohio Warehousing 70,644 Leased 2006
Dallas, Texas Warehousing 23,800 Leased 2005
Granby, Quebec Administration, manufacturing and 88,200 Leased 2003
warehousing
Bromptonville, Quebec Manufacturing 2,000 Leased 2000
Hamer Bay, Ontario Manufacturing 15,000 Owned --
Europe
Sandhausen, Germany* Administration and engineering 5,000 Leased Month to Month
Barcelona, Spain Manufacturing 6,200 Leased Month to Month
Bakov nad Jizerou, Czech Manufacturing 6,000 Leased Month to Month
Republic*
Staphorst, The Netherlands* Administration, engineering 405,000 Owned --
manufacturing, and warehousing
Hoogeveen, The Netherlands* Manufacturing and warehousing 185,000 Owned --
Fensmark, Denmark* Manufacturing and warehousing 95,000 Owned --
Nuneaton, United Kingdom* Manufacturing and warehousing 75,000 Owned --
Vanersborg, Sweden* Manufacturing and warehousing 160,000 Leased 2004
Wolsztyn, Poland Warehousing 5,000 Leased Month to Month
Reims, France Manufacturing and warehousing 115,000 Owned --
St. Victoria di Gualtieri, Italy Administration, engineering, 170,000 Leased 2003
manufacturing and warehousing
St. Victoria di Gualtieri, Italy Manufacturing 110,000 Leased 2003
- -------------------------
* QS 9000 and/or ISO 9000 certification.
** Gives effect to all renewal options.
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LEGAL PROCEEDINGS
Gibbs vs. AAS: In February 1996, the Company commenced an action against
certain individuals alleging breach of contract under the terms of an October
1992 Purchase Agreement and the individuals' respective Employment Agreements
with the predecessor of the Company. In March 1996, the individuals filed a
separate lawsuit against the Company alleging breach of contract under the
Purchase and their respective Employment agreements. On May 7, 1999, a jury in
the United States District Court for the Eastern District of Michigan reached a
verdict against the Company and awarded the individuals approximately $3.8
million plus interest and reasonable attorney fees. The Company plans to file an
appeal once a judgment is entered by the court. No amounts have been paid as of
December 31, 2000.
From time to time, the Company is subject to legal proceedings and other
claims arising in the ordinary course of its business. Other than that described
above, the Company believes that it is not presently a party to any litigation
the outcome of which would have a material adverse effect on its financial
condition or results of operations. The Company maintains insurance coverage
against claims in an amount which it believes to be adequate.
MANAGEMENT
BOARD OF MANAGERS, EXECUTIVE OFFICERS AND OTHER SIGNIFICANT EMPLOYEES
The following table sets forth the names and ages of each of the
individuals that currently serves as a member (each, a "Board Member") of the
Company's board of managers (the "Board of Managers"), executive officers and
other significant employees of the Company. The Board Members are designated
pursuant to the Members Agreement and serve at the pleasure of the Members (as
defined). See "Limited Liability Company Agreement." The officers of the Company
are chosen by the Board of Managers and serve at the pleasure of the Board of
Managers.
NAME AGE POSITION
---- --- --------
F. Alan Smith........................ 69 Chairman of the Board of Managers of the Company
Terence C. Seikel.................... 44 President and Chief Executive Officer of the Company;
Board Member
Richard E. Borghi.................... 54 President and Chief Operating Officer of SportRack;
Board Member
Gerrit de Graaf...................... 37 General Manager and Chief Executive Officer of Brink;
Board Member
Bryan A. Fletcher.................... 41 President and Chief Operating Officer of Valley
Aftermarket
Barry G. Steele...................... 30 Corporate Controller of the Company
J. Wim Rengelink..................... 46 Finance Director of Brink
Donald J. Hofmann, Jr................ 43 Board Member, Vice President and Secretary of the
Company
Barry Banducci....................... 65 Board Member
Gerard J. Brink...................... 57 Board Member
F. Alan Smith has served in the automotive industry for 39 years and has
been Chairman of the Board of Managers of the Company since its formation in
September 1995. He served in various assignments at General Motors from 1956 to
1992, including President of GM Canada from 1978 to 1980. He was a member of the
Board of Directors of General Motors from 1981 to 1992 and Chief Financial
Officer of General Motors from 1981 to 1988. Mr. Smith is a director of The
Minnesota Mining and Manufacturing Corporation ("3M") and TransPro, Inc.
("TransPro").
Terence C. Seikel has served in the automotive industry for 17 years and
has been President and Chief Executive Officer of the Company since April 15,
1999. From January 1996 until April 15, 1999 Mr. Seikel
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served as Vice President of Finance and Administration and Chief Financial
Officer of the Company and SportRack. From 1985 to 1996, Mr. Seikel was employed
by Larizza Industries, a publicly held supplier of interior trim to the
automotive industry, in various capacities including Chief Financial Officer.
Richard E. Borghi has served in the automotive industry for 33 years and
has been President and Chief Operating Officer of SportRack since April 15,
1999. From 1995 until April 15, 1999, Mr. Borghi served as Executive Vice
President of Operations and Chief Operating Officer of SportRack. From 1988 to
1995, Mr. Borghi held various senior management positions with MascoTech, and
was the Executive Vice President of Operations of the MascoTech Division at the
time of its acquisition by the Company.
Gerrit de Graaf has been General Manager and Chief Executive Officer of
Brink since November 1996. From 1989 to 1996, Mr. de Graaf worked for Philips
Medical Systems as a consultant and most recently as Philips' Marketing Manager
in the United States.
Bryan A. Fletcher has served in the automotive industry for 12 years and
has been President and Chief Operating Officer of Valley Aftermarket since July
2000. From 1991 until July 2000 Mr. Fletcher served as a Vice President of
Aftermarket Operations of Valley.
Barry G. Steele has been Corporate Controller of the Company since June
1999. From 1997 until June 1999, Mr. Steele served as Manager of Financial
Reporting of the Company. From 1993 to 1997, Mr. Steele was employed by Price
Waterhouse LLP.
J. Wim Rengelink has served in the automotive industry for 14 years and has
been Finance Director of Brink since 1995. From 1988 to 1995 he worked in
Brink's internal audit department.
Donald J. Hofmann, Jr. has been a Board Member, Vice President and
Secretary of the Company since October 1995. Since 1992, Mr. Hofmann has been a
Partner of J.P. Morgan Partners, LLC (formerly, Chase Capital Partners), a
global private equity organization with over $20.0 billion under management.
J.P. Morgan Partners, LLC provides equity and mezzanine debt financing for
management buyouts and recapitalizations, growth equity and capital. Mr. Hofmann
is also a director of Pliant Corporation, Berry Plastics Corporation, BPC
Holding Corporation, the parent company of Berry Plastics Corporation, and
United Auto Group, Inc. Mr. Hofmann received a B.A. degree from Hofstra
University and an M.B.A. degree from the Harvard Business School.
Barry Banducci has been a Board Member of the Company since October 1995.
Since September 1995, Mr. Banducci has been the Chairman of TransPro. Prior
thereto, Mr. Banducci served in various capacities at Equion Corporation, a
supplier of automotive components, from 1983 to 1995, including President, Chief
Executive Officer and Vice Chairman. Mr. Banducci is a director of TransPro.
Gerard J. Brink has been a Board Member of the Company since October 1996.
Mr. Brink was General Manager of Brink from 1965 to 1996.
BOARD MEMBER COMPENSATION
The Board Members do not currently receive compensation for their service
on the Board of Managers or any committee thereof but are reimbursed for their
out-of-pocket expenses. In addition, Messrs. Smith and Banducci have consulting
agreements with the Company. See "Executive Compensation -- Consulting
Agreements."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Managers has an Audit Committee consisting of Messrs. Banducci
and Brink, and a Compensation Committee consisting of Messrs. Hofmann and Smith.
The Audit Committee reviews the scope and results of audits and internal
accounting controls and all other tasks performed by the independent public
accountants of the Company. The Compensation Committee determines compensation
for executive officers of the Company and administers the Company's 1995 Option
Plan.
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EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation for
1998 through 2000 for the chief executive officer of the Company and the four
next most highly compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------- ------------
OTHER
ANNUAL SECURITIES ALL OTHER
FISCAL SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS(#) ($)
--------------------------- ------ ------ ----- ------------ ------------ ------------
F. Alan Smith..................................... 2000 228,000 114,000 -- -- --
Chairman of the Company 1999 228,000 114,000 -- -- --
1998 217,000 105,000 -- 32 --
Terence C. Seikel................................. 2000 265,000 175,000 -- -- --
President and Chief Executive Officer 1999 245,000 175,000 -- -- --
of the Company and SportRack 1998 215,000 95,000 -- 65 --
Roger T. Morgan................................... 2000 179,892 -- -- -- --
Former President and Chief Executive 1999 263,000 100,000 -- -- --
Officer of Valley 1998 250,000 87,500 -- -- --
Richard E. Borghi................................. 2000 279,798 125,000 -- -- --
President and Chief Operating Officer of 1999 261,897 125,000 -- -- --
SportRack 1998 219,965 115,000 -- 32 --
Gerrit de Graaf................................... 2000 154,000 65,000 -- -- --
General Manager and Chief Executive 1999 164,830 68,660 -- -- --
Officer of Brink 1998 154,425 45,414 -- 39 --
Bryan Fletcher.................................... 2000 132,664 40,500 -- -- --
President and Chief Operating 1999 133,170 64,050 --
Officer of Valley Aftermarket 1998 115,015 41,000 -- -- --
OPTION GRANTS IN 2000
During 2000, there were no options granted to the named executive officers.
The following table sets forth information regarding outstanding membership unit
options issued to the chief executive officer of the Company and the four next
most highly compensated executive officers.
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE AT YEAR END(#) AT YEAR END($)
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- ----------- ------------------------- -------------------------
F. Alan Smith................... -- -- 332/150 1,660,000/750,000
Terence C. Seikel............... -- -- 465/200 2,325,000/1,000,000
Roger T. Morgan................. -- -- --/89 --/--
Richard E. Borghi............... -- -- 432/200 2,160,000/1,000,000
Gerrit de Graaf................. -- -- 24/15 120,000/75,000
Bryan Fletcher.................. -- -- 10/35 50,000/175,000
EMPLOYMENT AGREEMENTS
Each of Terence C. Seikel, Richard E. Borghi, Gerrit de Graaf and Bryan
Fletcher have each entered into an employment agreement (collectively, the
"Employment Agreements") with the Company. Mr. Seikel's Employment Agreement
provides for an annual base salary of $250,000, subject to increases at the sole
discretion of the Board of Managers, and a bonus in the range of 50-70% of his
base salary. Mr. Borghi's Employment Agreement provides for an annual base
salary of $250,000, subject to increases at
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the sole discretion of the Board of Managers, a bonus in the range of 30-50% of
his base salary, and a one time bonus of $100,000 on the earlier of (i)
September 30, 2002, (ii) his termination date, and (iii) a sale of the Company.
Mr. de Graaf's Employment Agreement provides for an annual base salary of NLG
170,000, subject to increases at the sole discretion of the Board of Managers,
and a bonus in the range of 30% to 50% of his base salary. Mr. Fletcher's
Employment Agreement provides for an annual base salary of $150,000, subject to
increases at the sole discretion of the Board of Managers, and a bonus in the
range of 30% to 50% of his base salary. The Employment Agreements also provide
for twelve months of severance pay to the executive officer in the event such
officer is terminated without cause (as defined in the Employment Agreement).
The Employment Agreements for Messrs. Seikel, Borghi and Fletcher provided for
an increase in the severance pay period to 18 months upon a change in control of
the Company, as defined in the Employment Agreement.
The Employment Agreements expire December 31, 2003 for Messrs. Seikel,
Borghi and Fletcher and automatically extend for successive two-year terms
unless terminated by the Company upon 30 days notice prior to the expiration of
the current term. The Employment Agreement for Mr. de Graaf may be terminated by
either party upon three month's prior written notice. Each Employment Agreement
prohibits the executive officer from disclosing non-public information about the
Company. The Employment Agreements also require the executive officers to assign
to the Company any designs, inventions and other related items and intellectual
property rights developed or acquired by the executive officer during the term
of his employment. In addition, for a period of five years after termination of
employment (two years if the termination is without cause) each executive
officer has agreed, in his respective Employment Agreement, not to (i) engage in
any Competitive Business (as defined in the Employment Agreements), (ii)
interfere with or disrupt any relationship between the Company and its
customers, suppliers and employees and (iii) induce any employee of the Company
to terminate his or her employment with the Company or engage in any Competitive
Business.
CONSULTING AGREEMENTS
F. Alan Smith and Barry Banducci, both members of the Board of Managers,
have each entered into consulting agreements (the "Consulting Agreements") with
the Company dated as of September 28, 1995. Mr. Smith's Consulting Agreement
provides for an annual consulting fee of $150,000 subject to increases at the
sole discretion of the Board of Managers, and a performance based bonus in the
range of 30-50% of the annual consulting fee. Mr. Banducci's Consulting
Agreement provides for an annual consulting fee of $50,000. The initial term of
the Consulting Agreements expired on March 28, 1997. The Consulting Agreements
automatically extend for successive six-month periods unless terminated by the
Company upon 30 days notice prior to the expiration of the then current term.
The Consulting Agreements prohibit Messrs. Smith and Banducci from disclosing
non-public information about the Company.
MEMBERS' AGREEMENT
On September 30, 1999, the Company and the members entered into a Third
Amended and Restated Members' Agreement, setting forth the relative voting
rights of the members in the election of the Board of Managers. The Board of
Managers consists of between six and eleven members, as designated by persons
holding more than fifty percent of the voting units held by J.P. Morgan Partners
(23A SBIC), LLC, an affiliate of JPMP and its affiliates (defined in the Third
Amended and Restated Members' Agreement as the Chase Members). The voting
provisions apportion the Board of Directors among the Chase Members and all
other members in the following way:
- - for so long as Terence Seikel and Richard Borghi are employed by the Company,
each shall be a manager;
- - as to each of F. Alan Smith and Barry Banducci, for so long as their
respective affiliates, as defined in the Third Amended and Restated Members'
Agreement, continue to hold 80% of the units they acquired on September 28,
1995, each shall be a manager;
- - so long as Gerard Jacobus Brink, Koop Brink and Jan Willem Brink, along with
certain affiliated persons or entities, continue to own at least 80% of the
units they acquired on October 30, 1996, persons controlling a majority of
their voting units may designate a member from among the Brinks or their
affiliates;
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- - so long as Robert L. Fisher and Roger T. Morgan, along with certain affiliated
persons or entities, continue to own at least 80% of the units they acquired
on August 5, 1997, persons controlling a majority of their voting units may
designate one member, who is currently Bryan A. Fletcher; and
- - the Chase Members designate the remaining members, one of which shall be J.P.
Morgan Partners (23A SBIC), LLC.
J.P. Morgan Partners (23A SBIC), LLC has the right to remove any or all of the
members of the Board of Managers if:
- - it reasonably believes circumstances exist that require it to assume control
of the Company in order to protect its investment in the Company;
- - in its reasonable opinion, the Company shall have committed a breach or be in
default of any covenant, obligation, agreement, representation or warranty
given or made by the Company in certain agreements or contracts;
- - in its reasonable opinion, there has been a substantial change in the
Company's operations, products or prospects during the two-year period prior
to such determination; and
- - it determines that it is permitted under any applicable law to take control of
the Company and determines that it is in its best interests to do so.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of April 15, 2001, the outstanding membership interests of the Company
consisted of 14,369 Units. The following table sets forth certain information
regarding the beneficial ownership of the Units by (i) each person known by the
Company to own more than 5% of the Units, (ii) each named director, (iii) each
named executive officer and (iv) all of the Company's directors and executive
officers treated as a group. To the knowledge of the Company, each of such
holders of Units has sole voting and investment power as to the Units owned
unless otherwise noted.
PERCENTAGE
NAME AND ADDRESS(1) UNITS OWNED OWNERSHIP(2)
------------------- ----------- ------------
J.P. Morgan Partners (23A SBIC), LLC(3)............... 10,251 68.94%
1221 Avenue of the Americas
New York, New York 10020
Celerity Partners..................................... 1,500 10.44
C/o Mark Benham
300 Sand Hill Road
Building 4, Suite 230
Menlo Park, California 94025
F. Alan Smith(4)...................................... 632 4.30
Terence C. Seikel(5).................................. 665 4.48
Richard E. Borghi(6).................................. 632 4.27
Gerrit de Graaf(7).................................... 50 0.35
Bryan Fletcher(8)..................................... 35 0.24
Barry Banducci(9)..................................... 500 3.42
59 Old Quarry Road
Guilford, Connecticut 06437
Gerard J. Brink....................................... 410 2.85
Lijsterbeslaan 10
B-2950 Kapellen
Belgium
Donald J. Hofmann, Jr.(10)............................ 10,251 68.94
All directors and executive officers as a group (nine
persons)............................................ 2,924 18.41
- -------------------------
(1) Unless otherwise indicated, address is c/o Advanced Accessory Systems, LLC,
12900 Hall Road, Suite 200, Sterling Heights, Michigan 48313.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and includes voting and investment power with respect to the
Units. Units subject to options or warrants currently exercisable or
exercisable within 60 days of March 17, 2000 are deemed outstanding for
purposes of computing the percentage ownership of the person holding such
options or warrants, but are not deemed outstanding for purposes of
computing the percentage of any other person.
(3) J.P. Morgan Partners (23A SBIC), LLC is an affiliate of JPMP. Includes 501
Units subject to warrants exercisable within 60 days.
(4) Includes 332 Units subject to options exercisable within 60 days. 300 Units
are owned by the F. Alan Smith Family Limited Partnership.
(5) Includes 465 Units subject to options exercisable within 60 days.
(6) Includes 432 Units subject to options exercisable within 60 days.
(7) Includes 24 Units subject to options exercisable within 60 days.
(8) Includes 10 Units subject to options exercisable within 60 days.
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(9) Includes 250 Units subject to options exercisable within 60 days. All Units
are owned by the Banducci Family, LLC.
(10) Such person may be deemed the beneficial owner of the Units held by J.P.
Morgan Partners (23A SBIC), LLC due to his status as an executive officer
of J.P. Morgan Partners (23A SBIC Manager), Inc., the managing member of
J.P. Morgan Partners (23A SBIC), LLC. Mr. Hofmann disclaims beneficial
ownership of such Units except to the extent of his pecuniary interest
therein.
LIMITED LIABILITY COMPANY AGREEMENT
The Company, Valley and SportRack are each limited liability companies
organized under the Delaware Limited Liability Company Act (the "LLC Act").
Valley's equity securities are held 99% by the Company and 1% by SportRack.
SportRack's equity securities are held 100% by the Company. The Company controls
the policies and operations of Valley and SportRack. The Company's operations
are governed by a Third Amended and Restated Operating Agreement (the "LLC
Agreement") among the Company, CBC, certain members of the Company's management
and the investors defined therein (each a "Member" and collectively the
"Members"). The LLC Agreement governs the relative rights and duties of the
Members.
Units. The Company is authorized to issue up to 25,000 Class A Units, up to
25,000 Class A-1 Units and up to 2,000 Class B Units. As of April 15, 2001,
9,236 Class A Units and 5,133 Class A-1 Units were issued and outstanding, 4,200
Class A Units have been duly reserved for issuance to employees, directors and
independent consultants and contractors of the Company or any subsidiary thereof
pursuant to the 1995 Option Plan of the Company, and no Class B Units have been
issued or reserved for issuance.
Management. The Board of Managers of the Company consists of up to 11
members as designated pursuant to the Members' Agreement. Subject to the voting
provisions of the Members' Agreement, the Board of Managers is selected by a
majority of the Members holding Class A Units (each a "Class A Member"). Under
the Member's Agreement, CBC is entitled at all times to hold a seat on the Board
of Managers. A majority of the Chase Members (as defined in the Members
Agreement) may hold a seat on the Board of Managers through their
representative. Any Board Member of the Company may be removed without cause by
the vote of a majority of the Class A Members so long as the Members entitled to
appoint such Board Member have consented.
If a vacancy on the Board of Managers is not filled by a majority of the
Class A Members within 60 days after such vacancy occurs such vacancy may be
filled by a vote of the majority of the Board Members then in office or, if
none, by a vote of all Members.
Distributions. Both the Amended and Restated Credit Agreement and the
Indenture generally limit the Company's ability to make cash distributions to
Members other than distributions to cover the income tax liabilities of the
Members. Specifically, within 90 days of the end of each fiscal year, the
Company will distribute to each Member an amount (if any) equal to 44% of the
excess of Net Profits over Net Losses (each as defined in the LLC Agreement) to
such Member's capital account less any distributions previously made in that
year.
Restriction on Transfer. No Member may transfer its interest without having
obtained the prior written consent of a majority of the Board Members who hold
in the aggregate more than 50% of the profits and capital interest of the
Company, which consent may be withheld in their sole discretion.
Dissolution. The Company will be dissolved upon the earliest to occur of
(a) December 31, 2025; (b) the determination of the Board of Managers and a
majority of Class A Members to dissolve the Company; or (c) the occurrence of an
event of withdrawal of a Board Member or any other dissolution event under
Section 18-801 of the LLC Act. An event of withdrawal of any Member will not
dissolve the Company if within 90 days of such event the business of the Company
is continued by a majority of its remaining Members.
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CERTAIN TRANSACTIONS
CSI, The Chase Manhattan Bank ("Chase"), The Chase Manhattan Bank of Canada
("Chase Canada") and JPMP are affiliates of J.P. Morgan Partners (23A SBIC),
LLC, which owns approximately 41% of the Company's issued and outstanding voting
securities on a fully diluted basis. CSI acted as an Initial Purchaser in
connection with the offering of the Notes (the "Offering"), for which it
received customary fees. Chase is agent bank and a lender to the Company under
the Amended and Restated Credit Agreement and has received customary fees and
reimbursement of expenses in such capacities. Chase Canada is agent bank and a
lender to the Company under the Canadian Credit Agreement and has received
customary fees and reimbursement of expenses in such capacities. Chase received
its proportionate share, $6.0 million, of the repayment by the Company of $90.0
million under the Amended and Restated Credit Agreement from the proceeds of the
Offering. J.P. Morgan Partners (23A SBIC), LLC an affiliate of JPMP and CSI held
a portion of the Senior Subordinated Debt and received its proportionate share,
$10.7 million, including prepayment penalties of $700,000, of the repayment by
the Company of such debt from the proceeds of the Offering. As a result of the
Offering, such affiliate was relieved of its obligation to provide up to an
additional $20.0 million of senior subordinated debt financing. In addition, an
affiliate of CSI and JPMP purchased a portion of the Notes in connection with
the Offering. Donald J. Hofmann, Jr., a partner of JPMP, is a member of the
Board of Managers of the Company. In addition, CSI, Chase and their affiliates
participate on a regular basis in various investment banking and commercial
banking transactions for the Company and its affiliates.
On January 1, 2000, the Company issued 3,655 of its Class A-1 Units to J.P.
Morgan Partners (23A SBIC), LLC, in exchange for 3,655 Class A Units.
On November 11, 2000 the Company issued 1,478 of its Class A-1 Units to
J.P. Morgan Partners (23A SBIC), LLC, in exchange for 1,478 Class A Units.
The Company is a party to the Consulting Agreements with F. Alan Smith, the
Chairman of the Company, and Barry Banducci, a Board Member of the Company. See
"Management -- Consulting Agreements."
In connection with the acquisition of the MascoTech Division by the
Company, the Company loaned Mr. Borghi $100,000 to enable him to make his
initial equity investment in the Company. The loan bears interest at 6.2% and
matures in September 2002.
On November 15, 2000 the Company redeemed all 1,500 Class A Units held by
MascoTech, Inc., the Company's second largest unit holder, for $6.4 million.
DESCRIPTION OF THE CREDIT FACILITIES
The following information relating to the Credit Facilities is qualified in
its entirety by reference to the complete text of the documents entered into in
connection therewith. The following is a description of the material terms of
the Credit Facilities:
CANADIAN CREDIT AGREEMENT
To finance the SportRack International Acquisition and provide working
capital financing in Canada, Chase Canada, First Chicago NBD Bank, Canada, and
Bank of Nova Scotia (collectively, the "Canadian Lenders") have provided to
SportRack International a C$20 million (approximately $13.3 million) term loan
and a C$4.0 million (approximately $2.7 million) working capital revolving
credit facility under a First Amended and Restated Credit Agreement dated as of
March 19, 1998 (the "Canadian Credit Agreement"). The Canadian Credit Agreement
is scheduled to mature on October 31, 2003 and the term loan portion amortizes
in quarterly installments. The Canadian Credit Agreement is guaranteed by the
Company and SportRack and is secured by a pledge of 100% of the stock and assets
of SportRack Accessories. The guarantees of the Company and SportRack are
secured by substantially the same collateral that secures the obligations of
those companies under the Amended and Restated Credit Agreement described below.
