As filed with the Securities and Exchange Commission on October 10, 1997.
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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DELCO REMY INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 6719 35-1909253
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Identification No.)
Organization) Code Number)
-----------------
See Table of Additional Registrants Below
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2902 Enterprise Drive, Anderson, Indiana 46013, Telephone: (765) 778-6499
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
-----------------
Susan E. Goldy, Esq.
Vice President and General Counsel
Delco Remy International, Inc.
2902 Enterprise Drive, Anderson, Indiana, 46013, Telephone (765) 778-6799
(Address Including Zip Code, and Telephone Number, Including Area Code, of
Agent For Service)
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Copies to:
Christopher G. Karras, Esq. Marc S. Rosenberg, Esq.
Dechert Price & Rhoads Cravath, Swaine & Moore
4000 Bell Atlantic Tower Worldwide Plaza
1717 Arch Street 825 Eighth Avenue
Philadelphia, Pennsylvania 19103-2793 New York, New York 10019
(215) 994-4000 (212) 474-1000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
===================================================================================================================
Amount Proposed Proposed Maximum
Title of Each Class of to be Maximum Offering Aggregate Offering Amount of
Securities to be Registered Registered Price Per Unit (1) Price (1) Registration Fee
- -------------------------------------------------------------------------------------------------------------------
% Senior Notes
Due 2007 $130,000,000 100% $130,000,000 $39,394
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Senior Guarantees of
Registrants other than Delco
Remy International, Inc. $130,000,000 -- -- None(2)
==================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) No separate fee payable pursuant to Rule 457(n).
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Table of Additional Registrants
Name and Address, Including
Zip Code and Telephone State or Other Primary Standard
Number, Including Area Code, Jurisdiction of Classification I.R.S. Employer
of Principal Executive Offices Incorporation Code Number Identification No.
------------------------------ ------------- ----------- ------------------
Delco Remy America, Inc. Delaware 3694 35-1909405
2902 Enterprise Drive
Anderson, IN 46013
(765) 778-6499
Remy International, Inc. Delaware 3694 35-2004050
2902 Enterprise Drive
Anderson, IN 46013
(765) 778-6499
Reman Holdings, Inc. Delaware 3694 52-1910536
2902 Enterprise Drive
Anderson, IN 46013
(765) 778-6499
Nabco, Inc. Michigan 3694 38-2105668
591 E. Church Street
P.O. Box 66
Reed City, MI 49677
(616) 832-8104
The A&B Group, Inc. Mississippi 3694 64-0823245
1029 "B" Street
Meridian, MS 39301
(601) 485-8575
A&B Enterprises, Inc. Mississippi 3694 64-0643692
Highway 18, West
P.O. Box 8
Meridian, MS 39153
(601) 782-9922
Dalex, Inc. Mississippi 5013 64-0719018
Bay Springs Industrial Park
P.O. Box 1901
123 Commerce Street
Bay Springs, MS 39422
(601) 764-4168
A&B Cores, Inc. Mississippi 3694 64-0815878
225 White Oak Drive
P.O. Box 339
Raleigh, MS 39153
(601) 782-9922
R&L Tool Company, Inc. Mississippi 3694 64-0701131
R. 1, Box 320
Highway 481, North
Raleigh, MS 39153
(601) 536-2193
MCA, Inc. of Mississippi Mississippi 3694 64-0765216
412 Bay Street
P.O. Box 257
Heidelberg, MS 39439
(601) 787-2688
Name and Address, Including
Zip Code and Telephone State or Other Primary Standard
Number, Including Area Code, Jurisdiction of Classification I.R.S. Employer
of Principal Executive Offices Incorporation Code Number Identification No.