The
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interest margins under the Canadian Credit Agreement are comparable to those
under the Revolving Credit Facility and the Tranche A Term Loan described below.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
In connection with the Valley Acquisition, the Company entered into the
Second Amended and Restated Credit Agreement, dated as of August 5, 1997 (as
amended, the "Amended and Restated Credit Agreement"), with certain of its
subsidiaries, the lenders party thereto, Chase as Co-Administrative Agent and
Syndication Agent and NBD as Administrative Agent, Documentation Agent and
Collateral Agent. The Amended and Restated Credit Agreement amended the
Company's existing credit agreement and provided for (i) a Tranche A Term Loan
in the aggregate principal amount of $65 million (the "Tranche A Term Loan"),
(ii) a Tranche B Term Loan in the aggregate principal amount of $55 million (the
"Tranche B Term Loan" and together with the Tranche A Term Loan, collectively,
the "Term Loan Facilities") and (iii) a revolving credit facility in the
aggregate principal amount of $25 million (the "Revolving Credit Facility"),
which includes a $2 million swing line sub facility and a $10 million letter of
credit sub facility. Borrowings by SportRack Accessories under the revolving
credit facility of the Canadian Credit Agreement count against availability
under the Revolving Credit Facility. The outstanding principal amounts of the
Tranche A Term Loan and the Tranche B Term Loan were reduced by $17.5 million
and $16.0 million through prepayments from the proceeds of the sale of the
Notes. Subsequent to the sale of the Notes, the Amended and Restated Credit
Agreement was further amended to provide a $22 million acquisition facility to
finance future acquisitions (the "Acquisition Facility"). The Tranche A Term
Loan, the Tranche B Term Loan, the Revolving Credit Facility and the Acquisition
Facility are referred to collectively as the "Domestic Facilities".
Use of Proceeds; Maturity. The proceeds of the Term Loan Facilities were
used to finance the Valley Acquisition and to refinance existing debt. The
proceeds of the Revolving Credit Facility were used to refinance existing debt,
pay fees and expenses of the Valley Acquisition and for general corporate
purposes. The proceeds of a $21.0 million borrowing under the Acquisition
Facility were used to finance the acquisition of the assets of Ellebi. The Term
Loan Facilities have maturity schedules as follows: (i) the Tranche A Term Loan
matures on October 30, 2003 and amortizes in quarterly installments; and (ii)
the Tranche B Term Loan matures on October 30, 2004 and amortizes in quarterly
installments. The Revolving Credit Facility matures on October 30, 2003. The
Acquisition Facility matures on October 30, 2003 and amortizes in quarterly
installments which commenced on December 31, 1999.
Revolving Credit Facility. The availability of the commitments under the
Revolving Credit Facility is subject to a borrowing base which generally equals
specified percentages of the then Eligible Receivables or Eligible Inventory
(each as defined in the Amended and Restated Credit Agreement) of the Company
and certain of its Subsidiaries. As of December 31, 2000, $7.3 million of
commitments under the Revolving Credit Facility is available to the Company.
Prepayments; Reduction of Commitments. The Term Loan Facilities are
required to be prepaid with (i) 100% of the net proceeds of any sale or issuance
of equity or any incurrence of indebtedness for borrowed money, subject to
certain exceptions; (ii) 100% of the net proceeds of any sale or other
disposition of any material assets, except for the sale of inventory in the
ordinary course of business, subject to certain exceptions; and (iii) 50% of
excess cash flow for each fiscal year. Such mandatory prepayments are applied
pro rata between the Tranche A Term Loans and the Tranche B Term Loans and, in
each case, in the inverse order of maturity. Any Tranche B Term Loan lender may
decline any mandatory prepayment prescribed in subsections (i) through (iii)
above, in which case the amounts declined are applied as a mandatory prepayment
pro rata to the Term Loan A Lenders in the inverse order of maturity.
Interest. The Domestic Facilities bear interest at a rate per annum, at the
option of the Company, equal to the adjusted eurocurrency base rate (the
"Eurocurrency Base Rate") or the rate which is equal to the higher of (i) NBD's
prime rate and (ii) the federal funds rate plus 1/2 of 1% ("ABR"), in each case
plus an applicable margin based on the leverage ratio from time to time in
effect. The applicable margins range from 1.25% to 2.50% for ABR Revolving
Credit Facility advances and Tranche A Term Loans and from 1.75% to 3.00% for
ABR Tranche B Term Loans. For Revolving Credit Facility advances and Tranche A
Term Loans
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bearing interest based on the Eurocurrency Base Rate, the applicable margins
range from 2.25% to 3.50%. For Tranche B Term Loans bearing interest at the
Eurocurrency Base Rate, the applicable margins range from 2.75% to 4.00%. The
rates for letter of credit fees are the same as the applicable margins for
Eurocurrency Revolving Credit advances.
Collateral and Guarantees. The Domestic Facilities are guaranteed by the
Company and substantially all of its existing U.S. subsidiaries. The Domestic
Facilities are secured by a first priority lien on (i) all of the capital stock
(or partnership or other membership interest) of the Company, SportRack and each
of the material direct and indirect U.S. subsidiaries of the Company and 65% of
the capital stock of first tier non-U.S. subsidiaries and (ii) substantially all
tangible and intangible assets of the Company and each material direct and
indirect U.S. subsidiary. With respect to certain of the loans made to non-U.S.
subsidiaries, it is currently contemplated that all of the capital stock of
certain non-U.S. subsidiaries and, to the extent permitted by applicable law,
liens on the receivables and inventory of certain of the non-U.S. subsidiaries
and mortgage liens of certain real estate owned by Brink will be pledged to
secure the loans to Brink. The collateral also secures interest rate swaps,
currency or other hedge obligations owning to any lender.
Covenants. The Amended and Restated Credit Agreement contains covenants
restricting the ability of the Company and its subsidiaries to, among other
things, (i) declare dividends or redeem or repurchase capital stock; (ii)
prepay, redeem or purchase debt; (iii) incur liens; (iv) make loans and
investments; (v) issue additional debt; (vi) amend or otherwise alter debt and
other material agreements; (vii) engage in mergers, acquisitions and asset
sales; (viii) engage in transactions with affiliates; and (ix) alter the
business they conduct. The Company has also provided certain customary
indemnification of the Agents, lenders and their respective agents and is
required to comply with financial covenants with respect to (i) maximum leverage
ratio; (ii) minimum fixed charge coverage ratio; (iii) a minimum net worth; and
(iv) capital expenditures; and (v) rentals. The Company must also comply with
certain customary affirmative covenants.
Events of Default. Events of default under the Amended and Restated Credit
Agreement include but are not limited to (i) the Company's failure to pay
principal when due or interest within three business days of the date when due;
(ii) the Company's breach of certain covenants, representations or warranties
contained in the loan documents; (iii) customary cross-default provisions; (iv)
events of bankruptcy, insolvency or dissolution of the Company or its
subsidiaries; (v) the levy of certain judgements against the Company, its
subsidiaries, or their assets; (vi) the actual or asserted invalidity of
security documents or guarantees of the Company or its subsidiaries; (vii) a
Change of Control (as defined in the Amended and Restated Credit Agreement) of
the Company; (viii) the occurrence of certain ERISA events; (ix) or the event
that subordination provisions evidencing subordinated debt shall cease to be
valid or in full force and effect.
DESCRIPTION OF THE NOTES
The Notes were issued under an Indenture (the "Indenture") among the
Company, Capital Corp., the Guarantors and First Union National Bank, as trustee
(the "Trustee"). The following summary of the material provisions of the
Indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"), and to all of the provisions of the Indenture, including
the definitions of certain terms therein and those terms made a part of the
Indenture by reference to the Trust Indenture Act, as in effect on the date of
the Indenture. The definitions of certain capitalized terms used in the
following summary are set forth below under "Certain Definitions." References in
this "Description of the Notes" section to "the Company" mean only Advanced
Accessory Systems, LLC and not any of its Subsidiaries.
GENERAL
The Notes are joint and several obligations of the Company and Capital
Corp. The Notes are issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. The Issuers have
appointed the Trustee to serve as registrar and paying agent under the Indenture
at its offices at 40 Broad Street, 5th Floor, Suite 550, New York, New York
10004. No service charge will be made for any registration
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of transfer or exchange of the Notes, except for any tax or other governmental
charge that may be imposed in connection therewith.
RANKING
The Notes rank junior to, and subordinate in right of payment to, all
existing and future Senior Indebtedness of the Issuers, pari passu in right of
payment with all senior subordinated Indebtedness of the Issuers and senior in
right of payment to all Subordinated Indebtedness of the Issuers. At December
31, 2000, the Company had approximately $51.0 million of Senior Indebtedness
outstanding (exclusive of unused commitments). All debt incurred under the
Credit Facilities will be Senior Indebtedness of the Company, will be guaranteed
by each of the Guarantors on a senior basis and will be secured by substantially
all of the assets of the Company and the Guarantors.
MATURITY, INTEREST AND PRINCIPAL OF THE NOTES
The Notes are limited to $125,000,000 aggregate principal amount and will
mature on October 1, 2007. Interest on the Notes accrues at a rate of 9 3/4% per
annum and is payable in cash semi-annually in arrears on each April 1 and
October 1, which commenced on April 1, 1998, to the holders of record of Notes
at the close of business on March 15 and September 15, respectively, immediately
preceding such interest payment date. Interest accrues from the most recent
interest payment date to which interest has been paid or, if no interest has
been paid, from April 1, 1998. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
OPTIONAL REDEMPTION
The Notes are redeemable at the option of the Issuers, in whole or in part,
at any time on or after October 1, 2002, at the redemption prices (expressed as
a percentage of principal amount) set forth below, plus accrued and unpaid
interest thereon, if any, to the redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the 12-month period
beginning on October 1 of the years indicated below:
REDEMPTION
YEAR PRICE
---- ----------
2002........................................................ 104.875%
2003........................................................ 103.250%
2004........................................................ 101.625%
2005 and thereafter......................................... 100.000%
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time
pursuant to an optional redemption, selection of such Notes for redemption will
be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed or, if the
Notes are not then listed on a national securities exchange, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided, however, that no Notes of a principal amount of $1,000 or less shall
be redeemed in part; provided further, however, that if a partial redemption is
made with the net cash proceeds of a Public Equity Offering by the Company,
selection of the Notes or portions thereof for redemption shall be made by the
Trustee only on a pro rata basis or on as nearly a pro rata basis as is
practicable (subject to the procedures of The Depository Trust Company), unless
such method is otherwise prohibited. Notice of redemption shall be mailed by
first-class mail at least 30 but not more than 60 days before the redemption
date to each Holder of Notes to be redeemed at its registered address. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. On and after the redemption date, interest will cease to
accrue on Notes or portions thereof called for redemption as long as
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the Company has deposited with the paying agent for the Notes funds in
satisfaction of the applicable redemption price pursuant to the Indenture.
SUBORDINATION OF THE NOTES
The payment of the principal of, premium, if any, and interest on the Notes
is subordinated in right of payment, to the extent and in the manner provided in
the Indenture, to the prior payment in full in cash of all Senior Indebtedness.
Upon any payment or distribution of assets or securities of the Issuers of
any kind or character, whether in cash, property or securities (excluding any
payment or distribution of Permitted Junior Securities and excluding any payment
from the trust described under "Satisfaction and Discharge of Indenture;
Defeasance" (a "Defeasance Trust Payment")), upon any dissolution or winding-up
or total liquidation or reorganization of the Issuers, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other proceedings, all
Senior Indebtedness then due shall first be paid in full in cash before the
Holders of the Notes or the Trustee on behalf of such Holders shall be entitled
to receive any payment by the Issuers of the principal of, premium, if any, or
interest on the Notes, or any payment by the Issuers to acquire any of the Notes
for cash, property or securities, or any distribution by the Issuers with
respect to the Notes of any cash, property or securities (excluding any payment
or distribution of Permitted Junior Securities and excluding any Defeasance
Trust Payment). Before any payment may be made by, or on behalf of, the Issuers
of the principal of, premium, if any, or interest on the Notes upon any such
dissolution or winding-up or total liquidation or reorganization, or in
bankruptcy, insolvency or receivership any payment or distribution of assets or
securities of the Issuers of any kind or character, whether in cash, property or
securities (excluding any payment or distribution of Permitted Junior Securities
and excluding any Defeasance Trust Payment), to which the Holders of the Notes
or the Trustee on their behalf would be entitled, but for the subordination
provisions of the Indenture, shall be made by the Issuers or by any receiver,
trustee in bankruptcy, liquidation trustee, agent or other Person making such
payment or distribution, directly to the holders of the Senior Indebtedness (pro
rata to such holders on the basis of the respective amounts of Senior
Indebtedness held by such holders) or their representatives or to the trustee or
trustees or agent or agents under any agreement or indenture pursuant to which
any of such Senior Indebtedness may have been issued, as their respective
interests may appear, to the extent necessary to pay all such Senior
Indebtedness then due in full in cash after giving effect to any prior or
concurrent payment, distribution or provision therefor to or for the holders of
such Senior Indebtedness.
No direct or indirect payment (excluding any payment or distribution of
Permitted Junior Securities and excluding any Defeasance Trust Payment) by or on
behalf of the Issuers of principal of, premium, if any, or interest on the
Notes, whether pursuant to the terms of the Notes, upon acceleration, pursuant
to an Offer to Purchase or otherwise, will be made if, at the time of such
payment, there exists a default in the payment of all or any portion of the
obligations on any Senior Indebtedness, whether at maturity, on account of
mandatory redemption or prepayment, acceleration or otherwise, and such default
shall not have been cured or waived or the benefits of this sentence waived by
or on behalf of the holders of such Senior Indebtedness. In addition, during the
continuance of any non-payment event of default with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may, in accordance
with the terms of the agreement or other instrument under which such Designated
Senior Indebtedness was created, be immediately accelerated, and upon receipt by
the Trustee of written notice (a "Payment Blockage Notice") from the holder or
holders of such Designated Senior Indebtedness or the trustee or agent acting on
behalf of the holders of such Designated Senior Indebtedness, then, unless and
until such event of default has been cured or waived or has ceased to exist or
such Designated Senior Indebtedness has been discharged or repaid in full in
cash or the benefits of these provisions have been waived by the holders of such
Designated Senior Indebtedness, no direct or indirect payment (excluding any
payment or distribution of Permitted Junior Securities and excluding any
Defeasance Trust Payment) will be made by or on behalf of the Issuers of
principal of, premium, if any, or interest on the Notes, to such Holders, during
a period (a "Payment Blockage Period") commencing on the date of receipt of such
notice by the Trustee and ending 179 days thereafter. Notwithstanding anything
in the subordination provisions of the Indenture or the Notes to the contrary,
(x) in no event will a Payment Blockage Period extend beyond 179 days from the
date the Payment Blockage Notice in respect thereof was
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given, (y) there shall be a period of at least 181 consecutive days in each
360-day period when no Payment Blockage Period is in effect and (z) not more
than one Payment Blockage Period may be commenced with respect to the Notes
during any period of 360 consecutive days. No event of default that existed or
was continuing on the date of commencement of any Payment Blockage Period with
respect to the Designated Senior Indebtedness initiating such Payment Blockage
Period (to the extent the holder of Designated Senior Indebtedness, or trustee
or agent, giving notice commencing such Payment Blockage Period had knowledge of
such existing or continuing event of default) may be, or be made, the basis for
the commencement of any other Payment Blockage Period by the holder or holders
of such Designated Senior Indebtedness or the trustee or agent acting on behalf
of such Designated Senior Indebtedness, whether or not within a period of 360
consecutive days, unless such event of default has been cured or waived for a
period of not less than 90 consecutive days.
The failure to make any payment or distribution for or on account of the
Notes by reason of the provisions of the Indenture described under this
"Subordination of the Notes" heading will not be construed as preventing the
occurrence of any Event of Default in respect of the Notes. See "Events of
Default" below.
By reason of the subordination provisions described above, in the event of
insolvency of the Issuers, funds which would otherwise be payable to Holders of
the Notes will be paid to the holders of Senior Indebtedness to the extent
necessary to pay the Senior Indebtedness in full in cash, and the Issuers may be
unable to meet fully their obligations with respect to the Notes.
As of December 31, 2000 the United States/Canadian Credit Facility is the
only outstanding Senior Indebtedness. Subject to the restrictions set forth in
the Indenture, in the future the Company may issue additional Senior
Indebtedness to refinance existing Indebtedness or for other corporate purposes.
GUARANTEES OF THE NOTES
The Indenture provides that each of the Guarantors fully and
unconditionally guarantees on a joint and several basis (the "Guarantees") all
of the Issuers' obligations under the Notes, including its obligations to pay
principal, premium, if any, and interest with respect to the Notes. The
Guarantees are general unsecured obligations of the Guarantors. The obligations
of each Guarantor under its Guarantee is subordinated and junior in right of
payment to the prior payment in full of all existing and future Guarantor Senior
Indebtedness of such Guarantor substantially to the same extent as the Notes are
subordinated to all existing and future Senior Indebtedness of the Company. The
Guarantors also guarantee all obligations under the Credit Facilities, and each
Guarantor has granted a security interest in all or substantially all of its
assets to secure the obligations under the Credit Facilities. The obligations of
each Guarantor are limited to the maximum amount which, after giving effect to
all other contingent and fixed liabilities of such Guarantor and after giving
effect to any collections from or payments made by or on behalf of any other
Guarantor in respect of the obligations of such other Guarantor under its
Guarantee or pursuant to its contribution obligations under the Indenture, will
result in the obligations of such Guarantor under its Guarantee not constituting
a fraudulent conveyance or fraudulent transfer under Federal or state law. Each
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Guarantor in a pro rata amount, based
on the net assets of each Guarantor determined in accordance with GAAP.
The Indenture provides that the Company shall cause each Restricted
Subsidiary issuing a Guarantee after the Issue Date pursuant to "Certain
Covenants -- Guarantees by Restricted Subsidiaries" to (i) execute and deliver
to the Trustee a supplemental indenture in form reasonably satisfactory to the
Trustee pursuant to which such Restricted Subsidiary shall become a party to the
Indenture and thereby unconditionally guarantee all of the Issuers' Obligations
under the Notes and the Indenture on the terms set forth therein and (ii)
deliver to the Trustee an Opinion of Counsel that such supplemental indenture
has been duly authorized, executed and delivered by such Restricted Subsidiary
and constitutes a valid, binding and enforceable obligation of such Restricted
Subsidiary (which opinion may be subject to customary assumptions and
qualifications). Thereafter, such Restricted Subsidiary shall (unless released
in accordance with the terms of this Indenture) be a Guarantor for all purposes
of the Indenture.
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Each Guarantee is a continuing guarantee and will (a) remain in full force
and effect until payment in full of all of the obligations covered thereby, (b)
be binding upon each Guarantor and (c) inure to the benefit of and be
enforceable by the Trustee, the Holders and their successors, transferees and
assigns.
The Indenture provides that if the Notes are defeased in accordance with
the terms of the Indenture, or if, subject to the requirements of the first
paragraph under "-- Certain Covenants -- Merger, Sale of Assets, etc." all or
substantially all of the assets of any Guarantor or all of the Equity Interests
of any Guarantor are sold (including by issuance or otherwise) by the Company in
a transaction constituting an Asset Sale, and if (x) the Net Cash Proceeds from
such Asset Sale are used in accordance with the covenant described under
"Certain Covenants-Disposition of Proceeds of Asset Sales" or (y) the Company
delivers to the Trustee an Officers' Certificate to the effect that the Net Cash
Proceeds from such Asset Sale shall be used in accordance with the covenant
described under "Certain Covenants -- Disposition of Proceeds of Asset Sales"
and within the time limits specified by such covenant, then such Guarantor (in
the event of a sale or other disposition of all of the Equity Interests of such
Guarantor) or the corporation acquiring such assets (in the event of a sale or
other disposition of all or substantially all of the assets of such Guarantor)
shall be released and discharged of its Guarantee obligations in respect of the
Indenture and the Notes. In addition, if no Default or Event of Default has
occurred and is continuing, upon the release of the guarantees of any Guarantor
of amounts outstanding under the Credit Facilities, the Guarantee of such
Guarantor shall be automatically released.
Any Guarantor that is designated an Unrestricted Subsidiary pursuant to and
in accordance with "Designation of Unrestricted Subsidiaries" below shall upon
such Designation be released and discharged of its Guarantee obligations in
respect of the Indenture and the Notes and any Unrestricted Subsidiary whose
Designation is revoked pursuant to "Designation of Unrestricted Subsidiaries"
below will be required to become a Guarantor in accordance with the procedure
described in the third preceding paragraph.
OFFER TO PURCHASE UPON CHANGE OF CONTROL
Following the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall notify the
Holders of the Notes of such occurrence in the manner prescribed by the
Indenture and shall, within 20 days after the Change of Control Date, make an
Offer to Purchase all Notes then outstanding at a purchase price in cash equal
to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Purchase Date (subject to the right of Holders
of record on the relevant record date to receive interest due on the relevant
interest payment date).
If a Change of Control occurs which also constitutes an event of default
under the Credit Facilities, the lenders under the Credit Facilities would be
entitled to exercise the remedies available to a secured lender under applicable
law and pursuant to the terms of the Credit Facilities. Accordingly, any claims
of such lenders with respect to the assets of the Issuers will be prior to any
claim of the Holders of the Notes with respect to such assets.
Neither the Board of Managers of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indenture described herein on the ability of the Company and
its Restricted Subsidiaries to incur additional Indebtedness, to grant Liens on
their property, to make Restricted Payments and to make Asset Sales may also
make more difficult or discourage a takeover of the Company, whether favored or
opposed by the management of the Company. Consummation of any such transaction
in certain circumstances may require redemption or repurchase of the Notes, and
there can be no assurance that the Company or the acquiring party will have
sufficient financial resources to effect such redemption or repurchase. Such
restrictions and the restrictions on transactions with Affiliates may, in
certain circumstances, make more difficult or discourage any leveraged buyout of
the Company or any of its Restricted Subsidiaries by the management of the
Company. While such restrictions cover a wide variety of arrangements which have
traditionally been used to effect highly leveraged transactions, the Indenture
may not afford the Holders of Notes protection in all circumstances from the
adverse aspects of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection
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with the repurchase of Notes pursuant to a Change of Control Offer. To the
extent that the provisions of any securities laws or regulations conflict with
the "Change of Control" provisions of the Indenture, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
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 the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction.
CERTAIN COVENANTS
Limitation on Indebtedness. The Company shall not, and shall not cause or
permit any Restricted Subsidiary to, directly or indirectly, Incur any
Indebtedness (including Acquired Indebtedness), except for Permitted
Indebtedness; provided, however,that the Company and any Domestic Restricted
Subsidiary may Incur Indebtedness if, at the time of and immediately after
giving pro forma effect to such Incurrence of Indebtedness and the application
of the proceeds therefrom, the Consolidated Coverage Ratio would be greater than
2.0 to 1.0 if the Indebtedness is Incurred prior to December 31, 1999 and 2.25
to 1.0 if the Indebtedness is Incurred thereafter; and provided further, that
any Foreign Restricted Subsidiary may incur Indebtedness in accordance with "--
Limitation on Foreign Indebtedness" below.
Limitation on Foreign Indebtedness. The Company shall not cause or permit
any Foreign Restricted Subsidiary of the Company to, directly or indirectly,
Incur any Indebtedness (including Acquired Indebtedness) other than Permitted
Indebtedness set forth in clauses (a) through (m) of the definition thereof
unless (i) the Indebtedness is Incurred, denominated and payable in U.S. dollars
or the local currencies of the jurisdictions of the operations of the Foreign
Restricted Subsidiary Incurring such Indebtedness or of the business or the
location of assets being acquired with the proceeds of such Indebtedness;
provided, however, that any Indebtedness permitted to be Incurred in a Western
European currency pursuant to this clause (i) may be Incurred in such Western
European currency or, any other Western European currency, (ii) after giving
effect to the Incurrence of such Indebtedness and the receipt of the application
of the proceeds therefrom, (A) if, as a result of the Incurrence of such
Indebtedness, such Restricted Subsidiary will be or become subject to any
restriction or limitation on the payment of dividends or the making of other
distributions, (I) the ratio of Foreign EBITDA to Foreign Interest Expense
(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
3.0 to 1.0 and (II) the Company's Consolidated Coverage Ratio (determined on a
pro forma basis for the last four fiscal quarters of the Company for which
financial statements are available at the date of determination) is greater than
2.0 to 1.0 if the Indebtedness is Incurred prior to December 31, 1999 and 2.25
to 1.0 if the Indebtedness is Incurred thereafter and (B) in any other case, the
Company's Consolidated Coverage Ratio (determined on a pro forma basis for the
last four fiscal quarters of the Company for which financial statements are
available at the date of determination) is greater than 2.0 to 1.0 if the
Indebtedness is Incurred prior to December 31, 1999 and 2.25 to 1.0 if the
Indebtedness is Incurred thereafter, and (iii) 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.