------------------------------ ------------- ----------- ------------------
Power Investments, Inc. Indiana 3714 35-1567602
400 Forsythe Street
P. O. Box 667
Franklin, IN 46131
(317) 738-2117
Franklin Power Products, Inc. Indiana 3714 35-1809762
400 Forsythe Street
P.O. Box 667
Franklin, IN 46131
(317) 738-2117
International Fuel Systems, Inc. Indiana 3714 35-1880654
980 Hurricane Road
Franklin, IN 46131
(317) 738-9408
Marine Drive Systems, Inc. New Jersey 3519 58-0941862
Grisom Aeroplex
1175 N. Hoosier Boulevard
Peru, IN 46970
(765) 689-8176
Marine Corporation of America Indiana 3519 35-1804826
980 Hurricane Road
Franklin, IN 46131
(317) 738-9408
Powrbilt Products, Inc. Texas 3519 75-2398592
617 S. 4th Street
Mansfield, TX 76063
(817) 473-3208
World Wide Automotive, Inc. Virginia 3694 54-1025997
130 Westbrooke Drive
Fort Collier Industrial Park
Winchester, VA 22603
(540) 667-6500
DELCO REMY INTERNATIONAL, INC.
CROSS-REFERENCE SHEET
Pursuant to Item 501 of Regulation S-K
Form S-1 Part I Item Caption or Location in Prospectus
- -------------------- ---------------------------------
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus....... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges................. Prospectus Summary; Risk Factors
4. Use of Proceeds.............................. Use of Proceeds
5. Determination of Offering Price.............. Underwriting
6. Dilution..................................... Not Applicable
7. Selling Security Holders..................... Not Applicable
8. Plan of Distribution......................... Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered... Description of Notes
10. Interests of Named Experts and Counsel....... Not Applicable
11. Information with Respect to the Registrants.. Prospectus Summary; Risk Factors; Company
History; Use of Proceeds; Capitalization;
Selected Consolidated Historical Financial
Data; Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Management; Certain
Transactions; Principal Stockholders;
Description of Capital Stock; Description
of Indebtedness; Index to Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. Not Applicable
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained herein is subject to completion or amendment. A +
+registration statement relating to these securities has been filed with the +
+Securities and Exchange Commission. These securities may not be sold nor may +
+offers to buy be accepted prior to the time the registration statement becomes+
+effective. This prospectus shall not constitute an offer to sell or the +
+solicitation of an offer to buy nor shall there be any sale of these +
+securities in any State in which such offer, solicitation or sale would be +
+unlawful prior to registration or qualification under the securities laws of +
+any such State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
October 10, 1997
Prospectus [LOGO OF DELCO REMY
$130,000,000 INTERNATIONAL APPEARS
DELCO REMY INTERNATIONAL, INC. HERE]
% Senior Notes Due 2007
The % Senior Notes Due 2007 (the "Notes") are being offered (this "Offering" or
the "Notes Offering") by Delco Remy International, Inc. (the "Company") and will
mature on , 2007. Interest on the Notes is payable semiannually on
each and , commencing , 1998. The Notes are
redeemable at the option of the Company, in whole or in part, on or after
, 2002, at the redemption prices set forth herein, plus accrued and
unpaid interest, if any, to the redemption date. In addition, prior to ,
2000, the Company may use the proceeds of one or more Public Equity Offerings
(as defined) to redeem up to 40% of the original principal amount of the Notes
at a redemption price of % of the aggregate principal amount thereof, plus
accrued and unpaid interest, if any, to the date of redemption; provided that
not less than 50% of the original aggregate principal amount of the Notes
remains outstanding following any such redemption. Upon a Change of Control (as
defined), each holder of the Notes will have the right to require the Company to
repurchase such holder's Notes at 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the repurchase date. See "Description of
Notes--Change of Control."
Concurrently with this Offering, the Company is offering shares
(without giving effect to the over-allotment option) of the Company's Class A
Common Stock (the "Equity Offering" and, together with the Notes Offering, the
"Offerings"). See "Prospectus Summary--The Offering--Concurrent Offerings." The
Notes Offering and the Equity Offering are each contingent upon consummation of
the other.
The Notes will be general unsecured obligations of the Company and will rank
pari passu in right of payment with all existing and future Senior Indebtedness
(as defined) of the Company and senior in right of payment to all existing and
future Subordinated Obligations (as defined) of the Company. In addition, the
obligations of the Company under the Notes will be fully and unconditionally
guaranteed on a joint and several basis (each, a "Subsidiary Guaranty") by each
of the Company's existing and future Domestic Restricted Subsidiaries (as
defined; collectively, the "Subsidiary Guarantors"). The Subsidiary Guaranties
will rank pari passu in right of payment with all existing and future Senior
Indebtedness of the Subsidiary Guarantors and senior in right of payment to all
existing and future Subordinated Obligations of the Subsidiary Guarantors. The
Notes and the Subsidiary Guaranties will be effectively subordinated to all
existing and future Secured Indebtedness (as defined) of the Company and the
Subsidiary Guarantors (to the extent of the assets securing such Indebtedness)
and to any liabilities of subsidiaries other than Subsidiary Guarantors. As of
July 31, 1997, after giving pro forma effect to the Offerings and the other
Transactions (as defined), the Company would have had approximately $341.3
million of consolidated indebtedness outstanding, of which approximately $51.9
million would have ranked effectively senior to the Notes and the Subsidiary
Guaranties (excluding unused commitments and outstanding letters of credit).
Although the Indenture (as defined) contains limitations on the amount of
additional indebtedness that the Company and its Restricted Subsidiaries may
incur, under certain circumstances the amount of such indebtedness could be
substantial and, in any case, such indebtedness may be Secured Indebtedness or
indebtedness of subsidiaries other than the Subsidiary Guarantors. See
"Description of Notes."
See "Risk Factors on page 12 for a discussion of certain factors that should be
considered by prospective purchasers of the Notes.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Price to Underwriting Proceeds to
Public (1) Discount Company (1)(2)
Per Note.......................
% % %
Total.......................... $ $ $
- --------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from , 1997, to the date of delivery.
(2) Before deducting expenses payable by the Company, estimated to be $ .
The Notes are offered subject to receipt and acceptance by the Underwriters, to
prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify the order without notice. It is expected
that delivery of the Notes will be made at the office of Salomon Brothers Inc,
Seven World Trade Center, New York, New York, or through the facilities of The
Depository Trust Company, on or about , 1997.
Salomon Brothers Inc
Credit Suisse First Boston
Morgan Stanley Dean Witter
The date of this Prospectus is , 1997.
Certain statements contained in this Prospectus that are not related to
historical results are forward-looking statements. Actual results may differ
materially from those projected or implied in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed under "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."
Further, certain forward-looking statements are based upon assumptions as to
future events that may not prove to be accurate. These forward-looking
statements involve risks and uncertainties including, but not limited to, those
set forth under "Risk Factors."
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES,
AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE OFFERING. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
-------------
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act") with respect to the
securities offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are omitted as permitted by the
rules and regulations of the Commission. Statements made in this Prospectus as
to the contents of any agreement or other document referred to herein are not
necessarily complete, and reference is made to the copy of such agreement or
other document filed as an exhibit or schedule to the Registration Statement and
each such statement shall be deemed qualified in its entirety by such reference.
For further information, reference is made to the Registration Statement and to
the exhibits and schedules filed therewith, which are available for inspection
without charge at the public reference facilities maintained by the Commission
in Room 1024, 450 Fifth Street, N.W, Washington, D.C. 20549. Copies of the
material containing this information may be obtained from the Commission upon
payment of the prescribed fees.
After consummation of this Offering, the Company will be subject to the
information and reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and, in accordance therewith, will be required
to file proxy statements, reports and other information with the Commission. The
Registration Statement, as well as any such report, proxy statement and other
information filed by the Company with the Commission, may be inspected and
copied at the public reference facilities maintained by the Commission in Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located at 7 World Trade Center, 13th Floor, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Commission maintains a web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
The Company intends to furnish to its stockholders annual reports
containing consolidated financial statements audited by an independent public
accounting firm accompanied by an opinion expressed by such independent public
accounting firm and quarterly reports for the first three quarters of each
fiscal year containing unaudited consolidated financial information in each case
prepared in accordance with generally accepted accounting principles.