Limitation on Senior Subordinated Indebtedness. The Company shall not,
directly or indirectly, Incur any Indebtedness that by its terms would expressly
rank senior in right of payment to the Notes and subordinate in right of payment
to any other Indebtedness of the Company.
The Company shall not permit any Guarantor to, and no Guarantor shall,
directly or indirectly, Incur any Indebtedness that by its terms would expressly
rank senior in right of payment to the Guarantee of such Guarantor and
subordinate in right of payment to any Indebtedness of such Guarantor.
Limitation on Restricted Payments. The Company shall not, and shall not
cause or permit any Restricted Subsidiary to, directly or indirectly,
(i) declare or pay any dividend or any other distribution on any
Equity Interests of the Company or any Restricted Subsidiary or make any
payment or distribution to the direct or indirect holders (in their
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capacities as such) of Equity Interests of the Company or any Restricted
Subsidiary (other than any dividends, distributions and payments made to
the Company or any Restricted Subsidiary and dividends or distributions
payable to any Person solely in Qualified Equity Interests of the Company
or in options, warrants or other rights to purchase Qualified Equity
Interests of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any Restricted Subsidiary (other than
any such Equity Interests owned by the Company or any Restricted
Subsidiary);
(iii) make any Investment in any Person (other than Permitted
Investments); or
(iv) designate any Subsidiary of the Company as an "Unrestricted
Subsidiary" under the Indenture (a "Designation"); provided, however, that
the Designation of a Subsidiary of the Company as an Unrestricted
Subsidiary shall be deemed to include the Designation of all of the
Subsidiaries of such Subsidiary.
(any such payment or any other action (other than any exception thereto)
described in (i), (ii), (iii) or (iv) each, a "Restricted Payment"), unless
(a) no Default or Event of Default shall have occurred and be continuing at
the time of or immediately after giving effect to such Restricted Payment;
(b) immediately after giving effect to such Restricted Payment, the Company
would be able to Incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the "Limitation on Indebtedness" covenant above; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after the
Issue Date does not exceed an amount equal to the sum of (1) 50% of cumulative
Consolidated Net Income determined for the period (taken as one period) from the
beginning of the first fiscal quarter commencing on the Issue Date and ending on
the last day of the most recent fiscal quarter immediately preceding the date of
such Restricted Payment for which consolidated financial information of the
Company is available (or if such cumulative Consolidated Net Income shall be a
loss, minus 100% of such loss), plus (2) 100% of the aggregate net cash proceeds
received by the Company either (x) as capital contributions to the Company after
the Issue Date or (y) from the issue and sale (other than to a Restricted
Subsidiary) of its Qualified Equity Interests after the Issue Date (excluding
the net proceeds from any issuance and sale of Qualified Equity Interests
financed, directly or indirectly, using funds borrowed from the Company or any
Restricted Subsidiary until and to the extent such borrowing is repaid), plus
(3) the principal amount (or accreted amount (determined in accordance with
GAAP), if less) of any Indebtedness of the Company or any Restricted Subsidiary
Incurred after the Issue Date which has been converted into or exchanged for
Qualified Equity Interests of the Company (minus the amount of any cash or
property distributed by the Company or any Restricted Subsidiary upon such
conversion or exchange), plus (4) so long as the Designation thereof was treated
as a Restricted Payment made after the Issue Date, with respect to any
Unrestricted Subsidiary that has been redesignated as a Restricted Subsidiary
after the Issue Date in accordance with "Designation of Unrestricted
Subsidiaries" below, the Company's proportionate interest in an amount equal to
the Fair Market Value of such Subsidiary, plus (5) in the case of the
disposition or repayment of any Investment constituting a Restricted Payment
made after the Issue Date (including the sale of an Unrestricted Subsidiary) or
dividends, distributions or interest payments received in cash, an amount equal
to 100% of the net cash proceeds received by the Company or its Restricted
Subsidiaries therefrom.
The foregoing provisions will not prevent (i) the payment of any dividend
or distribution on, or redemption of, Equity Interests within 60 days after the
date of declaration of such dividend or distribution or the giving of formal
notice of such redemption, if at the date of such declaration or giving of such
formal notice such payment or redemption would comply with the provisions of the
Indenture; (ii) the purchase, redemption, retirement or other acquisition of any
Equity Interests of the Company or its Restricted Subsidiaries that are not
owned by the Company or its Restricted Subsidiaries in exchange for, or out of
the net cash proceeds of the substantially concurrent issue and sale (other than
to a Restricted Subsidiary) of, Qualified Equity Interests of the Company;
provided, however, that any such net cash proceeds and the value
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of any Qualified Equity Interests issued in exchange for such retired Equity
Interests are excluded from clause (c)(2) of the preceding paragraph (and were
not included therein at any time) and are not used to redeem the Notes pursuant
to "-- Optional Redemption" above; (iii) the purchase, redemption or other
acquisition for value of Equity Interests of the Company (other than
Disqualified Capital Stock) or options on such Equity Interests held by officers
or employees or former officers or employees (or their estates or beneficiaries
under their estates) upon the death, disability, retirement or termination of
employment of such current or former officers or employees pursuant to the terms
of an employee benefit plan or any other agreement pursuant to which such shares
of capital stock or options were issued or pursuant to a severance, buy-sell or
right of first refusal agreement with such current or former officer or
employee; provided, however, that the aggregate cash consideration paid, or
distributions made, pursuant to this clause (iii) does not exceed $5.0 million;
(iv) Investments constituting Restricted Payments made as a result of the
receipt of non-cash consideration from any Asset Sale made pursuant to and in
compliance with "-- Disposition of Proceeds of Asset Sales" below; (v) Tax
Distributions; (vi) the payment of dividends on the Company's Common Stock,
following the first Public Equity Offering of the Company's Common Stock after
the Issue Date, of up to 6% per annum of the net proceeds received by the
Company in such public offering; and (vii) the purchase, redemption, retirement
or other acquisition prior to June 30, 1999 of Equity Interests of the Company
from unaffiliated third parties; provided, however, that the aggregate cash
consideration paid pursuant to this clause (vii) does not exceed $7.5 million;
provided, however, that in the case of each of clauses (ii), (iii), (iv), (vi)
and (vii) no Default or Event of Default shall have occurred and be continuing
or would arise therefrom.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (i), (iii), (iv), (vi) and (vii)
of the immediately preceding paragraph shall be included as Restricted Payments.
The amount of any non-cash Restricted Payment shall be deemed to be equal to the
Fair Market Value thereof at the date of the making of such Restricted Payment.
In determining the amount of any Restricted Payment made under clause (iv) of
the first paragraph of this covenant, the amount of such Restricted Payment (the
"Designation Amount") shall be equal to the Fair Market Value of the Company's
proportionate interest in such Subsidiary on such date. Any such Designation
shall be evidenced by a Board Resolution.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions to the Company or any other Restricted Subsidiary on its Equity
Interests or with respect to any other interest or participation in, or measured
by, its profits, or pay any Indebtedness owed to the Company or any other
Restricted Subsidiary, (b) make loans or advances to, or guarantee any
Indebtedness or other obligations of, or make any Investment in, the Company or
any other Restricted Subsidiary or (c) transfer any of its properties or assets
to the Company or any other Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (i) the Credit
Facilities, or any other agreement of the Company or the Restricted Subsidiaries
outstanding on the Issue Date, in each case as in effect on the Issue Date, and
any amendments, restatements, renewals, replacements or refinancings thereof;
provided, however, that any such amendment, restatement, renewal, replacement or
refinancing is no more restrictive in the aggregate with respect to such
encumbrances or restrictions than those contained in the agreement being
amended, restated, reviewed, replaced or refinanced; (ii) applicable law; (iii)
any instrument governing Indebtedness or Equity Interests of an Acquired Person
acquired by the Company or any Restricted Subsidiary as in effect at the time of
such acquisition (except to the extent such Indebtedness was Incurred by such
Acquired Person in connection with, as a result of or in anticipation or
contemplation of such acquisition); provided, however, that such encumbrances
and restrictions are not applicable to the Company or any Restricted Subsidiary,
or the properties or assets of the Company or any Restricted Subsidiary, other
than the Acquired Person; (iv) customary non-assignment provisions in contracts
or leases entered into in the ordinary course of business and consistent with
past practices; (v) Purchase Money Indebtedness for property acquired in the
ordinary course of business that only imposes encumbrances and restrictions on
the property so acquired; (vi) any agreement for the sale or disposition of the
Equity Interests or assets of any Restricted Subsidiary; provided, however, that
such encumbrances and restrictions described in this clause (vi) are only
applicable to such Restricted Subsidiary
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or assets, as applicable, and any such sale or disposition is made in compliance
with Disposition of Proceeds of Asset Sales" below to the extent applicable
thereto; (vii) secured Indebtedness otherwise permitted to be incurred pursuant
to the covenants described under "Limitation on Indebtedness" and "Limitation on
Liens" that limit the right of the debtor to dispose of the assets securing such
Indebtedness; (viii) customary provisions in joint venture agreements and other
similar agreements entered into in the ordinary course of business; (ix) an
agreement governing Indebtedness incurred to refinance the Indebtedness issued,
assumed or incurred pursuant to an agreement referred to in clauses (i) through
(viii) above; provided, however, that the provisions relating to such
encumbrance or restriction contained in any such Indebtedness are no less
restrictive in the aggregate than the provisions relating to such encumbrance or
restriction contained in agreements referred to in such clauses; (x) an
agreement governing Senior Indebtedness permitted to be incurred pursuant to the
"Limitation on Indebtedness" covenant; provided, however, that the provisions
relating to such encumbrance or restriction contained in such Indebtedness are
no less favorable to the Company in any material respect as determined by the
Board of Managers of the Company in its reasonable and good faith judgment than
the provisions contained in the Amended and Restated Credit Agreement as in
effect on the Issue Date; or (xi) the Indenture.
Designation of Unrestricted Subsidiaries. The Company shall not and shall
not cause or permit any Restricted Subsidiary at any time to (x) provide credit
support for, subject any of its property or assets (other than the Equity
Interests of any Unrestricted Subsidiary) to the satisfaction of, or guarantee,
any Indebtedness of any Unrestricted Subsidiary (including any undertaking,
agreement or instrument evidencing such Indebtedness), (y) be directly or
indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be
directly or indirectly liable for any Indebtedness which provides that the
holder thereof may (upon notice, lapse of time or both) declare a default
thereon or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary, except for any non-recourse
guarantee given solely to support the pledge by the Company or any Restricted
Subsidiary of the capital stock of any Unrestricted Subsidiary.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") only if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if Incurred at
such time, be permitted to be Incurred for all purposes of the Indenture.
All Designations and Revocations must be evidenced by resolutions of the
Board of Managers of the Company, delivered to the Trustee certifying compliance
with the foregoing provisions.
Limitation on Liens. The Company shall not, and shall not cause or permit
any Restricted Subsidiary to, directly or indirectly, Incur any Liens of any
kind against or upon any of their respective properties or assets now owned or
hereafter acquired, or any proceeds therefrom or any income or profits
therefrom, to secure any Indebtedness unless contemporaneously therewith
effective provision is made, in the case of the Company, to secure the Notes and
all other amounts due under the Indenture, and in the case of a Restricted
Subsidiary which is a Guarantor, to secure such Restricted Subsidiary's
Guarantee of the Notes and all other amounts due under the Indenture, equally
and ratably with such Indebtedness (or, in the event that such Indebtedness is
subordinated in right of payment to the Notes or such Restricted Subsidiary's
Guarantee, prior to such Indebtedness) with a Lien on the same properties and
assets securing such Indebtedness for so long as such Indebtedness is secured by
such Lien, except for (i) Liens securing Senior Indebtedness and Guarantor
Senior Indebtedness and (ii) Permitted Liens.
Disposition of Proceeds of Asset Sales. The Company shall not, and shall
not cause or permit any Restricted Subsidiary to, directly or indirectly, make
any Asset Sale, unless (i) the Company or such Restricted Subsidiary, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value of the assets sold or otherwise disposed of and
(ii) at least 75% of such consideration
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consists of (A) cash or Cash Equivalents; provided, however, that the amount of
(x) any liabilities (as shown on the Company's or such Restricted Subsidiary's
most recent balance sheet) of the Company or any Restricted Subsidiary (other
than liabilities that are by their terms subordinated to the Notes) that are
assumed by the transferee of any such assets, and (y) any notes or other
obligations received by the Company or any such Restricted Subsidiary from such
transferee that are immediately converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received) shall be deemed to be
cash for the purposes of this clause (A), or (B) properties and capital assets
that replace the properties and assets that were the subject of such Asset Sale
or in properties and capital assets that will be used in a Related Business
("Replacement Assets"); provided, however, that if such property or assets
subject to such Asset Sale were directly owned by the Company or a Guarantor,
such Replacement Assets shall also be directly owned by the Company or a
Guarantor. The amount of any Indebtedness (other than any Subordinated
Indebtedness) of the Company or any Restricted Subsidiary that is actually
assumed by the transferee in such Asset Sale and from which the Company and the
Restricted Subsidiaries are fully and unconditionally released shall be deemed
to be cash for purposes of determining the percentage of cash consideration
received by the Company or the Restricted Subsidiaries.
The Company or such Restricted Subsidiary, as the case may be, may (i)
apply the Net Cash Proceeds of any Asset Sale within 180 days of receipt thereof
to repay Senior Indebtedness and permanently reduce any related commitment, or
(ii) make an Investment in Replacement Assets; provided, however, that such
Investment occurs or the Company or a Restricted Subsidiary enters into
contractual commitments to make such Investment, subject only to customary
conditions (other than the obtaining of financing), on or prior to the 180th day
following the receipt of such Net Cash Proceeds and Net Cash Proceeds
contractually committed are so applied within 270 days following the receipt of
such Net Cash Proceeds.
To the extent all or part of the Net Cash Proceeds of any Asset Sale are
not applied as described in clause (i) or (ii) of the immediately preceding
paragraph within the time periods set forth therein (the "Net Proceeds
Utilization Date") (such Net Cash Proceeds, the "Unutilized Net Cash Proceeds"),
the Company shall, within 20 days after such Net Proceeds Utilization Date, make
an Offer to Purchase all outstanding Notes up to a maximum principal amount
(expressed as a multiple of $1,000) of Notes equal to such Unutilized Net Cash
Proceeds, at a purchase price in cash equal to 100% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the Purchase Date;
provided, however, that the Offer to Purchase may be deferred until there are
aggregate Unutilized Net Cash Proceeds equal to or in excess of $5 million, at
which time the entire amount of such Unutilized Net Cash Proceeds, and not just
the amount in excess of $5 million, shall be applied as required pursuant to
this paragraph.
With respect to any Offer to Purchase effected pursuant to this covenant,
among the Notes, to the extent the aggregate principal amount of Notes tendered
pursuant to such Offer to Purchase exceeds the Unutilized Net Cash Proceeds to
be applied to the repurchase thereof, such Notes shall be purchased pro rata
based on the aggregate principal amount of such Notes tendered by each Holder.
To the extent the Unutilized Net Cash Proceeds exceed the aggregate amount of
Notes tendered by the Holders of the Notes pursuant to such Offer to Purchase,
the Company may retain and utilize any portion of the Unutilized Net Cash
Proceeds not applied to repurchase the Notes for any purpose consistent with the
other terms of the Indenture and such Unutilized Net Cash Proceeds shall no
longer be counted in determining the available amount of Unutilized Net Cash
Proceeds for purposes of this covenant.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to an Offer to Purchase. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue
thereof.
Each Holder shall be entitled to tender all or any portion of the Notes
owned by such Holder pursuant to the Offer to Purchase, subject to the
requirement that any portion of a Note tendered must be tendered in an
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integral multiple of $1,000 principal amount and subject to any proration among
tendering Holders as described above.
Merger, Sale of Assets, etc. The Indenture provides that neither of the
Issuers may consolidate with or merge with or into any other entity and the
Company shall not and shall not cause or permit any Restricted Subsidiary to,
sell, convey, assign, transfer, lease or otherwise dispose of all or
substantially all of the Company's and the Restricted Subsidiaries' properties
and assets (determined on a consolidated basis for the Company and the
Restricted Subsidiaries) to any entity in a single transaction or series of
related transactions, unless: (i) either (x) the Company shall be the Surviving
Person or (y) the Surviving Person (if other than the Company) shall be a
corporation or limited liability company organized and validly existing under
the laws of the United States of America or any State thereof or the District of
Columbia or, if any such Restricted Subsidiary was a Foreign Restricted
Subsidiary, under the laws of the United States of America or any state thereof
or the District of Columbia or the jurisdiction under which such Foreign
Restricted Subsidiary was organized, and shall, in any such case, expressly
assume by a supplemental indenture, the due and punctual payment of the
principal of, premium, if any, and interest on all the Notes and the performance
and observance of every covenant of the Indenture and the Registration Rights
Agreement to be performed or observed on the part of the Company; (ii)
immediately thereafter, no Default or Event of Default shall have occurred and
be continuing; and (iii) immediately after giving effect to any such transaction
involving the Incurrence by the Company or any Restricted Subsidiary, directly
or indirectly, of additional Indebtedness (and treating any Indebtedness not
previously an obligation of the Company or any Restricted Subsidiary in
connection with or as a result of such transaction as having been Incurred at
the time of such transaction), the Surviving Person could Incur at least $1.00
of additional Indebtedness (other than Permitted Indebtedness) under the
Consolidated Coverage Ratio of the first paragraph of "Limitation on
Indebtedness" covenant described above.
Notwithstanding the foregoing clause (iii) of the immediately preceding
paragraph, any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Company or any
Restricted Subsidiary that is a Guarantor.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all the properties and assets of one or more Restricted
Subsidiaries the Equity Interest of which constitutes all or substantially all
the properties and assets of the Company shall be deemed to be the transfer of
all or substantially all the properties and assets of the Company.
No Guarantor (other than a Guarantor whose Guarantee is to be released in
accordance with the terms of its Guarantee and the Indenture as provided in the
third paragraph under "Guarantees of the Notes" above) shall consolidate with or
merge with or into another Person, whether or not such Person is affiliated with
such Guarantor and whether or not such Guarantor is the Surviving Person, unless
(i) the Surviving Person (if other than such Guarantor) is a corporation or
limited liability company organized and validly existing under the laws of the
United States, any State thereof or the District of Columbia; (ii) the Surviving
Person (if other than such Guarantor) expressly assumes by a supplemental
indenture all the obligations of such Guarantor under its Guarantee of the Notes
and the performance and observance of every covenant of the Indenture and the
Registration Right Agreement to be performed or observed by such Guarantor;
(iii) at the time of and immediately after such Disposition, no Default or Event
of Default shall have occurred and be continuing; and (iv) immediately after
giving effect to any such transaction involving the Incurrence by such
Guarantor, directly or indirectly, of additional Indebtedness (and treating any
Indebtedness not previously an obligation of such Guarantor in connection with
or as a result of such transaction as having been Incurred at the time of such
transaction), the Company could Incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) under the Consolidated Coverage Ratio of the
first paragraph of the "Limitation of Indebtedness" covenant described above;
provided, however, that this paragraph shall not be a condition to a merger or
consolidation of a Guarantor if such merger or consolidation only involves the
Company and/or one or more other Guarantors.
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In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraphs in
which the Company or a Guarantor, as the case may be, is not the Surviving
Person and the Surviving Person is to assume all the Obligations of the Company
under the Notes, the Indenture and the Registration Rights Agreement or of such
Guarantor under its Guarantee, the Indenture and the Registration Rights
Agreement, as the case may be, pursuant to a supplemental indenture, such
Surviving Person shall succeed to, and be substituted for, and may exercise
every right and power of, the Company or such Guarantor, as the case may be, and
the Company, as the case may be, shall be discharged from its Obligations under
the Indenture and the Notes or such Guarantor shall be discharged from its
Obligations under the Indenture and its Guarantee.
Transactions with Affiliates. The Company shall not, and shall not cause or
permit any Restricted Subsidiary to, directly or indirectly, conduct any
business or enter into any transaction (or series of related transactions) with
or for the benefit of any of their respective Affiliates (including, without
limitation, any Unrestricted Subsidiary) or any officer, director or employee of
the Company or any Subsidiary (each an "Affiliate Transaction"), unless (i) such
Affiliate Transaction is on terms which are no less favorable to the Company or
such Restricted Subsidiary, as the case may be, than could be available in a
comparable transaction with an unaffiliated third party and (ii) if such
Affiliate Transaction (or series of related Affiliate Transactions) involves
aggregate payments or other consideration having a Fair Market Value in excess
of $1.0 million, such Affiliate Transaction is in writing and a majority of the
disinterested members of the Board of Managers of the Company shall have
approved such Affiliate Transaction and determined that such Affiliate
Transaction complies with the foregoing provisions. In addition, any Affiliate
Transaction involving aggregate payments or other consideration having a Fair
Market Value in excess of $5.0 million will also require a written opinion from
an Independent Financial Advisor (filed with the Trustee) stating that the terms
of such Affiliate Transaction are fair, from a financial point of view, to the
Company or the Restricted Subsidiary involved in such Affiliate Transaction, as
the case may be.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions with or among the Company and any Restricted
Subsidiary or between or among Restricted Subsidiaries; (ii) reasonable fees and
compensation paid to, and indemnity provided on behalf of, officers, directors,
employees, consultants or agents of the Company or any Restricted Subsidiary of
the Company as determined in good faith by the Company's Board of Managers;
(iii) any transactions undertaken pursuant to any contractual obligations in
existence on the Issue Date (as in effect on the Issue Date); (iv) any
Restricted Payments made in compliance with "Limitation on Restricted Payments"
above; (v) the provision by Persons who may be deemed Affiliates or stockholders
of the Company of investment banking, commercial banking, trust, lending or
financing, investment, underwriting, placement agent, financial advisory or
similar services to the Company or its Subsidiaries; (vi) reasonable and
customary loans to employees of the Company and its Subsidiaries which are
approved by the Board of Managers of the Company in good faith; and (vii)
transactions with customers, 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 the Company or
its Restricted Subsidiaries, in the reasonable determination of the Board of
Managers of the Company or the senior management thereof, or are on terms at
least as favorable as might reasonably have been obtained at such time from an
unaffiliated party.
Limitation on the Sale or Issuance of Equity Interests of Restricted
Subsidiaries. The Company shall not sell any Equity Interest of a Restricted
Subsidiary, and shall not cause or permit any Restricted Subsidiary, directly or
indirectly, to issue or sell or have outstanding any Equity Interests, except:
(i) to the Company or a Wholly Owned Restricted Subsidiary; or (ii) if,
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary. Notwithstanding
the foregoing, the Company is permitted to sell all the Equity Interests of a
Restricted Subsidiary as long as the Company is in compliance with the terms of
the covenants described under "Disposition of Proceeds of Asset Sales" and, if
applicable, "Merger, Sale of Assets, etc." above.
Guarantees by Restricted Subsidiaries. The Indenture provides that the
Company will not create or acquire, nor cause or permit any of the Restricted
Subsidiaries, directly or indirectly, to create or acquire, any Subsidiary other
than (A) an Unrestricted Subsidiary in accordance with the other terms of the
Indenture,
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(B) a Foreign Restricted Subsidiary or (C) a Domestic Restricted Subsidiary
that, simultaneously with such creation or acquisition, executes and delivers a
supplemental indenture to the Indenture pursuant to which it will become a
Guarantor under the Indenture in accordance with "Guarantees of the Notes"
above.
Provision of Financial Information. Whether or not the Company is subject
to Section 13(a) or 15(d) of the Exchange Act, or any successor provision
thereto, the Company shall file with the SEC (if permitted by SEC practice and
applicable law and regulations) the annual reports, quarterly reports and other
documents which the Issuers would have been required to file with the SEC
pursuant to such Section 13(a) or 15(d) or any successor provision thereto if
the Company were so subject, such documents to be filed with the SEC on or prior
to the respective dates (the "Required Filing Dates") by which the Company would
have been required so to file such documents if the Company were so subject. The
Company shall also in any event (a) within 15 days of each Required Filing Date
(whether or not permitted or required to be filed with the SEC) (i) transmit (or
cause to be transmitted) by mail to all Holders, as their names and addresses
appear in the Note register, without cost to such Holders, and (ii) file with
the Trustee, copies of the annual reports, quarterly reports and other documents
which the Company is required to file with the SEC pursuant to the preceding
sentence, or, if such filing is not so permitted, information and data of a
similar nature, and (b) if, notwithstanding the preceding sentence, filing such
documents by the Issuers with the SEC is not permitted by SEC practice or
applicable law or regulations, promptly upon written request supply copies of
such documents to any Holder. In addition, for so long as any Notes remain
outstanding and prior to the later of the consummation of the Exchange Offer and
the filing of the Initial Shelf Registration Statement, if required, the Company
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, and, to any beneficial holder of
Notes, if not obtainable from the SEC, information of the type that would be
filed with the SEC pursuant to the foregoing provisions, upon the request of any
such holder.
EVENTS OF DEFAULT
The occurrence of any of the following is defined as an "Event of Default"
under the Indenture: (a) failure to pay principal of (or premium, if any, on)
any Note when due (whether or not prohibited by the provisions of the Indenture
described under "Subordination of the Notes" above); (b) failure to pay any
interest on any Note when due, which failure continues for 30 days or more
(whether or not prohibited by the provisions of the Indenture described under
"Subordination of the Notes" above); (c) default in the payment of principal of
or interest on any Note required to be purchased pursuant to any Offer to
Purchase required by the Indenture when due and payable or failure to pay on the
Purchase Date the Purchase Price for any Note validly tendered pursuant to any
Offer to Purchase (whether or not prohibited by the provisions of the Indenture
described under "Subordination of the Notes" above); (d) failure to perform any
other covenant or agreement of the Company under the Indenture or in the Notes
or of the Guarantors under the Indenture or in the Guarantees which failure
continues for 30 days or more after written notice to the Company by the Trustee
or Holders of at least 25% in aggregate principal amount of the outstanding
Notes; (e) default or defaults under the terms of one or more instruments
evidencing or securing Indebtedness of the Company or any of its Restricted
Subsidiaries having an outstanding principal amount of $5.0 million or more
individually or in the aggregate that has resulted in the acceleration of the
payment of such Indebtedness or failure by the Company or any of its Restricted
Subsidiaries to pay principal when due at the stated maturity of any such
Indebtedness and such default or defaults shall have continued after any
applicable grace period and shall not have been cured or waived; (f) the
rendering of a final judgment or judgments (not subject to appeal) against the
Company or any of its Restricted Subsidiaries in an amount of $5.0 million or
more (net of any amounts covered by insurance) which remains undischarged or
unstayed for a period of 60 days after the date on which the right to appeal has
expired; (g) certain events of bankruptcy, insolvency or reorganization
affecting the Company or any of its Significant Restricted Subsidiaries; or (h)
other than as provided in or pursuant to any Guarantee or the Indenture, any
Guarantee of a Significant Restricted Subsidiary ceases to be in full force and
effect or is declared null and void and unenforceable or found to be invalid or
any Guarantor denies in writing its liability under its Guarantee (other than by
reason of a release of such Guarantor from its Guarantee in accordance with the
terms of the Indenture and such Guarantee).
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Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders of Notes, unless
such Holders shall have offered to the Trustee reasonable indemnity. Subject to
such provisions for the indemnification of the Trustee, the Holders of a
majority in aggregate principal amount of the outstanding Notes will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
such Trustee.
If an Event of Default with respect to the Notes (other than an Event of
Default with respect to the Company described in clause (g) of the preceding
paragraph) occurs and is continuing, the Trustee or the Holders of at least 25%
in aggregate principal amount of the outstanding Notes, by notice in writing to
the Company may declare the unpaid principal of (and premium, if any) and
accrued interest to the date of acceleration on all the outstanding Notes to be
due and payable immediately and, upon any such declaration, such principal
amount (and premium, if any) and accrued interest, notwithstanding anything
contained in the Indenture or the Notes to the contrary will become immediately
due and payable. If an Event of Default specified in clause (g) of the preceding
paragraph with respect to the Company occurs under the Indenture, the Notes will
ipso facto become immediately due and payable without any declaration or other
act on the part of the Trustee or any Holder of the Notes.
Any such declaration with respect to the Notes may be annulled by the
Holders of a majority in aggregate principal amount of the outstanding Notes
upon the conditions provided in the Indenture. For information as to waiver of
defaults, see "Modification and Waiver" below.
The Indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default or Event of Default with respect to the Notes
outstanding, give the Holders of the Notes thereof notice of all uncured
Defaults or Events of Default thereunder known to it; provided, however, that,
except in the case of a Default or an Event of Default in payment with respect
to the Notes or a Default or Event of Default in complying with "Certain
Covenants -- Merger, Sale of Assets, etc." above, the Trustee shall be protected
in withholding such notice if and so long as a committee of its trust officers
in good faith determines that the withholding of such notice is in the interest
of the Holders of the Notes.
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default thereunder and unless the Holders of at least 25% of the aggregate
principal amount of the outstanding Notes shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as the
Trustee, and the Trustee shall have not have received from the Holders of a
majority in aggregate principal amount of such outstanding Notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a Holder of such a Note for enforcement of payment of the
principal of and premium, if any, or interest on such Note on or after the
respective due dates expressed in such Note.
The Company is required to furnish to the Trustee annually a statement as
to the performance by the Issuers of certain of their obligations under the
Indenture and as to any default in such performance.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATOR, MEMBERS,
MANAGERS AND STOCKHOLDERS
No director, officer, employee, incorporator, member, manager or
stockholder of either of the Issuers or any of their Affiliates, as such, shall
have any liability for any obligations of either of the Issuers or any of their
Affiliates under the Notes or the Indenture 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.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes, except for (i) the rights of Holders to
receive payments in respect of the principal of, premium, if any, and interest
on the Notes when such payments are due, (ii) the Company's obligations with
respect to the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payments, (iii) the rights, powers, trust, duties and immunities of
the Trustee and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or an Event of Default with respect
to the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, reorganization and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in U.S. dollars, non-callable United States Government
Obligations, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the Notes on the
stated date for payment thereof or on the applicable redemption date, as the
case may be; (ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (B) since
the date of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the Holders will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit or, insofar as
Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 91st day after the date of deposit; (v) such
Legal Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under, the Indenture or any other material
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound; (vi) the
Company shall have delivered to the Trustee an officers' certificate stating
that the deposit was not made by the Company with the intent of preferring the
Holders over any other creditors of the Company or with the intent of defeating,
hindering, delaying or defrauding any other creditors of the Company or others;
(vii) the Company shall have delivered to the Trustee an officers' certificate
and an opinion of counsel, each stating that all conditions precedent provided
for or relating to the Legal Defeasance or the Covenant Defeasance have been
complied with; (viii) the Company shall have delivered to the Trustee an opinion
of counsel to the effect that (A) the trust funds will not be subject to any
rights of holders of Senior Indebtedness, including, without limitation, those
arising under the Indenture, and (B) assuming no intervening bankruptcy of the
Company between the date of deposit and the 91st day following the date of the
deposit and that no Holder is an insider of the Company, after the 91st day
following the date of the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; and (ix) certain other customary
conditions precedent are satisfied. Notwithstanding the foregoing, the opinion
of counsel required by clause (ii) above need not be delivered if all Notes not
theretofore delivered to the Trustee for cancellation (x) have become due and
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payable, (y) will become due and payable on the maturity date within one year or
(z) are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Company.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration or transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (ii)
the Company has paid all other sums payable under the Indenture by the Company;
and (iii) the Company has delivered to the Trustee an officers' certificate and
an opinion of counsel stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with.
GOVERNING LAW
The Indenture, the Notes and the Guarantees are governed by the laws of the
State of New York without regard to principles of conflicts of laws.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Issuers,
the Guarantors, and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the outstanding Notes (including consents obtained
in connection with a tender offer or exchange offer for the Notes); provided,
however, that no such modification or amendment to the Indenture may, without
the consent of the Holder of each Note affected thereby, (a) change the maturity
of the principal of or any installment of interest on any such Note or alter the
optional redemption or repurchase provisions of any such Note or the Indenture
in a manner adverse to the Holders of the Notes; (b) reduce the principal amount
(or the premium) of any such Note; (c) reduce the rate of or extend the time for
payment of interest on any such Note; (d) change the place or currency of
payment of principal of (or premium) or interest on any such Note; (e) modify
any provisions of the Indenture relating to the waiver of past defaults (other
than to add sections of the Indenture or the Notes subject thereto) or the right
of the Holders of Notes to institute suit for the enforcement of any payment on
or with respect to any such Note or any Guarantee in respect thereof or the
modification and amendment provisions of the Indenture and the Notes (other than
to add sections of the Indenture or the Notes which may not be amended,
supplemented or waived without the consent of each Holder affected); (f) reduce
the percentage of the principal amount of outstanding Notes necessary for
amendment to or waiver of compliance with any provision of the Indenture or the
Notes or for waiver of any Default in respect thereof; (g) waive a default in
the payment of principal of, interest on, or redemption payment with respect to,
the Notes (except a rescission of acceleration of the Notes by the Holders
thereof as provided in the Indenture and a waiver of the payment default that
resulted from such acceleration); (h) modify the ranking or priority of any Note
or the Guarantee in respect thereof of any Guarantor or modify the definition of
Senior Indebtedness or Guarantor Senior Indebtedness or amend or modify the
subordination provisions of the Indenture in any manner adverse to the Holders
of the Notes; (i) modify the provisions of any covenant (or the related
definitions) in the Indenture requiring the Company to make an Offer to Purchase
in a manner materially adverse to the Holders of Notes affected thereby
otherwise than in accordance with the Indenture;
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or (j) release any Guarantor from any of its obligations under its Guarantee or
the Indenture otherwise than in accordance with the Indenture.
The Holders of a majority in aggregate principal amount of the outstanding
Notes, on behalf of all Holders of Notes, may waive compliance by the Issuers
and the Guarantors with certain restrictive provisions of the Indenture. Subject
to certain rights of the Trustee, as provided in the Indenture, the Holders of a
majority in aggregate principal amount of the Notes, on behalf of all Holders,
may waive any past default under the Indenture (including any such waiver
obtained in connection with a tender offer or exchange offer for the Notes),
except a default in the payment of principal, premium or interest or a default
arising from failure to purchase any Notes tendered pursuant to an Offer to
Purchase, or a default in respect of a provision that under the Indenture cannot
be modified or amended without the consent of the Holder of each Note that is
affected.
THE TRUSTEE
Except during the continuance of a Default, the Trustee will perform only
such duties as are specifically set forth in the Indenture. During the existence
of a Default, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of either of the Issuers, any Guarantor or any other obligor
upon the Notes, to obtain payment of claims in certain cases or to realize on
certain property received by it in respect of any such claim as security or
otherwise. The Trustee is permitted to engage in other transactions with the
Issuers or an Affiliate of the Issuers; provided, however, that if it acquires
any conflicting interest (as defined in the Indenture or in the Trust Indenture
Act), it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Acquisition from such Person or (b) existing at the time such
Person becomes a Restricted Subsidiary or is merged or consolidated with or into
the Company or any Restricted Subsidiary.
"Acquired Person" means, with respect to any specified Person, any other
Person which merges with or into or becomes a Subsidiary of such specified
Person.
"Acquisition" means (i) any capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) by the Company or any Restricted
Subsidiary to any other Person, or any acquisition or purchase of Equity
Interests of any other Person by the Company or any Restricted Subsidiary, in
either case pursuant to which such Person shall become a Restricted Subsidiary
or shall be consolidated with or merged into the Company or any Restricted
Subsidiary or (ii) any acquisition by the Company or any Restricted Subsidiary
of the assets of any Person which constitute substantially all of an operating
unit or line of business of such Person or which is otherwise outside of the
ordinary course of business.
"Acquisition Facility" means a credit facility entered into by the Company
and one or more commercial banks or other lenders pursuant to which the Company
and/or its Restricted Subsidiaries may incur Indebtedness for the purpose of
financing one or more acquisitions of assets or equity securities of any Related
Business and paying related fees and expenses.
"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"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common
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control with"), 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.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition (including, without
limitation, any merger, consolidation or sale-leaseback transaction) to any
Person other than the Company or a Wholly Owned Restricted Subsidiary, in one
transaction or a series of related transactions, of (i) any Equity Interest of
any Restricted Subsidiary (other than directors' qualifying shares, to the
extent mandated by applicable law); (ii) any assets of the Company or any
Restricted Subsidiary which constitute substantially all of an operating unit or
line of business of the Company or any Restricted Subsidiary; or (iii) any other
property or asset of the Company or any Restricted Subsidiary outside of the
ordinary course of business (including the receipt of proceeds paid on account
of the loss of or damage to any property or asset and awards of compensation for
any asset taken by condemnation, eminent domain or similar proceedings). For the
purposes of this definition, the term "Asset Sale" shall not include (a) any
transaction consummated in compliance with "Certain Covenants -- Merger, Sale of
Assets, etc." above and the creation of any Lien not prohibited by "Certain
Covenants -- Limitation on Liens" above; (b) sales of property or equipment that
has become worn out, obsolete or damaged or otherwise unsuitable for use in
connection with the business of the Company or any Restricted Subsidiary, as the
case may be; (c) any transaction consummated in compliance with "Certain
Covenants -- Limitation on Restricted Payments" above; and (d) any transfers of
properties and assets to the Company, between the Company and Wholly Owned
Restricted Subsidiaries that are Guarantors or between Wholly Owned Restricted
Subsidiaries. In addition, solely for purposes of "Certain
Covenants -- Disposition of Proceeds of Asset Sales" above, any sale,
conveyance, transfer, lease or other disposition of any property or asset,
whether in one transaction or a series of related transactions, involving assets
with a Fair Market Value not in excess of $1.0 million in any fiscal year shall
be deemed not to be an Asset Sale.
"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, as at the time of determination, the present value (discounted according
to GAAP at the cost of indebtedness implied in the lease) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale and Lease-Back Transaction (including any period for
which such lease has been extended).
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Managers of such Person or a duly authorized
committee of such Board of Managers.
"Capitalized 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 such time be required to be capitalized on the balance sheet in
accordance with GAAP.
"Cash Equivalents" means: (a) securities issued or directly and fully
guaranteed or insured by the U.S. government or any agency or instrumentality
thereof, the government of Canada or the government of any member of the
European Union, in each case having maturities of not more than one year from
the date of acquisition; (b) domestic and Eurocurrency certificates of deposit,
time deposits and base rate certificates of deposit with maturities of six
months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case
with any commercial bank incorporated under the laws of the United States, any
state thereof, the District of Columbia or its branches or agencies or under the
laws of Canada or the laws of any member of the European Union and having
capital and surplus in excess of $250 million and whose long-term debt is rated
at least "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule 436
under the Act); (c) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (a) and (b)
above entered into with any financial institution meeting the qualifications
specified in clause (b) above; (d) commercial paper rated P-1, A-1 or the
equivalent thereof by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Ratings Group ("S&P"), respectively, and in each case maturing within six
months after the date of acquisition; (e) marketable direct obligations issued
by any state of the United States of America or any political subdivision of any
such state or any public instrumentality thereof maturing within one year from
the date of acquisition thereof and, at the time of
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acquisition, having one of the two highest ratings obtainable from either S&P or
Moody's; (f) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (a) through (e)
above; and (g) in the case of any Foreign Restricted Subsidiary, Investments:
(i) in direct obligations of the sovereign nation (or any agency thereof) in
which such Foreign Restricted Subsidiary is organized and is conducting business
or in obligations fully and unconditionally guaranteed by such sovereign nation
(or any agency thereof) or (ii) of the type and maturity described in clauses
(a) and (b) above of foreign obligors, which Investments or obligors (of the
parents of such obligors) have ratings described in such clauses or equivalent
ratings from comparable foreign rating agencies.
"Change of Control" means the occurrence of any of the following events
(whether or not approved by the Board of Managers of the Company): (i) any
Person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act,
including any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other
than one or more Permitted Holders, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 and 13d-5 under the Exchange Act, except that a Person
shall be deemed to have "beneficial ownership" of all shares that any such
Person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time, upon the happening of an event or otherwise),
directly or indirectly, of more than 35% of the total voting power of the then
outstanding Voting Equity Interests of the Company; (ii) the Company
consolidates with, or merges with or into, another Person (other than a Wholly
Owned Restricted Subsidiary) or the Company or any of its Subsidiaries sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of the assets of the Company and its Subsidiaries (determined
on a consolidated basis) to any Person (other than the Company or any Wholly
Owned Restricted Subsidiary), other than any such transaction where immediately
after such transaction the Person or Persons that "beneficially owned" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person
shall be deemed to have "beneficial ownership" of all securities that such
Person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time) immediately prior to such transaction,
directly or indirectly, a majority of the total voting power of the then
outstanding Voting Equity Interests of Holdings or the Company, as the case may
be, "beneficially own" (as so determined), directly or indirectly, a majority of
the total voting power of the then outstanding Voting Equity Interests of the
surviving or transferee Person; (iii) during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board of
Managers of the Company (together with any new directors whose election by such
Board of Managers or whose nomination for election by the members of the Company
was approved by a vote of a majority of the directors of the Company then still
in office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Managers of the Company then in
office; or (iv) the Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution other than in a transaction which complies with the
provisions described under "-- Merger, Sale of Assets, etc."
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated EBITDA for the four quarter
period of the most recent four consecutive fiscal quarters ending prior to the
date of such determination (the "Four Quarter Period") to (ii) Consolidated
Fixed Charges for such Four Quarter Period; provided, however, that (1) if the
Company or any Restricted Subsidiary has incurred any Indebtedness since the
beginning of such Four Quarter Period that remains outstanding on such date of
determination or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an Incurrence of Indebtedness, Consolidated
EBITDA and Consolidated Fixed Charges for such Four Quarter Period shall be
calculated after giving effect on a pro forma basis to such Indebtedness as if
such Indebtedness had been Incurred on the first day of such Four Quarter Period
and the discharge of any other Indebtedness repaid, repurchased or otherwise
discharged with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such Four Quarter Period, (2) if since the
beginning of such Four Quarter Period the Company or any Restricted Subsidiary
shall have made any Asset Sale described in clauses (i) or (ii) of the
definition thereof, the Consolidated EBITDA for such Four Quarter Period shall
be reduced by an amount equal to the Consolidated EBITDA (if positive) directly
attributable to the assets that are the subject of such Asset Sale for such Four
Quarter Period or increased by an amount equal to the Consolidated EBITDA (if
negative) directly attributable thereto for such Four
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Quarter Period and Consolidated Fixed Charges for such Four Quarter Period shall
be reduced by an amount equal to the Consolidated Fixed Charges directly
attributable to any Indebtedness of the Company or any Restricted Subsidiary
repaid, repurchased or otherwise discharged with respect to the Company and its
continuing Restricted Subsidiaries in connection with such Asset Sale for such
Four Quarter Period (or, if the Equity Interests of any Restricted Subsidiary
are sold, the Consolidated Fixed Charges for such Four Quarter Period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent the
Company and its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale), (3) if since the beginning of such Four Quarter
Period the Company or any Restricted Subsidiary (by merger or otherwise) shall
have made an Investment in any Restricted Subsidiary (or any Person that becomes
a Restricted Subsidiary) or an acquisition of assets, including any acquisition
of assets occurring in connection with a transaction causing a calculation to be
made hereunder, which constitutes all or substantially all of an operating unit
of a business, Consolidated EBITDA and Consolidated Fixed Charges for such Four
Quarter Period shall be calculated after giving pro forma effect thereto
(including the Incurrence of any Indebtedness) as if such Investment or
acquisition occurred on the first day of such Four Quarter Period and (4) if
since the beginning of such Four Quarter Period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or any
Restricted Subsidiary since the beginning of such Four Quarter Period) shall
have made any Asset Sale or any Investment or acquisition of assets that would
have required an adjustment pursuant to clause (2) or (3) above if made by the
Company or a Restricted Subsidiary during such Four Quarter Period, Consolidated
EBITDA and Consolidated Fixed Charges for such Four Quarter Period shall be
calculated after giving pro forma effect thereto as if such Asset Sale,
Investment or acquisition of assets occurred on, with respect to any Investment
or acquisition, the first day of such Four Quarter Period and, with respect to
any Asset Sale, the day prior to the first day of such Four Quarter Period. For
purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto and the
amount of Consolidated Fixed Charges associated with any Indebtedness Incurred
in connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting officer of the Company in
accordance with Regulation S-X under the Securities Act as in effect on the
Issue Date. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest expense on such Indebtedness shall be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period (taking into account any agreement under
which Interest Rate Protection Obligations are outstanding applicable to such
Indebtedness if such agreement under which such Interest Rate Protection
Obligations are outstanding has a remaining term as at the date of determination
in excess of 12 months); provided, however, that the Consolidated Fixed Charges
of the Company attributable to interest on any Indebtedness Incurred under a
revolving credit facility computed on a pro forma basis shall be computed based
upon the average daily balance of such Indebtedness during the Four Quarter
Period.
"Consolidated EBITDA" means, for any period, the Consolidated Net Income
for such period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) Consolidated Income Tax Expense for such period;
(ii) Consolidated Interest Expense for such period; and (iii) Consolidated
Non-cash Charges for such period less (A) all non-cash items increasing
Consolidated Net Income for such period and (B) all cash payments during such
period relating to non-cash charges that were added back in determining
Consolidated EBITDA in any prior period.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense and
(ii) the product of (x) the amount of all dividends on any series of Preferred
Equity Interest (other than Qualified Equity Interests) of such Person and its
Restricted Subsidiaries (other than dividends paid solely in Qualified Equity
Interests) paid, accrued or scheduled to be paid or accrued during such period
times (y) a fraction, the numerator of which is one and the denominator of which
is one minus the then current effective consolidated federal, state and local
tax rate of such Person, expressed as a decimal.
"Consolidated Income Tax Expense" means, with respect to the Company for
any period, the provision for federal, state, local and foreign income taxes
payable by the Company and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
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"Consolidated Interest Expense" means, with respect to the Company for any
period, without duplication, the sum of (i) the interest expense of the Company
and the Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP, including, without limitation, (a) any
amortization of debt discount and amortization or write-off of deferred
financing costs, (b) the net cost or benefit under Interest Rate Protection
Obligations (including any amortization of discounts), (c) the interest portion
of any deferred payment obligation, (d) all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, (e) all capitalized interest and all accrued interest, (f) non-cash
interest expense and (g) interest on Indebtedness of another Person that is
guaranteed by the Company or any Restricted Subsidiary actually paid by the
Company or any Restricted Subsidiary and (ii) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by the Company and the Restricted Subsidiaries during such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, the consolidated net
income (loss) of the Company and the Restricted Subsidiaries; provided, however,
that there shall not be included in such Consolidated Net Income: (i) any net
income (loss) of any Person if such person is not a Subsidiary, except (A) to
the extent of cash actually distributed by such Person during such period to the
Company or a Restricted Subsidiary as a dividend or other distribution and (B)
the Company's equity in a net loss of any such Person (other than an
Unrestricted Subsidiary) for such period shall be included in determining such
Consolidated Net Income; (ii) any net income (loss) of any person acquired by
the Company or a Restricted Subsidiary in a pooling of interests transaction for
any period prior to the date of such acquisition; (iii) any net income (but not
loss) of any Restricted Subsidiary if such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Restricted Subsidiary, directly or indirectly, to the
Company to the extent of such restrictions; (iv) any gain or loss realized upon
the sale or other disposition of any asset of the Company or the Restricted
Subsidiaries (including pursuant to any sale/leaseback transaction) outside of
the ordinary course of business (including, without limitation, on or with
respect to Investments) and there shall not be included dividends, distributions
or interest thereon; (v) any extraordinary gain or loss and any foreign currency
gains or losses; (vi) the cumulative effect of a change in accounting principles
after the Issue Date; and (vii) any restoration to income of any contingency
reserve of an extraordinary, non-recurring or unusual nature, except to the
extent that provision for such reserve was made out of Consolidated Net Income
accrued at any time following the Issue Date.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period the sum of (A) depreciation, (B) amortization and (C) other non-cash
expenses of such Person and its Restricted Subsidiaries reducing Consolidated
Net Income of such Person and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP (excluding, for
purposes of clause (C) only, such charges which require an accrual of or a
reserve for cash charges or payments for any future period and excluding
minority interest).