3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. The disclosure contained throughout this Prospectus which is
identified as being presented on a pro forma ("pro forma") basis has been
prepared as if the following transactions (the "Transactions") occurred (a) for
purposes of statement of operations and cash flow data, on August 1, 1996 and
(b) for purposes of balance sheet data, on July 31, 1997 (except for (i) below,
which is included in the historical balance sheet data): (i) the acquisition by
the Company of World Wide Automotive, Inc. ("World Wide") on May 8, 1997, (ii)
the acquisition by the Company of Ballantrae Corporation ("Ballantrae") for
which the Company has entered into an Agreement and Plan of Merger dated October
, 1997, (iii) the completion of both Offerings, (iv) the payment in full by
the Company of the 10 1/2% Senior Note due July 31, 2003 to World Subordinated
Debt Partners, L.P., (v) the payment in full by the Company of the 11.50%
Subordinated Notes due July 31, 2004 to General Motors Corporation, (vi) the
exchange of the 11% Junior Subordinated Notes due July 31, 2004 (the "Junior
Subordinated Notes") for shares of Class A Common Stock, (vii) the exchange,
in accordance with their terms, of the outstanding shares of 8% preferred stock
of Delco Remy America, Inc. ("DRA") to an 8% subordinated debenture of DRA,
(viii) a stock dividend to existing holders of Common Stock resulting in a -
for-one increase in the outstanding shares of Common Stock (the "Stock Split"),
(ix) the payment in full by the Company of subordinated notes payable to certain
former stockholders of A&B Group and Power Investments (as defined) and (x) the
amendment of the Senior Credit Facility (as defined) in connection with the
consummation of the Offerings. Unless otherwise indicated, the information
contained in this Prospectus assumes no exercise of the over-allotment option in
connection with the Equity Offering. For purposes of this Prospectus, the
"Company" shall refer to Delco Remy International, Inc. ("DRI") and all of its
consolidated subsidiaries, unless the context otherwise requires.
THE COMPANY
General
The Company designs, manufactures, remanufactures and distributes
electrical, powertrain/drivetrain and related components for automobiles and
light trucks, medium and heavy duty trucks and other heavy duty vehicles. The
Company's products include starter motors ("starters"), alternators, engines,
transmissions, traction control systems and fuel systems. The Company serves the
aftermarket and the original equipment manufacturer ("OEM") market, principally
in North America as well as in Europe, Latin America and Asia-Pacific. Net sales
and EBITDA (as defined) for fiscal year 1997 were $689.8 million and $87.3
million, respectively. For the same period, the aftermarket accounted for
approximately 45.2% of the Company's net sales and 62.8% of EBITDA, with the OEM
market accounting for the balance.
The Company believes that it is the largest manufacturer and remanufacturer
in North America of (i) starters for automobiles and light trucks (including
sport-utility vehicles, minivans and pickup trucks) and (ii) starters and
alternators for medium and heavy duty vehicles. The Company's products are
principally sold or distributed to OEMs for both original equipment manufacture
and aftermarket operations, as well as to warehouse distributors and retail
automotive parts chains. Major customers include General Motors ("GM"), General
Motors Service Parts Operations ("GM SPO"), Navistar, Caterpillar, Freightliner,
PACCAR, Auto Zone, Cummins, Western Auto, Ford, Detroit Diesel, Volvo Trucks,
Mack, Pep Boys, Advance Auto and O'Reilly Automotive.
The Company sells its products principally under the "Delco Remy" brand
name and other major brand names worldwide. In connection with the GM
Acquisition (as defined), the Company obtained perpetual rights to the "Delco
Remy" brand name, which was first used in 1918. The Company also received the
right to use "Delco Remy" as a corporate name until 2004 and the "Remy" name in
perpetuity. In addition, GM entered into a long-term contract to purchase from
the Company substantially all of its North American requirements for automotive
starters and its U.S. and Canadian requirements for heavy duty starters and
alternators. GM also entered into a distribution agreement to sell the Company's
aftermarket products through the GM SPO distribution system. See
"Business--Customers."
Citicorp Venture Capital Ltd. ("CVC") and Harold K. Sperlich, former
president of Chrysler Corporation, together with a subsidiary of MascoTech Inc.