"Credit Facilities" means (i) the Second Amended and Restated Credit
Agreement, dated as of August 5, 1997, among the Company, the Subsidiaries of
the Company identified on the signature pages thereof and any Restricted
Subsidiary that is later added thereto, the lenders named therein, NBD Bank, as
Administrative Agent and Documentation and Collateral Agent, and The Chase
Manhattan Bank, as Co-Administrative Agent and Syndication Agent, (ii) the
Credit Agreement, dated as of July 2, 1997, among Advanced Accessory Systems
Canada Inc., First Chicago NBD Bank, Canada, as Agent, First Chicago NBD Bank,
Canada and The Chase Manhattan Bank of Canada, as lenders and the guarantors
identified on the signature pages thereof and (iii) an Acquisition Facility, in
each case, as amended, including any deferrals, renewals, extensions,
replacements, refinancings or refundings thereof, or amendments, modifications
or supplements thereto and any agreement providing therefor, whether by or with
the same or any other lender, creditor, group of lenders or group of creditors,
and including related notes, guarantee and note agreements and other instruments
and agreements executed in connection therewith.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
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"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Designated Senior Indebtedness" means (a) any Indebtedness outstanding
under the Credit Facilities and (b) any other Senior Indebtedness which, at the
time of determination, has an aggregate principal amount outstanding, together
with any commitments to lend additional amounts, of at least $25.0 million, if
the instrument governing such Senior Indebtedness expressly states that such
Indebtedness is "Designated Senior Indebtedness" for purposes of the Indenture.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets.
"Disqualified Equity Interest" means any Equity Interest which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable at the option of the holder 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
(except, in each case, upon the occurrence of a Change of Control), in whole or
in part, or exchangeable into Indebtedness on or prior to the final maturity
date of the Notes.
"Domestic" with respect to any Person shall mean a Person whose
jurisdiction of incorporation or formation is the United States, any state
thereof or the District of Columbia.
"Equity Interest" in any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Equity Interests.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"Existing Management Holder" means each of F. Alan Smith, Marshall D.
Gladchun, Roger T. Morgan, Terence C. Seikel, Richard E. Borghi, Barry Banducci
and Gerard J. Brink.
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction; provided, however, that the Fair Market
Value of any such asset or assets shall be determined conclusively by the Board
of Managers of the Company acting in good faith, and shall be evidenced by
resolutions of the Board of Managers of the Company delivered to the Trustee.
"Foreign EBITDA" means, for any period, the aggregate of the Consolidated
EBITDA of each of the Company's Foreign Restricted Subsidiaries.
"Foreign Interest Expense" means, for any period, the aggregate of the
Consolidated Interest Expense of each of the Company's Foreign Restricted
Subsidiaries.
"Foreign Restricted Subsidiary" means a Restricted Subsidiary other than a
Domestic Restricted Subsidiary.
"GAAP" means, at any date of determination, generally accepted accounting
principles in effect in the United States which are applicable at the date of
determination and which are consistently applied for all applicable periods.
"Guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the
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event of non-performance) of all or any part of such obligation, including,
without limiting the foregoing, the payment of amounts drawn down by letters of
credit.
"Guarantee" means the guarantee of the Notes by each Guarantor under the
Indenture.
"Guarantor" means (i) each Domestic Subsidiary of the Company existing on
the Issue Date and (ii) each other Domestic Restricted Subsidiary, formed,
created or acquired before or after the Issue Date, required to become a
Guarantor after the Issue Date.
"Guarantor Senior Indebtedness" means, with respect to any Guarantor, at
any date, (a) all Obligations of such Guarantor under the Credit Facilities; (b)
all Interest Rate Protection Obligations of such Guarantor; (c) all Obligations
of such Guarantor under letters of credit; and (d) all other Indebtedness of
such Guarantor, including principal, premium, if any, and interest (including
Post-Petition Interest) on such Indebtedness unless the instrument under which
such Indebtedness of such Guarantor is Incurred expressly provides that such
Indebtedness is not senior or superior in right of payment to such Guarantor's
Guarantee of the Notes, and all renewals, extensions, modifications, amendments
or refinancings thereof. Notwithstanding the foregoing, Guarantor Senior
Indebtedness shall not include (a) to the extent that it may constitute
Indebtedness, any Obligation for federal, state, local or other taxes; (b) any
Indebtedness among or between such Guarantor and any Subsidiary of such
Guarantor or any Affiliate of such Guarantor or any of such Affiliate's
Subsidiaries; (c) to the extent that it may constitute Indebtedness, any
Obligation in respect of any trade payable Incurred for the purchase of goods or
materials, or for services obtained, in the ordinary course of business; (d)
Indebtedness evidenced by such Guarantor's Guarantee of the Notes; (e)
Indebtedness of such Guarantor that is expressly subordinate or junior in right
of payment to any other Indebtedness of such Guarantor; (f) to the extent that
it may constitute Indebtedness, any obligation owing under leases (other than
Capitalized Lease Obligations) or management agreements; and (g) any obligation
that by operation of law is subordinate to any general unsecured obligations of
such Guarantor.
"Holders" means the registered holders of the Notes.
"Income Tax Liabilities" means with respect to any member or, in the event
such member is a flow-through entity, such direct or indirect owner or owners of
such member as is or are subject to income taxes on income of the Company or any
of its Restricted Subsidiaries that are limited liability companies for any
calendar year, an amount determined by multiplying (a) such Person's allocable
share of all taxable income and gains of such limited liability company by (b)
forty four percent (44%).
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings
correlative to the foregoing). Indebtedness of any Acquired Person or any of its
Subsidiaries existing at the time such Acquired Person becomes a Restricted
Subsidiary (or is merged into or consolidated with the Company or any Restricted
Subsidiary), whether or not such Indebtedness was Incurred in connection with,
as a result of, or in contemplation of, such Acquired Person becoming a
Restricted Subsidiary (or being merged into or consolidated with the Company or
any Restricted Subsidiary), shall be deemed Incurred at the time any such
Acquired Person becomes a Restricted Subsidiary or merges into or consolidates
with the Company or any Restricted Subsidiary.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (a) every obligation of such Person for money borrowed; (b)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments; (c) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (d) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable incurred in the ordinary course of business and payable
in accordance with industry practices, or other accrued liabilities arising in
the ordinary course of business); (e) every Capital Lease Obligation of such
Person; (f) every net obligation under Interest Rate Protection Obligations or
similar agreements or Currency
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Agreements of such Person; (g) Attributable Indebtedness; (h) every obligation
of the type referred to in clauses (a) through (g) of another Person the payment
of which, in either case, such Person has guaranteed or is responsible or liable
for, directly or indirectly, as obligor, guarantor or otherwise; and (i) any and
all deferrals, renewals, extensions and refundings of, or amendments,
modifications or supplements to, any liability of the kind described in any of
the preceding clauses (a) through (h) above. Indebtedness (i) shall not include
obligations of any Person (x) arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
drawn against insufficient funds in the ordinary course of business, provided
that such obligations are extinguished within five Business Days of their
incurrence, (y) resulting from the endorsement of negotiable instruments for
collection in the ordinary course of business and consistent with past business
practices and (z) under stand-by letters of credit to the extent collateralized
by cash or Cash Equivalents; (ii) which provides that an amount less than the
principal amount thereof shall be due upon any declaration of acceleration
thereof shall be deemed to be incurred or outstanding in an amount equal to the
accreted value thereof at the date of determination; (iii) shall include the
liquidation preference and any mandatory redemption payment obligations in
respect of any Disqualified Equity Interests of the Company or any Restricted
Subsidiary; and (iv) shall not include obligations under performance bonds,
performance guarantees, surety bonds and appeal bonds, letters of credit or
similar obligations, incurred in the ordinary course of business.
"Independent Financial Advisor" means a nationally recognized, accounting,
appraisal or investment banking firm or consultant (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Managers of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"Insolvency or Liquidation Proceeding" means, with respect to any Person,
any liquidation, dissolution or winding up of such Person, or any bankruptcy,
reorganization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.
"interest" means, with respect to the Notes, the sum of any cash interest
and any Additional Interest (as defined under "Registration Rights" below) on
the Notes.
"Interest Rate Protection Obligations" means, with respect to any Person,
the Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Investment" means, with respect to any Person, any direct or indirect
loan, advance, guarantee or other extension of credit or capital contribution to
(by means of transfers of cash or other property or assets to others or payments
for property or services for the account or use of others, or otherwise), or
purchase or acquisition of capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued by, any other Person. For
purposes of the "Limitation on Restricted Payments" covenant above, the amount
of any Investment shall be the original cost of such Investment, plus the cost
of all additions thereto, but without any other adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment; reduced by the payment of dividends or distributions in connection
with such Investment or any other amounts received in respect of such
Investment; provided, however, that no such payment of dividends or
distributions or receipt of any such other amounts shall reduce the amount of
any Investment if such payment of dividends or distributions or receipt of any
such amounts would be included in Consolidated Net Income. In determining the
amount of any Investment involving a transfer of any property or asset other
than cash, such property shall be valued at its Fair Market Value at the time of
such transfer, as determined in good faith by the Board of Managers (or
comparable body) of the Person making such transfer. If the Company or any
Restricted Subsidiary sells or otherwise disposes of any Voting Equity Interests
of any direct or indirect Restricted Subsidiary such that, after giving effect
to any such sale or disposition, the Company no longer owns, directly or
indirectly, greater than 50% of the outstanding Voting Equity Interests of such
Restricted Subsidiary, the Company shall be deemed to have made an Investment on
the date of any such sale or disposition equal to the fair market value of
Voting Equity Interests of such former Restricted Subsidiary not sold or
disposed of.
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"Issue Date" means the original issue date of the Notes.
"Lien" means any lien, mortgage, charge, security interest, hypothecation,
assignment for security or encumbrance of any kind (including any conditional
sale or capital lease or other title retention agreement, any lease in the
nature thereof, and any agreement to give any security interest).
"Maturity Date" means the date, which is set forth on the face of the
Notes, on which the Notes will mature.
"Net Cash Proceeds" means the aggregate proceeds in the form of cash or
Cash Equivalents received by the Company or any Restricted Subsidiary in respect
of any Asset Sale, including all cash or Cash Equivalents received upon any
sale, liquidation or other exchange of proceeds of Asset Sales received in a
form other than cash or Cash Equivalents, net of (a) the direct costs relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof; (b) taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements); (c) amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale (including payments made to obtain or avoid the need for the
consent of any holder of such Indebtedness); (d) amounts deemed, in good faith,
appropriate by the Board of Managers of the Company to be provided as a reserve,
in accordance with GAAP, against any liabilities associated with such assets
which are the subject of such Asset Sale; including, without limitation, pension
and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as reflected in an officers' certificate
delivered to the Trustee (provided that the amount of any such reserves shall be
deemed to constitute Net Cash Proceeds at the time such reserves shall have been
reversed or are not otherwise required to be retained as a reserve); and (e)
with respect to Asset Sales by Restricted Subsidiaries, the portion of such cash
payments attributable to Persons holding a minority interest in such Restricted
Subsidiary.
"Obligations" means any principal, interest (including, without limitation,
Post-Petition Interest), penalties, fees, indemnifications, reimbursement
obligations, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Offer to Purchase" means a written offer (the "Offer") sent by or on
behalf of the Company by first-class mail, postage prepaid, to each holder at
his address appearing in the register for the Notes on the date of the Offer
offering to purchase up to the principal amount of Notes specified in such Offer
at the purchase price specified in such Offer (as determined pursuant to the
Indenture). Unless otherwise required by applicable law, the Offer shall specify
an expiration date (the "Expiration Date") of the Offer to Purchase, which shall
be not less than 30 days nor more than 60 days after the date of such Offer, and
a settlement date (the "Purchase Date") for purchase of Notes to occur no later
than five Business Days after the Expiration Date. The Company shall notify the
Trustee at least 15 days (or such shorter period as is acceptable to the
Trustee) prior to the mailing of the Offer of the Company's obligation to make
an Offer to Purchase, and the Offer shall be mailed by the Company or, at the
Company's request, by the Trustee in the name and at the expense of the Company.
The Offer shall also contain information concerning the business of the Company
and its Subsidiaries which the Company in good faith believes will enable such
Holders to make an informed decision with respect to the Offer to Purchase
(which at a minimum will include (i) the most recent annual and quarterly
financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in the documents required to be
filed with the Trustee pursuant to the Indenture (which requirements may be
satisfied by delivery of such documents together with the Offer), (ii) a
description of material developments in the Company's business subsequent to the
date of the latest of such financial statements referred to in clause (i)
(including a description of the events requiring the Company to make the Offer
to Purchase), (iii) if applicable, appropriate pro forma financial information
concerning the Offer to Purchase and the events requiring the Company to make
the Offer to Purchase and (iv) any other information required by applicable law
to be included therein). The Offer shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Offer to
Purchase. The Offer shall also state: (1) the Section of the Indenture pursuant
to which the Offer to Purchase is being made; (2) the
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Expiration Date and the Purchase Date; (3) the aggregate principal amount of the
outstanding Notes offered to be purchased by the Company pursuant to the Offer
to Purchase (including, if less than 100%, the manner by which such amount has
been determined pursuant to the Section of the Indenture requiring the Offer to
Purchase) (the "Purchase Amount"); (4) the purchase price to be paid by the
Company for each $1,000 aggregate principal amount of Notes accepted for payment
(as specified pursuant to the Indenture) (the "Purchase Price"); (5) that the
Holder may tender all or any portion of the Notes registered in the name of such
Holder and that any portion of a Note tendered must be tendered in an integral
multiple of $1,000 principal amount; (6) the place or places where Notes are to
be surrendered for tender pursuant to the Offer to Purchase; (7) that interest
on any Note not tendered or tendered but not purchased by the Company pursuant
to the Offer to Purchase will continue to accrue; (8) that on the Purchase Date
the Purchase Price will become due and payable upon each Note being accepted for
payment pursuant to the Offer to Purchase and that interest thereon shall cease
to accrue on and after the Purchase Date; (9) that each Holder electing to
tender all or any portion of a Note pursuant to the Offer to Purchase will be
required to surrender such Note at the place or places specified in the Offer
prior to the close of business on the Expiration Date (such Note being, if the
Company or the Trustee so requires, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or his attorney duly authorized in
writing); (10) that each Holder will be entitled to withdraw all or any portion
of any Notes tendered by such Holder if the Company (or its Paying Agent)
receives, not later than the close of business on the fifth Business Day next
preceding the Expiration Date, a telegram, telex, facsimile transmission or
letter setting forth the name of such Holder, the principal amount of the Note
such Holder tendered, the certificate number of the Note such Holder tendered
and a statement that such Holder is withdrawing all or a portion of his tender;
(11) that (a) if Notes in an aggregate principal amount less than or equal to
the Purchase Amount are duly tendered and not withdrawn pursuant to the Offer to
Purchase, the Company shall purchase all such Notes and (b) if Notes in an
aggregate principal amount in excess of the Purchase Amount are tendered and not
withdrawn pursuant to the Offer to Purchase, the Company shall purchase Notes
having an aggregate principal amount equal to the Purchase Amount on a pro rata
basis (with such adjustments as may be deemed appropriate so that only Notes in
denominations of $1,000 principal amount or integral multiples thereof shall be
purchased); and (12) that in the case of any Holder whose Note is purchased only
in part, the Company shall execute and the Trustee shall authenticate and
deliver to the Holder of such Note without service charge, a new Note or Notes,
of any authorized denomination as requested by such Holder, in an aggregate
principal amount equal to and in exchange for the unpurchased portion of the
Note so tendered.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Permitted Holder" means each of (i) CCP and its affiliates, (ii) the
Existing Management Holders and (iii) any corporation, a majority of the
outstanding Voting Equity Interests of which are owned, directly or indirectly,
by persons listed in clauses (i) and (ii) of this definition, and no more than
35% of the outstanding Voting Equity Interests of which are beneficially owned,
directly or indirectly, by any Person (other than Permitted Holders) or group
acting for the purpose of acquiring, holding or disposing of securities within
the meaning of Rule 13d-15d(b)(1) under the Exchange Act.
"Permitted Indebtedness" means the following, each of which shall be given
independent effect:
(a) Indebtedness under the Notes;
(b) Indebtedness of the Company or any Restricted Subsidiary Incurred
under the Credit Facilities in an aggregate principal amount at any one
time outstanding not to exceed the greater of (i) $25.0 million and (ii)
the sum of 85% of the total book value of accounts receivable and 50% of
the total book value of inventory, in each case as reflected on the
Company's most recent consolidated financial statements prepared in
accordance with GAAP;
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(c) Indebtedness of any Restricted Subsidiary owed to and held by the
Company or any other Restricted Subsidiary, and Indebtedness of the Company
owed to and held by any Restricted Subsidiary which is unsecured and
subordinated in right of payment to the payment and performance of the
Company's obligations under any Senior Indebtedness, the Indenture and the
Notes; provided, however, that an Incurrence of Indebtedness that is not
permitted by this clause (c) shall be deemed to have occurred upon (i) any
sale or other disposition of any Indebtedness of the Company or any
Restricted Subsidiary referred to in this clause (c) to a Person (other
than the Company or a Restricted Subsidiary), (ii) any sale or other
disposition of Equity Interests of any Restricted Subsidiary which holds
Indebtedness of the Company or another Restricted Subsidiary such that such
Restricted Subsidiary ceases to be a Subsidiary and (iii) the Designation
of a Restricted Subsidiary that holds Indebtedness of the Company or any
other Restricted Subsidiary as an Unrestricted Subsidiary;
(d) the Guarantees and guarantees by any Guarantor of Indebtedness of
the Company or its Restricted Subsidiaries and the guarantees by the
Company of Indebtedness of the Restricted Subsidiaries; provided, however,
that if such guarantee is of Subordinated Indebtedness, then the Guarantee
of such Guarantor or the Company's obligations under the Notes, as the case
may be; shall be senior to such Guarantor's or the Company's, as the case
may be, guarantee of such Subordinated Indebtedness;
(e) Interest Rate Protection Obligations relating to Indebtedness of
the Company (which Indebtedness (i) bears interest at fluctuating interest
rates and (ii) is otherwise permitted to be Incurred under the "Limitation
on Indebtedness" covenant); provided, however, that (i) such Interest Rate
Protection Obligations have been entered into for bona fide business
purposes and not for speculation and (ii) the notional principal amount of
such Interest Rate Protection Obligations, at the time of the incurrence
thereof, does not exceed the principal amount of the Indebtedness to which
such Interest Rate Protection Obligations relate;
(f) Purchase Money Indebtedness and Capitalized Lease Obligations
which, at the time of the incurrence thereof, do not, in the aggregate with
all such other Indebtedness incurred pursuant to this clause (f), exceed
5.0% of the total assets of the Company and its Restricted Subsidiaries, on
a consolidated basis determined consistent with the Company's most recent
balance sheet prepared in accordance with GAAP at any one time outstanding;
(g) Indebtedness under Currency Agreements; provided, however, that in
the case of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the principal amount of Indebtedness of the
Company and its Restricted Subsidiaries outstanding other than as a result
of fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder;
(h) Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date, reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereof;
(i) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business
in an amount not to exceed $3.0 million in the aggregate at any time
outstanding;
(j) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary of the Company providing for indemnification,
adjustment of purchase price or similar obligations, in each case incurred
or assumed in connection with the disposition of any business, assets or a
Subsidiary, other than guarantees of Indebtedness incurred by any Person
acquiring all or any portion of such business, assets or Subsidiary for the
purpose of financing such acquisition; provided, however, that (i) such
Indebtedness is not reflected on the balance sheet of the Company or any
Restricted Subsidiary of the Company (contingent obligations referred to in
a footnote to financial statements and not otherwise reflected on the
balance sheet will not be deemed to be reflected on such balance sheet for
purposes of this clause (i)) and (ii) the maximum assumable liability in
respect of all such Indebtedness shall at no time exceed the
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gross proceeds including noncash proceeds (the fair market value of such
noncash proceeds being measured at the time it is received and without
giving effect to any subsequent changes in value) actually received by the
Company and its Restricted Subsidiaries in connection with such
disposition;
(k) Obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
of the Company in the ordinary course of business;
(l) Indebtedness of the Company or any Restricted Subsidiary Incurred
under an Acquisition Facility in an aggregate principal amount at any one
time outstanding not to exceed $22.0 million, reduced by any required
permanent repayments (which are accompanied by corresponding permanent
commitment reduction thereunder);
(m) Indebtedness to the extent representing a replacement, renewal,
defeasance, refinancing or extension (collectively, a "refinancing") of
outstanding Indebtedness Incurred in compliance with the "Limitation on
Indebtedness" covenant or clauses (a), (h) or (l) of this definition;
provided, however, that (i) any such refinancing shall not exceed the sum
of the principal amount (or accreted amount (determined in accordance with
GAAP), if less) of the Indebtedness being refinanced, plus the amount of
accrued interest thereon, plus the amount of any reasonably determined
prepayment premium necessary to accomplish such refinancing and such
reasonable fees and expenses incurred in connection therewith, (ii)
Indebtedness representing a refinancing of Indebtedness other than Senior
Indebtedness shall have a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of the Indebtedness
being refinanced; and (iii) Indebtedness that is pari passu with the Notes
may only be refinanced with Indebtedness that is made pari passu with or
subordinate in right of payment to the Notes and Subordinated Indebtedness
may only be refinanced with Subordinated Indebtedness; and
(n) in addition to the items referred to in clauses (a) through (m)
above, Indebtedness of the Company (including any Indebtedness under the
Credit Facilities that utilizes this clause (m)) having an aggregate
principal amount not to exceed $10.0 million at any one time outstanding.
"Permitted Investments" means (a) cash and Cash Equivalents; (b)
Investments in prepaid expenses, negotiable instruments held for collection and
lease, utility and workers' compensation, performance and other similar
deposits; (c) Interest Rate Protection Obligations and Currency Agreements; (d)
Investments received in connection with the bankruptcy or reorganization of
suppliers and customers and in settlement of delinquent obligations of, and
other disputes with, customers and suppliers, in each case arising in the
ordinary course of business; (e) Investments in the Company and Investments in
Restricted Subsidiaries or Persons that, as a result of or in connection with
any such Investment, become Restricted Subsidiaries or are merged with or into
or consolidated with the Company or another Restricted Subsidiary; (f)
Investments paid for in Qualified Equity Interests of the Company; (g) loans or
advances to officers or employees of the Company and its Restricted Subsidiaries
in the ordinary course of business for bona fide business purposes of the
Company and its Restricted Subsidiaries (including, but not limited to, travel
and moving expenses) not in excess of $1 million in the aggregate at any one
time outstanding; (h) Investments in Replacement Assets made in compliance with
the "Limitation on Asset Sales" covenant; (i) Investments of a Person or any of
its Subsidiaries existing at the time such Person becomes a Restricted
Subsidiary of the Company or at the time such Person merges or consolidates with
the Company or any of its Restricted Subsidiaries, in either case in compliance
with the Indenture; provided that such Investments were not made by such Person
in connection with, or in anticipation or contemplation of, such Person becoming
a Restricted Subsidiary of the Company or such merger or consolidation; and (j)
Investments (including, without limitation, in the form of joint ventures with
unaffiliated third parties) in Related Businesses not in excess of $10 million
in the aggregate at any one time outstanding.
"Permitted Junior Securities" means any securities of the Company or any
other Person that are (i) equity securities without special covenants or (ii)
debt securities expressly subordinated in right of payment to all Senior
Indebtedness that may at the time be outstanding, to substantially the same
extent as, or to a greater extent than, the Notes are subordinated as provided
in the Indenture, in any event pursuant to a court order so providing and as to
which (a) the rate of interest on such securities shall not exceed the
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effective rate of interest on the Notes on the date of the Indenture, (b) such
securities shall not be entitled to the benefits of covenants or defaults
materially more beneficial to the holders of such securities than those in
effect with respect to the Notes on the date of the Indenture and (c) such
securities shall not provide for amortization (including sinking fund and
mandatory prepayment provisions) commencing prior to the date six months
following the final scheduled maturity date of the Senior Indebtedness (as
modified by the plan of reorganization of readjustment pursuant to which such
securities are issued).
"Permitted Liens" means (a) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary; provided, however, that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not secure any
property or assets of the Company or any Restricted Subsidiary other than the
property or assets subject to the Liens prior to such merger or consolidation;
(b) Liens imposed by law such as carriers', warehousemen's, mechanics',
suppliers', materialmen's, landlords' and repairmen's Liens and other similar
Liens arising in the ordinary course of business which secure payment of
obligations not more than 30 days past due or which are being contested in good
faith and by appropriate proceedings; (c) Liens existing on the Issue Date; (d)
Liens securing only the Notes or the Guarantees; (e) Liens in favor of the
Company or any Restricted Subsidiary; (f) 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; provided, however, that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor; (g) easements, reservation of rights of way,
restrictions (including, but not limited to, zoning and building restrictions)
and other similar easements, licenses, restrictions on the use of properties, or
minor imperfections of title that in the aggregate are not material in amount
and do not in any case materially detract from the properties subject thereto or
interfere with the ordinary conduct of the business of the Company and the
Restricted Subsidiaries; (h) Liens resulting from the deposit of cash or notes
in connection with contracts, bids, sales or tenders or expropriation
proceedings, or to secure 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 practices in
connection therewith, surety, appeal and performance bonds, costs of litigation
when required by law and public and statutory obligations or obligations under
franchise arrangements entered into in the ordinary course of business; (i)
Liens securing Indebtedness consisting of Capitalized Lease Obligations,
Purchase Money Indebtedness, mortgage financings, industrial revenue bonds or
other monetary obligations, in each case incurred solely for the purpose of
financing all or any part of the purchase price or cost of construction or
installation of assets used in the business of the Company or the Restricted
Subsidiaries, or repairs, additions or improvements to such assets, provided,
however, that (I) such Liens secure Indebtedness in an amount not in excess of
the original purchase price or the original cost of any such assets or repair,
addition or improvement thereto (plus an amount equal to the reasonable fees and
expenses in connection with the incurrence of such Indebtedness), (II) such
Liens do not extend to any other assets of the Company or the Restricted
Subsidiaries (and, in the case of repair, addition or improvements to any such
assets, such Lien extends only to the assets (and improvements thereto or
thereon) repaired, added to or improved), (III) the Incurrence of such
Indebtedness is permitted by "Certain Covenants -- Limitation on Indebtedness"
above and (IV) such Liens attach within 120 days of such purchase, construction,
installation, repair, addition or improvement; (j) any interest or title of a
lessor under any Capitalized Lease Obligation; provided, however, that such
Liens do not extend to any property or assets which are not leased property
subject to such Capitalized Lease Obligation; (k) Liens upon specific items of
inventory or other goods and proceeds of any Person securing such Person's
obligations in respect of bankers' acceptances issued or created for the account
of such Person to facilitate the purchase, shipment or storage of such inventory
or other goods; (l) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof; (m) Liens
encumbering deposits made to secure obligations arising from statutory,
regulatory, contractual or warranty requirements of the Company or any of its
Restricted Subsidiaries, including rights of offset and set-off; (n) Liens
securing Interest Swap Obligations and Currency Agreements which Obligations and
agreements are otherwise permitted under the Indenture; (o) Liens by reason of
judgments, attachments or decree not otherwise resulting in an Event of Default;
(p) Liens securing Indebtedness of non-Guarantor Restricted Subsidiaries
Incurred in compliance with the Indenture; and
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(q) Liens to secure any refinancings, renewals, extensions, modifications or
replacements (collectively, "refinancing") (or successive refinancings), in
whole or in part, of any Indebtedness secured by Liens referred to in the
clauses above so long as such Lien does not extend to any other property (other
than improvements thereto).
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
partnership, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Post-Petition Interest" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person in
accordance with and at the contract rate (including, without limitation, any
rate applicable upon default) specified in the agreement or instrument creating,
evidencing or governing such Indebtedness, whether or not, pursuant to
applicable law or otherwise, the claim for such interest is allowed as a claim
in such Insolvency or Liquidation Proceeding.
"Preferred Equity Interest," in any Person, means an Equity Interest of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Equity
Interests of any other class in such Person.
"principal" of a debt security means the principal of the security plus,
when appropriate, the premium, if any, on the security.
"Public Equity Offering" means, with respect to the Company, an
underwritten public offering of Qualified Equity Interests of the Company
pursuant to an effective registration statement filed under the Securities Act
(excluding registration statements filed on Form S-8).
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary Incurred for the purpose of financing all or any part of
the purchase price or the cost of installation, construction or improvement of
any property; provided, however, that the aggregate principal amount of such
Indebtedness does not exceed the lesser of the fair market value of such
property or such purchase price or cost, including any refinancing of such
Indebtedness that does not increase the aggregate principal amount (or accreted
amount, if less) thereof as of the date of refinancing.
"Qualified Equity Interest" in any Person means any Equity Interest in such
Person other than any Disqualified Equity Interest.
"Related Business" means any business related, ancillary or complementary
(as determined in good faith by the Board of Managers) to the business of the
Company and the Restricted Subsidiaries on the Issue Date.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Managers of the Company, by a resolution of the
Board of Managers of the Company delivered to the Trustee, as an Unrestricted
Subsidiary pursuant to "Certain Covenants -- Designation of Unrestricted
Subsidiaries" above. Any such designation may be revoked by a resolution of the
Board of Managers of the Company delivered to the Trustee, subject to the
provisions of such covenant.
"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Restricted Subsidiary of the
Company of any real or tangible personal Property, which property has been or is
to be sold or transferred by the Company or such Restricted Subsidiary to such
Person in contemplation of such leasing.
"SEC" means the Securities and Exchange Commission.
"Senior Indebtedness" means, at any date, (a) all Obligations under the
Credit Facilities; (b) all Interest Rate Protection Obligations of the Company;
(c) all Obligations of the Company under letters of credit; and (d) all other
Indebtedness of the Company, including principal, premium, if any, and interest
(including Post-Petition Interest) on such Indebtedness, unless the instrument
under which such Indebtedness of the Company is Incurred expressly provides that
such Indebtedness is not senior or superior in right of payment to
76
77
the Notes, and all renewals, extensions, modifications, amendments or
refinancings thereof. Notwithstanding the foregoing, Senior Indebtedness shall
not include (a) to the extent that it may constitute Indebtedness, any
Obligation for Federal, state, local or other taxes; (b) any Indebtedness among
or between the Company and any Subsidiary of the Company; (c) to the extent that
it may constitute Indebtedness, any Obligation in respect of any trade payable
Incurred for the purchase of goods or materials, or for services obtained, in
the ordinary course of business; (d) Indebtedness evidenced by the Notes; (e)
Indebtedness of the Company that is expressly subordinate or junior in right of
payment to any other Indebtedness of the Company; (f) to the extent that it may
constitute Indebtedness, any obligation owing under leases (other than
Capitalized Lease Obligations) or management agreements; and (g) any obligation
that by operation of law is subordinate to any general unsecured obligations of
the Company.
"Significant Restricted Subsidiary" means, at any date of determination,
(a) any Restricted Subsidiary that, together with its Subsidiaries that
constitute Restricted Subsidiaries (i) for the most recent fiscal year of the
Company accounted for more than 10.0% of the consolidated revenues of the
Company and the Restricted Subsidiaries or (ii) as of the end of such fiscal
year, owned more than 10.0% of the consolidated assets of the Company and the
Restricted Subsidiaries, all as set forth on the consolidated financial
statements of the Company and the Restricted Subsidiaries for such year prepared
in conformity with GAAP, and (b) any Restricted Subsidiary which, when
aggregated with all other Restricted Subsidiaries that are not otherwise
Significant Restricted Subsidiaries and as to which any event described in
clause (h) of "Events of Default" above has occurred, would constitute a
Significant Restricted Subsidiary under clause (a) of this definition.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable.
"Subordinated Indebtedness" means, with respect to the Issuers or any
Guarantor, any Indebtedness of the Issuers or such Guarantor, as the case may
be, which is expressly subordinated in right of payment to the Notes or such
Guarantor's Guarantee, as the case may be.
"Subsidiary" means, with respect to any Person, (a) any corporation of
which the outstanding Voting Equity Interests having at least a majority of the
votes entitled to be cast in the election of directors shall at the time be
owned, directly or indirectly, by such Person, or (b) any other Person of which
at least a majority of Voting Equity Interests are at the time, directly or
indirectly, owned by such first named Person.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"Tax Distribution" means, as of the time of determination thereof, any
distribution by the Company and any of its Restricted Subsidiaries that are
limited liability companies to their respective members (or in each case, if
such member is a flow-through entity, such direct or indirect owner or owners of
such member as is or are subject to income taxes on income of such limited
liability company) which (i) with respect to quarterly estimated tax payments
due in each calendar year shall be equal to twenty-five percent (25%) of the
relevant member's Income Tax Liabilities for such calendar year as estimated in
writing by the chief financial officer of the Company and (ii) with respect to
tax payments to be made with income tax returns filed for a full calendar year
or with respect to adjustments to such returns imposed by the Internal Revenue
Service or other taxing authority, shall be equal to the Income Tax Liabilities
of such member for such calendar year minus the aggregate amount distributed to
such member for such calendar year as provided in clause (i) above. In the event
the amount determined under clause (ii) is negative amount, the amount of any
distributions to the relevant member in the succeeding calendar year (or, if
necessary, any subsequent calendar years) shall be reduced by such negative
amount.
"United States Government Obligations" means direct non-callable
obligations of the United States of America for the payment of which the full
faith and credit of the United States is pledged.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to the "Designation of Unrestricted Subsidiaries" covenant. Any
such designation may be revoked by a resolution of the Board of Managers of the
Company delivered to the Trustee, subject to the provisions of such covenant.
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78
"Voting Equity Interests" means Equity Interests in a corporation or other
Person with voting power under ordinary circumstances entitling the holders
thereof to elect the Board of Managers or other governing body of such
corporation or Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
"Western Europe" means, with respect to any jurisdictional matter, any of
the twelve current member states of the European Community and Switzerland,
Norway, Sweden, Finland, Austria and the Czech Republic (and "Western European"
shall have a meaning correlative to the foregoing).
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of
which at least 99.0% of the outstanding Voting Equity Interests (other than
qualifying shares or other Equity Interests owned by directors or other members
of any comparable governing body) of which are owned, directly or indirectly, by
the Company and/or one or more Wholly Owned Restricted Subsidiaries.
PLAN OF DISTRIBUTION
This Prospectus has been prepared for use by CSI in connection with offers
and sales of the Notes in market-making transactions effected from time to time.
CSI may act as a principal or agent in such transactions, including as agent for
the counterparty when acting as principal or as agent for both counterparties,
and may receive compensation in the form of discounts and commissions, including
from both counterparties when it acts as agent for both counterparties. Such
sales will be made at prevailing market prices at the time of sale, at prices
related thereto or at negotiated prices. The Company will not receive any of the
proceeds of such sales. The Company has agreed to indemnify CSI against certain
liabilities, including liabilities under the Securities Act of 1933, and to
contribute to payments which CSI might be required to make in respect thereof.
The Company has been advised by CSI that, subject to applicable laws and
regulations, CSI currently intends to make a market in the Notes. However, CSI
is not obligated to do so and any such market-making may be interrupted or
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
Exchange Act. There can be no assurance that an active trading market will
develop or be sustained. See "Risk Factors -- An Active Trading Market for the
Notes May Not Develop."
LEGAL MATTERS
The validity of the Notes offered hereby was passed upon for the Issuers by
O'Sullivan Graev & Karabell, LLP, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of December 31,
2000 and 1999, and for each of the three years in the period ended December 31,
2000 included in this Prospectus have been so included in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
78
79
ADVANCED ACCESSORY SYSTEMS, LLC
INDEX TO FINANCIAL STATEMENTS
PAGE
----
ADVANCED ACCESSORY SYSTEMS, LLC AND SUBSIDIARIES
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets -- December 31, 2000 and 1999... F-3
Consolidated Statements of Operations -- Years Ended
December 31, 2000, 1999 and 1998.......................... F-4
Consolidated Statements of Cash Flows -- Years Ended
December 31, 2000, 1999 and 1998.......................... F-5
Consolidated Statements of Changes in Members'
Equity -- Years Ended December 31, 2000, 1999 and 1998.... F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
80
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers
and Members of
Advanced Accessory Systems, LLC
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Advanced Accessory Systems, LLC and its subsidiaries at December 31,
2000 and 1999, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Detroit, Michigan
March 19, 2001
F-2
81
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
----------------------
2000 1999
---- ----
(DOLLAR AMOUNTS IN
THOUSANDS)
ASSETS
Current assets
Cash...................................................... $ 3,315 $ 8,718
Accounts receivable, less reserves of $2,140 and $4,997,
respectively........................................... 42,942 46,918
Inventories............................................... 42,094 38,437
Deferred income taxes..................................... 1,775 1,804
Other current assets...................................... 6,874 4,879
-------- --------
Total current assets................................. 97,000 100,756
Property and equipment, net................................. 58,232 59,316
Goodwill, net............................................... 77,391 80,674
Other intangible assets, net................................ 5,030 5,729
Deferred income taxes....................................... 2,020 1,922
Other noncurrent assets..................................... 2,824 2,816
-------- --------
$242,497 $251,213
======== ========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Current maturities of long-term debt...................... $ 11,811 $ 12,449
Accounts payable.......................................... 24,996 26,715
Accrued liabilities....................................... 25,402 24,767
-------- --------
Total current liabilities............................ 62,209 63,931
-------- --------
Noncurrent liabilities
Deferred income taxes..................................... 1,001 1,772
Other noncurrent liabilities.............................. 4,557 4,320
Long-term debt, less current maturities................... 163,824 166,049
-------- --------
Total noncurrent liabilities......................... 169,382 172,141
-------- --------
Commitments and contingencies (Note 12)
Mandatorily redeemable warrants............................. 5,010 4,810
-------- --------
Members' equity
Class A Units 25,000 authorized, 9,236 and 15,869 issued
at December 31, 2000 and 1999, respectively............ 7,409 18,083
Class A-1 Units 25,000 authorized, 5,133 issued at
December 31, 2000...................................... 4,117 --
Class B Units, 2,000 authorized, no Units issued at
December 31, 2000 and 1999............................. -- --
Other comprehensive loss.................................. (1,077) (1,496)
Accumulated deficit....................................... (4,553) (6,256)
-------- --------
5,896 10,331
-------- --------
$242,497 $251,213
======== ========
See accompanying notes to consolidated financial statements.
F-3
82
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED
DECEMBER 31,
--------------------------------
2000 1999 1998
---- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS)
Net sales................................................... $318,817 $314,142 $292,145
Cost of sales............................................... 239,090 227,889 215,441
-------- -------- --------
Gross profit.............................................. 79,727 86,253 76,704
Selling, administrative and product development expenses.... 45,527 50,258 50,839
Amortization of intangible assets........................... 3,297 3,245 3,551
Impairment charge........................................... -- -- 7,863
-------- -------- --------
Operating income.......................................... 30,903 32,750 14,451
-------- -------- --------
Other (income) expense
Interest expense.......................................... 17,950 17,453 18,633
Foreign currency (gain) loss.............................. 5,386 7,912 (4,995)
Other expense............................................. 52 1,990 --
-------- -------- --------
Income before income taxes.................................. 7,515 5,395 813
Provision (benefit) for income taxes........................ (278) 417 903
-------- -------- --------
Net income (loss)........................................... $ 7,793 $ 4,978 $ (90)
======== ======== ========
See accompanying notes to consolidated financial statements.
F-4
83
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
---- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS)
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES
Net income (loss)........................................... $ 7,793 $ 4,978 $ (90)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization............................. 14,304 14,065 15,093
Deferred taxes............................................ (908) (2,433) (688)
Impairment and restructuring charge....................... -- -- 9,505
Foreign currency (gain) loss.............................. 5,159 6,297 (4,948)
Loss (gain) on disposal of assets......................... 37 (13) 191
Changes in assets and liabilities net of acquisitions:
Accounts receivable.................................... 3,425 (8,188) 5,873
Inventories............................................ (4,055) 1,815 (1,457)
Other current assets................................... (1,546) (677) 1,513
Other noncurrent assets................................ (346) (56) (1,934)
Accounts payable....................................... (199) 4,527 (3,032)
Accrued liabilities.................................... (763) 3,441 1,133
Other noncurrent liabilities........................... (1,485) 1,258 720
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES............ 21,416 25,014 21,879
-------- -------- --------
CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Acquisition of machinery and equipment...................... (10,445) (11,775) (9,998)
Amount due from sellers of Valley Industries, Inc........... -- -- 1,150
Acquisition of subsidiaries, net of cash acquired........... (2,804) -- (22,770)
-------- -------- --------
NET CASH USED FOR INVESTING ACTIVITIES............... (13,249) (11,775) (31,618)
-------- -------- --------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Increase (decrease) in revolving loan....................... 11,343 -- (4,505)
Repayment of debt........................................... (13,878) (9,270) (3,682)
Issuance of membership units................................ -- 50 29
Collections of membership notes receivable.................. 65 29 --
Repurchase of membership units.............................. (6,422) (4,274) (14)
Distributions to members.................................... (6,090) (4,720) (195)
-------- -------- --------
NET CASH USED FOR FINANCING ACTIVITIES............... (14,982) (18,185) (8,367)
-------- -------- --------
Effect of exchange rate changes............................. 1,412 2,424 1,998
Net increase (decrease) in cash............................. (5,403) (2,522) (16,108)
Cash at beginning of period................................. 8,718 11,240 27,348
-------- -------- --------
Cash at end of period....................................... $ 3,315 $ 8,718 $ 11,240
======== ======== ========
Cash paid for interest...................................... $ 17,032 $ 16,809 $ 17,559
======== ======== ========
Cash paid for income taxes.................................. $ 1,763 $ 3,131 $ 934
======== ======== ========
See accompanying notes to consolidated financial statements.
F-5
84
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
OTHER
COMPREHENSIVE RETAINED TOTAL
MEMBERS' INCOME EARNINGS MEMBERS'
CAPITAL (LOSS) (DEFICIT) EQUITY
-------- ------------- --------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
Balance at December 31, 1997....................... $23,163 $ (490) $(6,229) $16,444
Issuance of additional units....................... 150 -- -- 150
Notes receivable for unit purchase................. (121) -- -- (121)
Repurchase of membership units..................... (14) -- -- (14)
Accretion of membership warrants................... (902) -- -- (902)
Distributions to members........................... -- -- (195) (195)
Comprehensive loss:
Currency translation adjustment.................. -- (125) -- --
Net loss for 1998................................ -- -- (90) --
Total comprehensive loss...................... -- -- -- (215)
------- ------- ------- -------
Balance at December 31, 1998....................... 22,276 (615) (6,514) 15,147
Issuance of additional units....................... 970 -- -- 970
Notes receivable for unit purchase................. 380 -- -- 380
Repurchase of membership units..................... (5,142) -- -- (5,142)
Accretion of membership warrants................... (401) -- -- (401)
Distributions to members........................... -- -- (4,720) (4,720)
Comprehensive income:
Currency translation adjustment.................. -- (881) -- --
Net income for 1999.............................. -- -- 4,978 --
Total comprehensive income.................... -- -- -- 4,097
------- ------- ------- -------
Balance at December 31, 1999....................... 18,083 (1,496) (6,256) 10,331
Notes receivable for unit purchase................. 65 -- -- 65
Repurchase of membership units..................... (6,422) -- -- (6,422)
Accretion of membership warrants................... (200) -- -- (200)
Distributions to members........................... -- -- (6,090) (6,090)
Comprehensive income:
Currency translation adjustment.................. -- 419 -- --
Net income for 2000.............................. -- -- 7,793 --
Total comprehensive income.................... -- -- -- 8,212
------- ------- ------- -------
Balance at December 31, 2000....................... $11,526 $(1,077) $(4,553) $ 5,896
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
F-6
85
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITIES
Advanced Accessory Systems, LLC (the "Company") is engaged in the design,
manufacture and supply of towing and rack systems and accessories for the
automotive original equipment manufacturer ("OEM") market and the automotive
aftermarket. The Company's business commenced on September 28, 1995, with the
acquisition of certain of the net assets of MascoTech Accessories (the
"Predecessor"), a division of MascoTech, Inc., through the Company's
majority-owned subsidiary, SportRack, LLC. As described in Note 2, in October
1996 the Company acquired Brink B.V., in July and August of 1997 acquired the
sportrack division of Bell Sports Corporation, Nomadic Sports, Inc. and certain
net assets of Valley Industries, Inc., in January and February 1998 acquired the
net assets of the towbar segment of Ellebi S.p.A. and the net assets of
Transfo-Rakzs, Inc. and in February and September 2000 acquired the net assets
of Titan Industries, Inc. and the Wiswall Hill Corporation.
PRINCIPLES OF CONSOLIDATION
The Company includes the accounts of the following:
SportRack, LLC.................................. 100% owned by Advanced Accessory Systems, LLC
SportRack Automotive, GmbH and its consolidated
subsidiaries.................................. A German corporation, 100% owned by SportRack, LLC
SportRack International, Inc and its A Canadian corporation, 100% owned by SportRack,
consolidated subsidiary....................... LLC
AAS Holdings, Inc............................... 100% owned by Advanced Accessory Systems, LLC
Brink International B.V. and its consolidated A Dutch corporation, 100% owned by AAS Holdings,
subsidiaries.................................. Inc.
Valley Industries, LLC.......................... 99% owned by Advanced Accessory Systems, LLC and 1%
owned by SportRack, LLC
ValTek, LLC..................................... 99% owned by Advanced Accessory Systems, LLC and 1%
owned by SportRack, LLC
AAS Capital Corporation......................... 100% owned by Advanced Accessory Systems, LLC
All intercompany transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Revenue and related cost of goods sold are recognized upon shipment of the
product to the customer. Sales allowances, discounts, rebates and other
adjustments are recorded or accrued in the period of the sale.
During 2000, the Company adopted the provisions of the EITF 00-10,
"Accounting for Shipping and Handling Revenues and Costs", which requires that
all amounts billed to customers related to shipping and handling costs be
classified as revenue. In prior years, these costs and the reimbursement of
these costs were netted in our financial statements. Accordingly, amounts billed
to customers are now included in net sales and the related costs are included in
cost of sales for all years presented. There was no impact on net income.
SIGNIFICANT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-7
86
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the fiscal period. Actual results could differ from
those estimates.
During the year ended December 31, 2000 management decreased an estimated
liability related to a contingent obligation to one of its customers. The
reduction resulted in a benefit to the Company of approximately $1,900 which was
included in selling, administrative and product development expenses.
FINANCIAL INSTRUMENTS
Financial instruments at December 31, 2000 and 1999, including cash,
accounts receivable and accounts payable, are recorded at cost, which
approximates fair value due to the short-term maturities of these assets and
liabilities. The carrying value of the obligations under the bank agreements are
considered to approximate fair value as the agreements provide for interest rate
revisions based on changes in prevailing market rates or were entered into at
rates that approximate market rates at December 31, 2000 and 1999. The fair
value of the Notes (as defined below) as of December 31, 2000 and 1999 was
approximately $85,000 and $112,500, respectively, based upon quoted prices in
the market in which the Notes are traded.
The Company is exposed to certain market risks which exist as a part of its
ongoing business operations. Primary exposures include fluctuations in the value
of foreign currency investments in subsidiaries, volatility in the translation
of foreign currency earnings to U.S. Dollars and movements in Federal Funds
rates and the London Interbank Offered Rate (LIBOR). The Company uses derivative
financial instruments, where appropriate, to manage these risks. The Company, as
a matter of policy, does not engage in trading or speculative transactions.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly-liquid investments with a maturity of three months or less from the date
of purchase to be cash equivalents.
CURRENCY TRANSLATION
The functional currency for the Company's foreign subsidiaries is the
applicable local currency. Assets and liabilities of foreign subsidiaries are
translated into U.S. dollars at the exchange rates in effect at the balance
sheet date; translation adjustments are reported as a separate component of
members' equity. Revenues, expenses and cash flows for foreign subsidiaries are
translated at average exchange rates during the period; foreign currency
transaction gains and losses are included in current earnings. The accompanying
consolidated statement of operations for the years ended December 31, 2000, 1999
and 1998 includes net currency gains (losses) of $(5,386), $(7,912) and $4,995,
respectively, relating primarily to debt denominated in U.S. Dollars at Brink
International B.V., whose functional currency was the Dutch Guilder through
December 31, 1998 and the European Euro during 1999 and 2000. At December 31,
2000, U.S. Dollar denominated debt recorded at Brink includes intercompany debt
and substantially all outstanding loans under the Company's Second Amended and
Restated Credit Agreement.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost being
determined on the first-in, first-out (FIFO) method. Inventories are
periodically reviewed and reserves established for excess and obsolete items.
F-8
87
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
TOOLING
The Company incurs costs to related to new tooling used in the manufacture
of products sold to OEMs. Tooling costs that are reimbursed by customers as the
tooling is completed are included in other current assets. All other customer
owned tooling costs, which totaled $2,205 and $1,829 at December 31, 2000 and
1999, respectively, are included in other noncurrent assets and amortized over
the expected product life, generally three to six years. Company owned tooling
is included in property and equipment and depreciated over its expected useful
life, generally three to five years. Management periodically evaluates the
recoverability of tooling costs, based on estimated future cash flows, and makes
provisions for tooling costs that will not be recovered, if any, when such
amounts are known.
PROPERTY AND EQUIPMENT
Property and equipment is stated at acquisition cost, which reflects the
fair market value of assets acquired at the acquisition date for all
subsidiaries. Property and equipment purchased other than through the
acquisitions described in Note 2 is stated at cost. Expenditures for normal
repairs and maintenance are charged to operations as incurred. Depreciation
expense, which was $10,346, $10,418 and $10,857 for the years ended December 31,
2000, 1999 and 1998, respectively, is computed using the straight-line method
over the following estimated useful lives:
YEARS
-----
Buildings and improvements.................................. 5-50
Machinery, equipment and tooling............................ 2-10
Furniture and fixtures...................................... 5-7
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill of $77,391 and $80,674 (net of accumulated amortization of $14,032
and $11,194) at December 31, 2000 and 1999, respectively, represents the costs
in excess of net assets acquired and is amortized using the straight line method
over periods of up to 30 years.
Debt issuance costs of $4,602 and $5,280, net of accumulated amortization
at December 31, 2000 and 1999, respectively, are amortized over the terms of the
loan agreements, which are six to ten years. Debt issuance cost amortization of
$625, $589 and $587 for 2000, 1999 and 1998, respectively, has been included in
interest expense.
IMPAIRMENT OF GOODWILL AND LONG-LIVED ASSETS
The Company evaluates the potential impairment of goodwill on an ongoing
basis and reviews long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be fully recoverable. The Company determines
the impairment of long-lived assets by comparing the undiscounted future net
cash flows to be generated by the assets to their carrying value. Impairment
losses are then measured as the amount by which the carrying amount of the asset
exceeds the fair value of the asset. In 1998, as described in Note 3, the
Company determined that certain intangible assets of its subsidiary, SportRack
International, Inc. had been impaired.
INCOME TAXES
The Company and certain of its domestic subsidiaries have elected to be
taxed as limited liability companies for federal income tax purposes. As a
result of this election, the Company's domestic taxable income accrues to the
individual members. Distributions are made to the members in amounts sufficient
to
F-9
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ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
meet the tax liability on the Company's domestic taxable income accruing to the
individual members. Distributions to members of $6,090, $4,720 and $195 were
made during 2000, 1999 and 1998, respectively.
Certain of the Company's domestic subsidiaries and foreign subsidiaries are
subject to income taxes in their respective jurisdictions. Income tax provisions
for these entities are based on the U.S. Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". Deferred tax assets and
liabilities are provided for the expected future tax consequences of temporary
differences between the carrying amounts and the tax basis of such entities'
assets and liabilities. Deferred tax assets are reduced by a valuation allowance
for tax benefits that are not expected to be realized. The Company does not
provide for U.S. income taxes or foreign withholding taxes on the undistributed
earnings of foreign subsidiaries because of management's intent to permanently
reinvest in such operations.
The Company and certain subsidiaries are subject to taxes, including
Michigan Single Business Tax and Canadian capital tax, which are based primarily
on factors other than income. As such, these amounts are included in selling,
administrative and product development expenses in the accompanying consolidated
statements of operations. Deferred taxes related to Michigan Single Business Tax
are provided on the temporary differences resulting from capital acquisitions
and depreciation.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering costs are expensed as incurred and
aggregated approximately $9,779, $10,302 and $9,611 for the years ended December
31, 2000, 1999 and 1998, respectively.
NEW ACCOUNTING PRONOUNCEMENT
During the first quarter of 2001, the Company has adopted Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives Instruments
and Hedging Activities". This pronouncement is not expected the have a
significant impact on the Company's results of operations or financial position.
2. ACQUISITIONS
Acquisitions of the Company from inception through December 31, 2000 are as
follows:
PURCHASE GOODWILL
ACQUIRED COMPANY ACQUISITION DATE PRICE RECORDED LOCATION PRODUCT LINES
---------------- ---------------- -------- -------- -------- -------------
MascoTech Accessories.... September 28, 1995 $46,050 $32,781 United States Rack systems
Brink B.V. .............. October 30, 1996 54,339 27,730 Europe Towing systems
Sportrack division of
Bell Sports............ July 2, 1997 13,505 1,198 Canada Rack systems
Nomadic Sports, Inc. .... July 24, 1997 849 433 Canada Rack systems
Valley Industries,
Inc. .................. August 5, 1997 56,478 32,891 United States Towing systems
Towbar segment of Ellebi
S.p.A. ................ January 2, 1998 21,938 5,645 Italy Towing systems
Tranfo-Rakzs, Inc. ...... February 7, 1998 1,040 902 Canada Rack systems
Titan Industries,
Inc. .................. February 22, 2000 1,525 1,237 United States Towing systems
Wiswall Hill
Corporation............ September 5, 2000 1,200 -- United States Rack systems
The above acquisitions have each been accounted for in accordance with the
purchase method of accounting. Accordingly, the respective purchase price of
each acquisition has been allocated to assets acquired and liabilities assumed
based upon their estimated fair values at the acquisition date. The excess of
the aggregate purchase price over the estimated fair value of the net assets
acquired has been recorded as
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ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS -- (CONTINUED)
goodwill. The operating results of these entities have been included in the
Company's consolidated financial statements since the date of each acquisition.
Each acquisition represented the purchase of the net assets of the respective
company with the exceptions of Brink B.V. and Nomadic Sports, Inc. which were
purchases of the outstanding shares. Each company was purchased for cash except
for Brink B.V. which was purchased for $54,339 in cash and a 12,500 Junior
Subordinated Note denominated in Dutch Guilders ($7,340), to Brink Holdings,
B.V.
Pro forma results have not been presented as they are substantially the
same as the Company's actual results.
3. IMPAIRMENT AND RESTRUCTURING CHARGES
In July 1997, the Company acquired the net assets of the sportrack division
of Bell Sports Corporation ("Bell") for approximately $13,500 and recorded
goodwill of approximately $1,200, representing the excess of the purchase price
over the then estimated fair value of net assets acquired. In June 1998
information became available which indicated that certain assets acquired from
Bell (accounts receivable, inventory, and tooling) had a fair value less than
originally recorded. The SportRack International purchase was renegotiated and a
$2,000 reimbursement was received from Bell. Accounts receivable, inventory and
tooling were reduced by $6,500 and additional goodwill of $4,500, net of the
$2,000 reimbursement from Bell, was recorded.
During the second half of 1998, management further reassessed the
operations of SportRack International, and as a result took actions to
restructure the operations and rationalize the product offerings, customer and
supplier base, distribution channels and warehousing, and terminated 14
employees, including certain members of SportRack International's senior
management. Concurrent with the reassessment of SportRack International's
operations, management reviewed the revised carrying value of goodwill and other
intangible assets, determined that future cash flows would not be sufficient to
recover recorded amounts, and recorded an impairment charge of $7,863.
The SportRack International impairment and restructuring charges are
comprised of the following:
Impairment of:
Goodwill.................................................. $6,116
Other intangible assets................................... 1,747 $7,863
------
Restructuring charges for:
Product rationalization................................... 1,068
Other costs............................................... 832 1,900
------ ------
$9,763
======
The restructuring charge related to inventory has been included in cost of
sales and other costs have been included in selling, administrative and product
development expenses in the accompanying 1998 consolidated statement of
operations. All restructuring costs have been incurred as of December 31, 1998,
including cash expenditures during 1998 of $258.
Sales for SportRack International during the year ended December 31, 1998
were approximately $4,000 and total assets as of December 31, 1998 were
approximately $7,100 after the impairment charge.
F-11
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ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT
Long-term debt is comprised of the following:
OUTSTANDING AT
INTEREST RATE AT DECEMBER 31,
DECEMBER 31, --------------------
2000 2000 1999
---------------- ---- ----
Senior Subordinated Notes, less discount of $367 and $403
respectively............................................. 9.75% $124,633 $124,597
Second Amended and Restated Credit Agreement (U.S. Credit
Facility)
Term note A.............................................. 8.89 5,326 9,082
Term note B.............................................. 9.39 12,370 13,494
Revolving line of credit note............................ 8.85 11,343 --
Acquisition revolving note............................... 8.88 14,438 21,000
First Amended and Restated Credit Agreement (Canadian
Credit Facility)
Canadian term note....................................... 8.25 7,525 10,325
Canadian revolving line of credit note................... -- -- --
-------- --------
175,635 178,498
Less -- current portion.................................... 11,811 12,449
-------- --------
$163,824 $166,049
======== ========
SENIOR SUBORDINATED NOTES
Borrowings under the Company's Series B Senior Subordinated Notes (the
"Notes"), due October 1, 2007, are unsecured and are subordinated in right of
payment to all existing and future senior indebtedness of the Company, including
the loans under the U.S. and Canadian Credit Agreements described below. The
Company, at its option, may redeem the Notes, in whole or in part, together with
accrued and unpaid interest subsequent to October 1, 2002 at certain redemption
prices as set forth by the indenture under which the Notes have been issued.
Upon the occurrence of a change of control of the Company, as defined by the
indenture, the Company is required to make an offer to repurchase the Notes at a
price equal to 101% of the principal amount of the Notes. The indenture places
certain limits on the Company, the most restrictive of which include, the
incurrence of additional indebtedness by the Company, the payment of dividends
on, and redemption of capital of the Company, the redemption of certain
subordinated obligations, investments, sales of assets and stock of certain
subsidiaries, transactions with affiliates, consolidations, mergers and
transfers of all or substantially all of the Company's assets. Interest on the
Notes is payable semi-annually in arrears on April 1 and October 1 of each year.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
The Company's Second Amended and Restated Credit Agreement ("U.S. Credit
Facility"), which is administered by Bank One (formerly First Chicago NBD Bank)
and The Chase Manhattan Bank ("Chase"), is secured by substantially all the
assets of the Company and places certain restrictions on the Company related to
indebtedness, sales of assets, investments, capital expenditures, dividend
payments, management fees, and members' equity transactions. In addition, the
agreement subjects the Company to certain restrictive covenants, including the
attainment of designated operating ratios and minimum net worth levels. The
Company, at its election, may make prepayments of the term notes under the
credit agreement on a pro-rata basis. Additionally, mandatory prepayments of the
term notes are required in the event of sales of assets
F-12
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ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT -- (CONTINUED)
meeting certain criteria, as set forth by the agreement, or based upon periodic
calculations of excess cash flows, as defined by the agreement.
The U.S. Credit Facility provides for two term notes (Term note A and Term
note B), a revolving line of credit note and an acquisition note. Loans under
each of the term notes and the revolving note can be converted, at the election
of the Company, in whole or in part, into Base Rate Loans or Eurocurrency Loans.
Interest is payable in arrears quarterly on Base Rate Loans, and in arrears in
one, two or three months on Eurocurrency Loans, as determined by the length of
the Eurocurrency Loan, as selected by the Company. Interest is charged at an
adjustable rate plus the applicable margin. The applicable margin is based upon
the Company's Senior Debt Ratio, as defined by the Credit Agreement.
Eurocurrency Loans under each of the term notes can be made in U.S. dollars or
certain other currencies, at the option of the Company. The U.S. Credit Facility
also provides for a Letter of Credit Facility. At December 31, 2000 the company
had an irrevocable letter of credit outstanding in the amount of $6,350, see
Note 12. At December 31, 1999, no letters of credit were outstanding.
Term note A
On October 30, 1996, the Company borrowed $65,000 under Term note A. On
October 1, 1997, the Company made a mandatory prepayment totaling $43,475 in
connection with the issuance of the Notes. Mandatory prepayments of $518 and
$1,597 were made in June 2000 and June 1999, respectively, for the excess cash
flows of the Company as defined by the Credit Agreement. The applicable margin
for Term note A ranges from 1.25% to 2.5% for Base Rate Loans and from 2.25% to
3.5% for Eurocurrency Loans. Repayments under the note are required in the
following installments:
QUARTERLY
---------
March 31, 2001 through June 30, 2002........................ $883
Final installment on September 30, 2002..................... 28
Term note B
On August 5, 1997, the Company borrowed $55,000 under Term note B. On
October 1, 1997 the Company made a mandatory prepayment totaling $39,044 in
connection with the issuance of the Notes. Mandatory prepayments of $833 and
$1,806 were made in June 2000 and June 1999, respectively, for the excess cash
flows of the Company as defined by the Credit Agreement. The applicable margin
for Term note B ranges from 1.75% to 3.0% for Base Rate Loans and from 2.75% to
4.0% for Eurocurrency Loans. Repayments under Term note B are required in the
following installments:
March 31, 2001 through September 30, 2003 (quarterly)....... $ 73
December 31, 2003........................................... 2,914
March 30, 2004 and June 30, 2004............................ 3,764
October 30, 2004............................................ 1,125
Revolving line of credit note
The Company has the ability to borrow up to $25,000 under the revolving
line of credit which expires on October 30, 2003. Available borrowings, however,
are limited to a defined borrowing base amount equal to 85% eligible domestic
accounts receivable and 80% of certain eligible foreign accounts receivable. The
base borrowing amount is increased by the lesser of the sum of 50% of domestic
eligible inventory and 40% to 50% of certain eligible foreign inventory or
$10,000. Available borrowings are reduced by amounts outstanding under the
Canadian revolving line of credit note described below and outstanding letters
of credit. The
F-13
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ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT -- (CONTINUED)
applicable margin for the revolving line of credit ranges from 1.25% to 2.5% for
Base Rate Loans and from 2.25% to 3.5% for Eurocurrency Loans. A commitment fee
of 0.5% to 0.625% is charged on the unused balance based on the Company's Senior
Leverage Ratio, as defined. At December 31, 2000, $7,307 was available under the
facility.
Acquisition note
On December 31, 1997, the Company borrowed $21,000 under its acquisition
note. The proceeds were used to acquire the net assets of Ellebi on January 2,
1998, as discussed in Note 2. The applicable margin for the acquisition note
ranges from 1.25% to 2.5% for Base Rate Loans and from 2.25% to 3.5% for
Eurocurrency Loans. Repayments under the acquisition note are due in equal
quarterly installments of $1,313 through September 30, 2003.
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
The Company's First Amended and Restated Credit Agreement ("Canadian Credit
Facility"), which is administered by Bank One and The Chase Manhattan Bank of
Canada ("Chase Canada"), is secured by substantially all of the assets of the
Company's Canadian subsidiaries and is guaranteed by the Company.
The Canadian Credit Facility provides for a C$20,000 term note and a
C$4,000 revolving note, (U.S. $13,332 and U.S. $2,666) at December 31, 2000,
respectively. Loans under each of the notes can be converted at the election of
the Company, in whole or in part, into Floating Rate advances, U.S. Base Rate
advances or LIBOR advances. Floating rate advances are denominated in Canadian
dollars and bear interest at a variable rate based on the bank's prime lending
rate plus a variable margin. U.S. Base Rate advances are denominated in U.S.
dollars and bear interest at the bank's prime lending rate plus a variable
margin. LIBOR advances are denominated in U.S. dollars and bear interest at
LIBOR plus a variable margin. The variable margin is based upon the Company's
Senior Debt Ratio, as defined by the Canadian Credit Facility and ranges from
0.5% to 1.75% for U.S. Base Rate advances and from 1.5% to 2.75% for LIBOR
advances.
Canadian term note
Repayments under the Canadian term note are required in the following
installments:
QUARTERLY
---------
March 31, 2001 through June 30, 2003........................ $684
Final installment on October 30, 2003....................... 684
Canadian revolving line of credit note
A commitment fee of 0.5% is charged on the unused balance of the Canadian
revolving line of credit note.
SENIOR SUBORDINATED LOANS
On October 30, 1996, the Company borrowed $20,000 under its Senior
Subordinated Note Purchase Agreement ("Senior Subordinated Loans") with J.P.
Morgan Partners (23A SBIC), LLC, an affiliate of J.P. Morgan Partners, LLC, and
International Mezzanine. The Senior Subordinated Loans were repaid in full on
October 1, 1997 with the proceeds of the Notes discussed above.
In connection with the issuance of the Senior Subordinated Loans, the
Company issued warrants to purchase 1,002 membership units. The warrants have an
exercise price of one cent per warrant, are exercisable
F-14
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ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT -- (CONTINUED)
immediately, and expire October 30, 2004. As provided in the Warrant Agreement,
the warrant holder can put the warrants and membership units acquired through
the exercise of the warrants back to the Company after October 30, 2001 or upon
occurrence of a Triggering Event, as defined, but prior to the earlier of
October 30, 2004 or the consummation of a Qualified Public Offering for an
amount equal to Fair Market Value, as defined. Additionally, as provided in the
Warrant Agreement, the Company may call the warrants and membership units
acquired through the exercise of the warrants at any time after the sixth
anniversary of the Closing Date, but prior to the earlier of October 30, 2004 or
a Qualified Public Offering for an amount equal to Fair Market Value, as
defined. At the date of issuance, the proceeds from the Senior Subordinated
Loans were allocated between the Senior Subordinated Loans and the warrants
based upon their estimated relative fair market value.
The warrants are being accreted to their estimated redemption value through
periodic charges against Members' Equity through the earlier of October 30, 2001
or the time redemption first becomes available. Thereafter the warrants will be
recorded at the then estimated redemption value. The aforementioned warrants
have been presented as mandatorily redeemable warrants in the accompanying
balance sheets.
SCHEDULED MATURITIES
The aggregate scheduled annual principal payments due in each of the years
ending December 31, is as follows:
2001........................................................ $ 11,811
2002........................................................ 10,073
2003........................................................ 20,463
2004........................................................ 8,655
2005........................................................ --
thereafter.................................................. 125,000
--------
176,002
Less -- discount............................................ (367)
--------
$175,635
========
5. MEMBERS' EQUITY
Holders of Class A Units are eligible to vote in elections of Managers of
the Company and other matters as set fourth in the Company's Operating Agreement
and By-Laws and are convertible to Class A-1 Units by holders that are regulated
financial institutions. Class A-1 Units are non-voting but are otherwise
entitled to the identical rights as holders of Class A Units and are convertible
to Class A units provided such conversion is not in violation of certain
governmental regulations of the unit holder. Holders of Class B Units are
entitled to such rights as designated by the Board of Managers upon the original
issuance of any Class B Units provided however that those rights shall not be
senior to the rights of the holders of Class A units as to allocations of net
profits and as to distributions without the consent of a majority in interest of
Class A Members. There were no Class B Units issued as of December 31, 2000 or
1999.
Effective January 1, 2000, the Company issued 3,655 of its Class A-1 Units
in exchange for an equal amount of Class A Units.
Effective November 11, 2000 the Company issued 1,478 of its Class A-1 Units
in exchange for an equal amount of Class A Units.
F-15
94
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
The Company's C corporation subsidiaries and taxable foreign subsidiaries
account for income taxes in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". The Company and certain
domestic subsidiaries are limited liability corporations; as such, the Company's
earnings are included in the taxable income of the Company's members. Income
(loss) before minority interest and income taxes were attributable to the
following sources:
YEAR ENDED
DECEMBER 31,
-----------------------------
2000 1999 1998
---- ---- ----
United States...................................... $10,491 $10,925 $10,002
Foreign............................................ (2,976) (5,530) (9,189)
------- ------- -------
$ 7,515 $ 5,395 $ 813
======= ======= =======
The provision (benefit) for income taxes is comprised of the following:
YEAR ENDED
DECEMBER 31,
--------------------------
2000 1999 1998
---- ---- ----
CURRENTLY PAYABLE
United States...................................... $ -- $ 14 $ --
Foreign............................................ 630 2,836 1,591
----- ------- ------
630 2,850 1,591
----- ------- ------
DEFERRED
United States...................................... -- -- --
Foreign............................................ (908) (2,433) (688)
----- ------- ------
(908) (2,433) (688)
----- ------- ------
$(278) $ 417 $ 903
===== ======= ======
The effective tax rates differ from the U.S. federal income tax rate as
follows:
YEAR ENDED
DECEMBER 31,
-----------------------------
2000 1999 1998
---- ---- ----
Income tax provision (benefit) at U.S. statutory
rate (35%)....................................... $ 2,630 $ 1,887 $ 286
U. S. income taxes attributable to members......... (3,674) (3,823) (3,502)
Change in valuation allowance...................... (86) 854 4,225
Nondeductible foreign goodwill..................... 224 369 270
Foreign rate differences and other, net............ 628 1,130 (376)
------- ------- -------
$ (278) $ 417 $ 903
======= ======= =======
F-16
95
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES -- (CONTINUED)
Deferred tax assets and liabilities, related primarily to the Company's
foreign subsidiaries, comprise the following:
DECEMBER 31,
------------------
2000 1999
---- ----
DEFERRED TAX ASSETS
Net operating loss carryforwards of foreign subsidiaries... $ 6,660 $ 7,259
Fixed assets............................................... 2,738 2,918
Goodwill................................................... 480 573
Inventory.................................................. 83 133
Other...................................................... 1,561 1,642
------- -------
11,522 12,525
------- -------
DEFERRED TAX LIABILITIES
Fixed assets............................................... (2,492) (3,938)
Inventory.................................................. (862) (889)
Employee benefits.......................................... -- (177)
Other...................................................... (429) (309)
------- -------
(3,783) (5,313)
Valuation allowance........................................ (4,945) (5,258)
------- -------
Net deferred tax asset (liability)......................... $ 2,794 $ 1,954
======= =======
The net operating loss carryforwards of the Company's European subsidiaries
approximate $7,257 at December 31, 2000 and have no expiration date. The net
operating loss carryforwards of the Company's Canadian subsidiaries approximate
$10,765 at December 31, 2000 and expire primarily in 2005 through 2009. As of
December 31, 2000 and 1999, respectively, the Company recorded a valuation
allowance of $4,945 and $5,258 based upon management's current assessment of the
likelihood of realizing the Canadian subsidiaries' deferred tax assets.
Management believes that it is more likely than not that the related deferred
tax assets recorded for its other subsidiaries will be realized and no valuation
allowance has been provided against such amounts as of December 31, 2000. If
certain substantial changes in the Company's ownership should occur, there could
be an annual limit on the amount of certain carryforwards which can be utilized.
7. RELATED PARTY TRANSACTIONS AND ALLOCATIONS
A portion of the Company's U.S. Credit Facility, Canadian Credit Facility
and Senior Subordinated Loans, as described in Note 4, is with Chase, Chase
Canada and J.P. Morgan Partners (23ASBIC), LLC, respectively, which are each
affiliates of a member of the Company.
Charges to operations related to consulting services provided to the
Company by certain members of the Company aggregated approximately $406, $400
and $386 for the years ended December 31, 2000, 1999 and 1998, respectively.
Certain employees and consultants of the Company hold Class A Units of the
Company. During the year ended December 31, 1999, the Company acquired the
equity instruments owned by its former president for $4,250.
8. OPTION PLAN
The Company adopted the disclosure requirements of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation". The
Company, however, has elected to continue to
F-17
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ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. OPTION PLAN -- (CONTINUED)
measure compensation cost using the intrinsic value method, in accordance with
APB Opinion 25 ("APB 25"), "Accounting for Stock Issued to Employees".
The Company has issued options to purchase Class A Units which are
outstanding under the Company's 1995 Option Plan ("the Plan"). As of December
31, 2000 and 1999, the Company was authorized under the Plan to issue options to
purchase up to 4,200 Class A Units to officers, directors and employees of the
Company and its subsidiaries. At December 31, 2000, there were 179 options that
remained available for grant under the Plan.
Information concerning options to purchase Class A Units is as follows:
2000 1999 1998
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE OF EXERCISE
UNITS PRICE UNITS PRICE UNITS PRICE
------ -------- ------ -------- ------ --------
Outstanding at January 1................. 2,405 $1,499 3,971 $1,343 3,903 $1,415
Options granted.......................... -- -- 50 $4,000 280 $3,135
Options exercised........................ -- -- 696 $1,251 -- --
Options cancelled........................ 47 $5,610 920 $1,150 212 $5,035
----- ----- -----
Outstanding at December 31............... 2,358 $1,417 2,405 $1,499 3,971 $1,343
===== ===== =====
Exercisable at December 31............... 1,581 $1,515 1,282 $1,532 1,665 $1,398
===== ===== =====
All options granted have terms of 15 years and vest as follows:
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
UNITS PRICE VESTING PERIOD
- ------ -------- ------------------------------------------------------------
129 $3,029 Options vest immediately.
1,379 $1,469 Options vest over periods, generally up to ten years, as
determined by the Option Committee. Vesting may be
accelerated based on the results of a Liquidity Event, as
defined in the Plan, or based upon the achievement of
certain operating results of the Company or its
subsidiaries.
275 $1,000 Options vest based on the results of a Liquidity Event, as
defined in the Plan.
575 $1,130 Options vest based upon achievement of certain operating
results of the Company.
The Company has elected to continue applying the provisions of APB 25 and
accordingly, recognized compensation cost of $450, $400 and $558 for the years
ended December 31, 2000, 1999 and 1998, respectively. If compensation cost and
the fair value of options granted had been determined based upon the fair value
method in accordance with SFAS 123, the pro forma net income (loss) of the
Company would have been $8,047, $5,258 and ($290) the years ended December 31,
2000, 1999 and 1998, respectively. The weighted average fair value of options
granted per unit was $2,300 and $2,400 for the years ended December 31, 1999 and
1998, respectively. Options granted in 1999 and 1998 had exercise prices below
market value at the date of grant.
F-18
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ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. OPTION PLAN -- (CONTINUED)
The fair value of options granted and related pro forma compensation cost
were estimated using the Black-Scholes option-pricing model with an expected
volatility of zero and the following assumptions:
1999 1998
---- ----
Dividend yield.............................................. 0.0% 0.0%
Risk-free rate of return.................................... 6.0% 5.5%
Expected option term (in years)............................. 8 8
The following table summarizes the status of the Company's options
outstanding and exercisable at December 31, 2000:
OPTIONS OUTSTANDING
--------------------
WEIGHTED
AVERAGE
REMAINING
EXERCISE CONTRACTUAL OPTIONS
PRICES UNITS LIFE EXERCISABLE
-------- ----- ----------- -----------
$1,000............................................ 2,025 10 1,309
$3,029............................................ 129 12 129
$3,485............................................ 65 12 39
$4,000............................................ 50 13 15
$5,610............................................ 89 12 89
9. PENSION PLANS
The Company has a defined benefit pension plan covering substantially all
of SportRack, LLC's domestic employees covered under a collective bargaining
agreement. An employee's monthly pension benefit is determined by multiplying a
defined dollar amount by the years of credited service earned. Plan assets are
comprised principally of marketable equity securities and short-term
investments. The Company's funding policy is to contribute annually the amounts
necessary to comply with ERISA funding requirements.
F-19
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ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. PENSION PLANS -- (CONTINUED)
The following table sets forth the change in the plan's benefit obligations
and plan assets, and the funded status of the plan as of and for the years ended
December 31, 2000 and 1999:
DECEMBER 31,
----------------
2000 1999
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year................... $2,491 $2,301
Benefits earned during the year........................... 124 110
Interest on projected benefit obligation.................. 182 151
Increase as a result in plan amendment.................... -- 363
Actuarial loss (gain)..................................... (7) (362)
Benefits paid............................................. (87) (72)
------ ------
Benefit obligation at end of year......................... 2,703 2,491
------ ------
Change in plan assets:
Market value of assets at beginning of year............... 2,190 1,831
Actual return on plan assets.............................. 84 147
Employer contributions.................................... 238 284
Benefits paid............................................. (87) (72)
------ ------
Market value of assets at end of year..................... 2,425 2,190
------ ------
Funded status............................................... (278) (301)
Unrecognized prior service cost............................. 345 371
Unrecognized net (gain) loss................................ (160) (284)
------ ------
Accrued pension cost........................................ $ (93) $ (214)
====== ======
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999 1998
---- ---- ----
Components of net periodic benefit cost:
Service cost.............................................. $ 124 $ 110 $ 99
Interest cost............................................. 182 151 140
Expected return on plan assets............................ (205) (175) (147)
Recognized net actuarial gain............................. (10) -- --
Amortization of prior service cost........................ 27 1 1
----- ----- -----
Net periodic Benefit cost................................... $ 118 $ 87 $ 93
===== ===== =====
The weighted average discount rate used in determining the actuarial
present value of the accumulated benefit obligation was 7.50%, 7.75%, and 6.75%
at December 31, 2000, 1999 and 1998, respectively. The expected long-term rate
of return on plan assets was 9.00% at December 31, 2000, 1999 and 1998.
The Company has various defined contribution retirement plans for its
domestic and certain foreign subsidiaries, including 401(k) plans, whereby
participants can contribute a portion of their salary up to certain maximums
established by the related plan documents. The Company makes matching
contributions, which are based upon the amounts contributed by employees. The
Company's matching contributions charged to operations aggregated $369, $334 and
$306 in 2000, 1999 and 1998, respectively.
Substantially all of the employees of Brink International B.V. are covered
by a union-sponsored, collectively-bargained, multi-employer defined benefit
plan. Pension expense was $1,270, $1,271 and $1,302 for the years ended December
31, 2000, 1999 and 1998, respectively.
F-20
99
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. OPERATING LEASES
The Company leases certain equipment under leases expiring on various dates
through 2004. Future minimum annual lease payments required under leases that
have a noncancellable lease term in excess of one year at December 31, 2000 are
as follows:
2001........................................................ $ 3,542
2002........................................................ 2,870
2003........................................................ 1,942
2004........................................................ 1,431
2005........................................................ 762
-------
$10,547
=======
Rental expense charged to operations was approximately $4,066, $4,169 and
$3,947 for the years ended December 31, 2000, 1999 and 1998, respectively.
11. ACCOUNT BALANCES
Account balances included in the consolidated balance sheets are comprised
of the following:
DECEMBER 31,
--------------------
2000 1999
---- ----
INVENTORIES
Raw materials............................................ $ 17,746 $ 13,068
Work-in-process.......................................... 7,910 9,871
Finished goods........................................... 18,978 18,715
Reserves................................................. (2,540) (3,217)
-------- --------
$ 42,094 $ 38,437
======== ========
PROPERTY AND EQUIPMENT
Land, buildings and improvements......................... $ 23,751 $ 23,694
Furniture, fixtures and computer hardware................ 11,346 9,891
Machinery, equipment and tooling......................... 54,219 47,565
Construction-in-progress................................. 1,579 2,820
-------- --------
90,895 83,970
Less -- accumulated depreciation......................... (32,663) (24,654)
-------- --------
$ 58,232 $ 59,316
======== ========
ACCRUED LIABILITIES
Compensation and benefits................................ $ 12,400 $ 12,350
Interest................................................. 3,148 3,367
Other.................................................... 9,854 9,050
-------- --------
$ 25,402 $ 24,767
======== ========
12. COMMITMENTS AND CONTINGENCIES
In February 1996, the Company commenced an action against certain
individuals alleging breach of contract under the terms of an October 1992
Purchase Agreement and Employment Agreements with the predecessor of the
Company. The individuals then filed a separate lawsuit against the Company
alleging breach of contract under the respective Purchase and Employment
agreements. On May 7, 1999 a jury in the United States District Court for the
Eastern District of Michigan reached a verdict against the Company and
F-21
100
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
awarded the individuals approximately $3,800 plus interest and reasonable
attorney fees. The Company plans to file an appeal once the court enters a
judgment, which is expected during the second quarter of 2001. During 2000, the
Company increased its estimated accrual for this matter by $450 representing
accrued interest for the year which charge is included in interest expense.
During 1999, the Company increased its estimated accrual for this matter by
$2,000 which charge is included in other expense. At December 31, 2000 the
Company had an outstanding irrevocable letter of credit totaling $6,350
benefiting the individuals. No amounts have been paid as of December 31, 2000.
During the second quarter of 2000 one of the Company's significant OEM
customers recalled approximately 380,000 trucks to replace or reinforce their
trailer hitches, which were supplied by the Company. The recall affects
1998-2000 model year vehicles built between January 1998 and September 1999. The
Company worked with the customer to provide technical and other support in
response to the recall. Management can not estimate at this time what the
financial impact will be to the Company, if any, as a result of the recall.
In addition to the above, the Company is party to various claims, lawsuits
and administrative proceedings related to matters arising out of the normal
course of business. Management believes that the resolution of these matters
will not have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
13. SEGMENT INFORMATION
The Company operates in one reportable segment, providing towing and rack
systems and related accessories to the automotive OEM and aftermarket. All sales
are to unaffiliated customers. Revenues by geographic area, accumulated by the
geographic area where the revenue originated, revenues by product line and
long-lived assets, which include net property and equipment and net goodwill and
debt issuance costs, by geographic area are as follows:
YEAR ENDED
DECEMBER 31,
----------------------------------
2000 1999 1998
---- ---- ----
REVENUES
United States................................ $222,159 $211,167 $192,306
The Netherlands.............................. 32,344 35,647 35,543
Italy........................................ 15,725 19,211 19,900
Other foreign................................ 48,589 48,117 44,396
-------- -------- --------
$318,817 $314,142 $292,145
======== ======== ========
YEAR ENDED
DECEMBER 31,
------------------------------------
2000 1999 1998
---- ---- ----
REVENUES
Towing systems.............................. $186,753 $187,276 $175,236
Rack systems................................ 132,064 126,866 116,909
-------- -------- --------
$318,817 $314,142 $292,145
======== ======== ========
F-22
101
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SEGMENT INFORMATION -- (CONTINUED)
DECEMBER 31,
-----------------------------
2000 1999 1998
---- ---- ----
LONG-LIVED ASSETS
United States.................................... $34,830 $32,013 $28,416
The Netherlands.................................. 11,494 13,080 16,258
Italy............................................ 3,044 4,619 6,435
Other foreign.................................... 8,864 9,604 10,186
------- ------- -------
$58,232 $59,316 $61,295
======= ======= =======
The Company has two significant customers in the automotive OEM industry.
Sales to these customers represented 32% and 11% of total Company sales for the
year ended December 31, 2000, 36% and 12% for the year ended December 31, 1999,
and 32% and 11% for the year ended December 31, 1998. Accounts receivable from
these customers represented 30% and 11% of the Company's trade accounts
receivable at December 31, 2000, and 35% and 5% at December 31, 1999,
respectively.
Although the Company is directly affected by the economic well being of the
industries and customers referred to above, management does not believe
significant credit risk exists at December 31, 2000. Consistent with industry
practice, the Company does not require collateral to reduce such credit risk.
14. CONDENSED CONSOLIDATING INFORMATION
The Notes have been issued by the Company and its wholly-owned subsidiary,
AAS Capital Corporation and are guaranteed on a full and unconditional and joint
and several basis, by all of the Company's wholly-owned domestic subsidiaries.
The following condensed consolidating financial information for 2000, 1999 and
1998 presents the financial position, results of operations and cash flows of
(i) the Company as parent, as if it accounted for its subsidiaries on the equity
method, and AAS Capital Corporation as issuers; (ii) guarantor subsidiaries
which are domestic, wholly-owned subsidiaries and include SportRack LLC, AAS
Holdings, Inc., Valley Industries, LLC, and ValTek LLC; and (iii) the
non-guarantor subsidiaries which are foreign, wholly-owned subsidiaries and
include Brink International B.V., SportRack International, Inc., and SportRack
Automotive, GmbH. The operating results of the guarantor and non-guarantor
subsidiaries include management fees of $1,410 and $330, respectively, for the
year ended December 31, 2000, $1,410 and $320, respectively, for the year ended
December 31, 1999 and $1,198 and $318 for the year ended December 31, 1998, in
addition to having been charged interest on their intercompany balances. Since
its formation in September 1997, AAS Capital Corporation has had no operations
and has no assets or liabilities at December 31, 2000.
F-23
102
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2000
NON-
GUARANTOR GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ------------- ------------
ASSETS
Current assets
Cash.............................. $ 1,153 $ 246 $ 1,916 $ -- $ 3,315
Accounts receivable............... -- 28,309 14,633 -- 42,942
Inventories....................... -- 19,148 22,946 -- 42,094
Deferred income taxes and other
current assets................. 7 5,180 3,462 -- 8,649
-------- -------- -------- --------- --------
Total current assets......... 1,160 52,883 42,957 -- 97,000
-------- -------- -------- --------- --------
Property and equipment, net......... -- 34,830 23,402 -- 58,232
Goodwill, net....................... 1,025 56,144 20,222 -- 77,391
Other intangible assets, net........ 3,968 234 828 -- 5,030
Deferred income taxes and other
noncurrent assets................. 93 2,385 2,366 -- 4,844
Investment in subsidiaries.......... 57,615 9,955 -- (67,570) --
Intercompany notes receivable....... 91,695 -- -- (91,695) --
-------- -------- -------- --------- --------
Total assets................. $155,556 $156,431 $ 89,775 $(159,265) $242,497
======== ======== ======== ========= ========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Current maturities of long-term
debt........................... $ -- $ -- $ 11,811 $ -- $ 11,811
Accounts payable.................. -- 16,689 8,307 -- 24,996
Accrued liabilities and deferred
income taxes................... 6,799 8,027 10,576 -- 25,402
-------- -------- -------- --------- --------
Total current liabilities.... 6,799 24,716 30,694 -- 62,209
-------- -------- -------- --------- --------
Deferred income taxes and other
noncurrent liabilities............ 2,003 343 3,212 -- 5,558
Long-term debt, less current
maturities........................ 135,976 -- 27,848 -- 163,824
Intercompany debt................... -- 46,064 45,631 (91,695) --
Mandatorily redeemable warrants..... 5,010 -- -- -- 5,010
Members' equity..................... 5,768 85,308 (17,610) (67,570) 5,896
-------- -------- -------- --------- --------
Total liabilities and
members' equity........... $155,556 $156,431 $ 89,775 $(159,265) $242,497
======== ======== ======== ========= ========
F-24
103
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
NON-
GUARANTOR GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ------------- ------------
ASSETS
Current assets
Cash.............................. $ -- $ 5,469 $ 3,249 $ -- $ 8,718
Accounts receivable............... -- 32,087 14,831 -- 46,918
Inventories....................... -- 16,361 22,076 -- 38,437
Deferred income taxes and other
current assets................. 13 3,724 2,946 -- 6,683
-------- -------- -------- --------- --------
Total current assets......... 13 57,641 43,102 -- 100,756
-------- -------- -------- --------- --------
Property and equipment, net......... -- 32,014 27,302 -- 59,316
Goodwill, net....................... 1,065 57,100 22,509 -- 80,674
Other intangible assets, net........ 4,423 390 916 -- 5,729
Deferred income taxes and other
noncurrent assets................. 93 1,988 2,657 -- 4,738
Investment in subsidiaries.......... 43,065 9,955 -- (53,020) --
Intercompany notes receivable....... 99,537 -- -- (99,537) --
-------- -------- -------- --------- --------
Total assets................. $148,196 $159,088 $ 96,486 $(152,557) $251,213
======== ======== ======== ========= ========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Current maturities of long-term
debt........................... $ -- $ -- $ 12,449 $ -- $ 12,449
Accounts payable.................. -- 18,090 8,625 -- 26,715
Accrued liabilities and deferred
income taxes................... 5,524 9,231 10,012 -- 24,767
-------- -------- -------- --------- --------
Total current liabilities.... 5,524 27,321 31,086 -- 63,931
-------- -------- -------- --------- --------
Deferred income taxes and other
noncurrent liabilities............ 1,553 608 3,931 -- 6,092
Long-term debt, less current
maturities........................ 124,597 -- 41,452 -- 166,049
Intercompany debt................... -- 64,189 35,348 (99,537) --
Mandatorily redeemable warrants..... 4,810 -- -- -- 4,810
Members' equity..................... 11,712 66,970 (15,331) (53,020) 10,331
-------- -------- -------- --------- --------
Total liabilities and
members' equity........... $148,196 $159,088 $ 96,486 $(152,557) $251,213
======== ======== ======== ========= ========
F-25
104
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
NON-
GUARANTOR GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ------------- ------------
Net sales............................ $ -- $222,159 $96,658 $ -- $318,817
Cost of sales........................ -- 173,230 65,860 -- 239,090
------- -------- ------- -------- --------
Gross profit....................... -- 48,929 30,798 -- 79,727
Selling, administrative and product
development expenses............... 1,780 23,450 20,297 -- 45,527
Amortization of intangible assets.... 40 2,347 910 -- 3,297
------- -------- ------- -------- --------
Operating income (loss)............ (1,820) 23,132 9,591 -- 30,903
Interest expense..................... 6,027 4,433 7,490 -- 17,950
Equity in net income (loss) of
subsidiaries....................... 15,640 -- -- (15,640) --
Foreign currency gain (loss)......... -- -- (5,386) -- (5,386)
Other income (expense)............... -- (361) 309 -- (52)
------- -------- ------- -------- --------
Income (loss) before income taxes.... 7,793 18,338 (2,976) (15,640) 7,515
Benefit for income taxes............. -- -- 278 -- 278
------- -------- ------- -------- --------
Net income (loss).................... $ 7,793 $ 18,338 $(2,698) $(15,640) $ 7,793
======= ======== ======= ======== ========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
NON-
GUARANTOR GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ------------- ------------
Net sales............................ $ -- $211,265 $102,877 $ -- $314,142
Cost of sales........................ -- 158,691 69,198 -- 227,889
------- -------- -------- -------- --------
Gross profit....................... -- 52,574 33,679 -- 86,253
Selling, administrative and product
development expenses............... 1,624 25,141 23,493 -- 50,258
Amortization of intangible assets.... 40 2,326 879 -- 3,245
------- -------- -------- -------- --------
Operating income (loss)............ (1,664) 25,107 9,307 -- 32,750
Interest expense..................... 4,933 5,559 6,961 -- 17,453
Equity in net income (loss) of
subsidiaries....................... 13,575 -- -- (13,575) --
Foreign currency gain (loss)......... -- -- (7,912) -- (7,912)
Other income (expense)............... (2,000) 10 -- -- (1,990)
------- -------- -------- -------- --------
Income (loss) before income taxes.... 4,978 19,558 (5,566) (13,575) 5,395
Provision for income taxes........... -- 14 403 -- 417
------- -------- -------- -------- --------
Net income (loss).................... $ 4,978 $ 19,544 $ (5,969) $(13,575) $ 4,978
======= ======== ======== ======== ========
F-26
105
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
NON-
GUARANTOR GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ------------- ------------
Net sales........................... $ -- $192,306 $ 99,839 $ -- $292,145
Cost of sales....................... -- 144,162 71,279 -- 215,441
------- -------- -------- ------- --------
Gross profit...................... -- 48,144 28,560 -- 76,704
Selling, administrative and product
development expenses.............. 1,560 23,631 25,648 -- 50,839
Amortization of intangible assets... 40 2,314 1,197 -- 3,551
Impairment charge................... -- -- 7,863 -- 7,863
------- -------- -------- ------- --------
Operating income (loss)........... (1,600) 22,199 (6,148) -- 14,451
Interest expense.................... 3,700 6,888 8,045 -- 18,633
Equity in net income (loss) of
subsidiaries...................... 5,210 -- -- (5,210) --
Foreign currency gain............... -- -- 4,995 -- 4,995
------- -------- -------- ------- --------
Income (loss) before income taxes... (90) 15,311 (9,198) (5,210) 813
Provision for income taxes.......... -- -- 903 -- 903
------- -------- -------- ------- --------
Net income (loss)................... $ (90) $ 15,311 $(10,101) $(5,210) $ (90)
======= ======== ======== ======= ========
F-27
106
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000
NON-
GUARANTOR GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ------------- ------------
Net cash provided by (used for)
operating activities................ $(5,585) $ 22,146 $ 4,855 $-- $21,416
------- -------- -------- -- -------
Cash flows from investing activities:
Acquisition of property and
equipment........................ -- (7,699) (2,746) -- (10,445)
Acquisition of subsidiaries, net of
cash acquired.................... -- (1,545) (1,259) -- (2,804)
------- -------- -------- -- -------
Net cash used for investing
activities..................... -- (9,244) (4,005) -- (13,249)
------- -------- -------- -- -------
Cash flows provided by (used for)
financing activities:
Change in intercompany debt......... 7,842 (18,125) 10,283 -- --
Net increase in revolving loan...... 11,343 -- -- -- 11,343
Repayment of debt................... -- -- (13,878) -- (13,878)
Repurchase of membership units...... (6,422) -- -- -- (6,422)
Collection on members notes
receivable....................... 65 -- -- -- 65
Distributions to members............ (6,090) -- -- -- (6,090)
------- -------- -------- -- -------
Net cash provided by (used for)
financing activities........... 6,738 (18,125) (3,595) -- (14,982)
------- -------- -------- -- -------
Effect of exchange rate changes....... -- -- 1,412 -- 1,412
------- -------- -------- -- -------
Net increase (decrease) in cash....... 1,153 (5,223) (1,333) -- (5,403)
Cash at beginning of period........... -- 5,469 3,249 -- 8,718
------- -------- -------- -- -------
Cash at end of period................. $ 1,153 $ 246 $ 1,916 $-- $ 3,315
======= ======== ======== == =======
F-28
107
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
NON-
GUARANTOR GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ------------- ------------
Net cash provided by (used for)
operating activities................. $(5,953) $ 26,715 $ 4,252 $ -- $ 25,014
------- -------- ------- ------- --------
Cash flows from investing activities:
Acquisition of property and
equipment......................... -- (8,000) (3,775) -- (11,775)
------- -------- ------- ------- --------
Net cash used for investing
activities...................... -- (8,000) (3,775) -- (11,775)
------- -------- ------- ------- --------
Cash flows provided by (used for)
financing activities:
Change in intercompany debt.......... 10,148 (14,162) 4,014 -- --
Repayment of debt.................... -- -- (9,270) -- (9,270)
Issuance of membership units......... 50 -- -- -- 50
Repurchase of membership units....... (4,274) -- -- -- (4,274)
Collection on members notes
receivable........................ 29 -- -- -- 29
Distributions from subsidiaries...... 4,720 -- -- (4,720) --
Distributions to members............. (4,720) (4,720) -- 4,720 (4,720)
------- -------- ------- ------- --------
Net cash provided by (used for)
financing activities............ 5,953 (18,882) (5,256) -- (18,185)
------- -------- ------- ------- --------
Effect of exchange rate changes........ -- -- 2,424 -- 2,424
------- -------- ------- ------- --------
Net increase (decrease) in cash........ -- (167) (2,355) -- (2,522)
Cash at beginning of period............ -- 5,636 5,604 -- 11,240
------- -------- ------- ------- --------
Cash at end of period.................. $ -- $ 5,469 $ 3,249 $ -- $ 8,718
======= ======== ======= ======= ========
F-29
108
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
NON-
GUARANTOR GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------ ------------- ------------
Net cash provided by (used for)
operating activities................. $(4,216) $ 18,479 $ 7,616 $ -- $ 21,879
------- -------- -------- ----- --------
Cash flows from investing activities:
Acquisition of property and
equipment......................... -- (4,358) (5,640) -- (9,998)
Amount due from sellors of Valley
Industries, Inc. ................. -- 1,150 -- -- 1,150
Acquisition of subsidiaries, net of
cash acquired..................... -- -- (22,770) -- (22,770)
------- -------- -------- ----- --------
Net cash used for investing
activities...................... -- (3,208) (28,410) -- (31,618)
------- -------- -------- ----- --------
Cash flows provided by (used for)
financing activities:
Change in intercompany debt.......... 6,101 (11,657) 5,556 -- --
Net reduction in revolving loan...... (1,900) -- (2,605) -- (4,505)
Repayment of debt.................... -- -- (3,682) -- (3,682)
Issuance of membership units......... 29 -- -- -- 29
Repurchase of membership units....... (14) -- -- -- (14)
Distributions from subsidiaries...... 195 -- -- (195) --
Distributions to members............. (195) (195) -- 195 (195)
------- -------- -------- ----- --------
Net cash provided by (used for)
financing activities............ 4,216 (11,852) (731) -- (8,367)
------- -------- -------- ----- --------
Effect of exchange rate changes........ -- -- 1,998 -- 1,998
------- -------- -------- ----- --------
Net increase (decrease) in cash........ -- 3,419 (19,527) -- (16,108)
Cash at beginning of period............ -- 2,217 25,131 -- 27,348
------- -------- -------- ----- --------
Cash at end of period.................. $ -- $ 5,636 $ 5,604 $ -- $ 11,240
======= ======== ======== ===== ========
F-30
109
- ---------------------------------------------------------
- ---------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE ISSUERS SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
PAGE
----
Available Information................... 3
Prospectus Summary...................... 4
Risk Factors............................ 11
Use of Proceeds......................... 16
Capitalization.......................... 17
Selected Historical Financial Data...... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 21
Business................................ 28
Management.............................. 38
Security Ownership of Certain Beneficial
Owners and Management................. 43
Limited Liability Company Agreement..... 44
Certain Transactions.................... 45
Description of the Credit Facilities.... 45
Description of the Notes................ 47
Plan of Distribution.................... 78
Legal Matters........................... 78
Experts................................. 78
Index to Financial Statements........... F-1
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
$125,000,000
ADVANCED ACCESSORY SYSTEMS, LLC
AAS CAPITAL CORPORATION
9 3/4% SERIES B SENIOR
SUBORDINATED NOTES DUE 2007
------------------------
PROSPECTUS
------------------------
April 26, 2001
- ---------------------------------------------------------
- ---------------------------------------------------------