("MascoTech") and certain senior management of the former Delco Remy Division of
GM (the "Former GM Division"), formed the Company for the purpose of acquiring
the assets of
4
the automotive starter and the heavy duty starter and alternator businesses of
the Former GM Division (the "GM Acquisition"). Upon consummation of the
Offerings and the other Transactions, CVC, management of the Company and other
existing stockholders of the Company will beneficially own approximately % of
the Company's outstanding Common Stock ( % of the voting power), and will be
able to control the Company and elect its Board of Directors.
Since the GM Acquisition, the Company has completed five strategic
acquisitions, substantially increasing the Company's aftermarket operations, and
entered into two international joint ventures. The Company is also in the
process of completing the strategic acquisition of Ballantrae, which will expand
the Company's drivetrain product position. Through Ballantrae's wholly owned
subsidiary, Tractech Inc. ("Tractech"), the Company will offer high quality
traction control systems to heavy duty OEMs and the aftermarket. These
acquisitions and joint ventures have broadened the Company's product line,
expanded its remanufacturing capability, extended its participation in
international markets and increased its penetration of the retail automotive
parts channel. As a result of these acquisitions and joint ventures and the
Company's focus on increasing its participation in the aftermarket, the
Company's reliance on GM has declined since the Company's formation. Net sales
to customers other than GM increased from 41.0% in fiscal year 1995 to 56.3% in
fiscal year 1997.
The Company's expanding aftermarket business benefits from the
non-deferrable nature of the repairs for which many of the Company's products
are used. Additionally, the Company's aftermarket business benefits from the
design, manufacturing and technological expertise of the Company's OEM
operations. This OEM expertise provides the Company with advantages over many of
its aftermarket competitors. The Company believes that its participation in both
OEM and aftermarket businesses and its diversified customer base reduce its
exposure to the cyclicality of the automotive industry. The Company's growth
strategy is designed to capitalize on its position as a consolidator in the
large and highly fragmented remanufacturing aftermarket.
Growth Strategy
The Company plans to continue to increase revenues and profitability of its
aftermarket and OEM businesses through a strategy of internal growth and growth
through acquisitions. Key elements of the Company's growth strategy include:
Increasing Aftermarket Presence
Strengthening Customer Relationships. The Company intends to increase its
sales to new and existing customers by capitalizing on its balanced coverage of
the key channels of aftermarket distribution and its competitive strengths as an
OEM supplier. The Company plans to strengthen its customer relationships by (i)
continuing to expand its product offerings, (ii) capitalizing on the expansion
of the national automotive retail parts chains and warehouse distributors that
are customers of the Company, (iii) meeting the increasing demands of OEMs and
their dealer networks for high quality remanufactured units, which enable them
to reduce warranty and extended service costs, and (iv) growing sales of
existing and new product lines to OEM dealer networks as dealers continue to
capture an increasing percentage of vehicle repairs, due to longer warranty and
service programs and growing vehicle complexity. Additionally, with the recent
acquisition of World Wide, the Company expanded its product line and now offers
a full line of starters and alternators for domestic and import vehicles. The
acquisition also has improved the Company's distribution capabilities, which now
include a nationwide overnight delivery service.
Consolidating the Fragmented Aftermarket. The portion of the aftermarket in
which the Company participates is large and highly fragmented, with most
participants being small, regional companies offering relatively narrow product
lines. Although the Company believes that it is the largest manufacturer and
remanufacturer of aftermarket starters and alternators in North America, its
sales of these products account for less than 12% of this market. Consolidation
of the aftermarket is occurring as many competitors are finding it difficult to
meet the increasing quality, cost and service demands of customers, who, in
turn, are seeking to rationalize their supplier base. With its OEM capabilities,
remanufacturing expertise, full product line, greater access to "cores" and
ability to capitalize on economies of scale, the Company is well positioned to
benefit from the consolidation of the aftermarket.
Expanding Globally
The Company is expanding its international operations in order to (i)
benefit from the trend toward international standardization of automotive and
heavy duty vehicle platforms and (ii) participate in rapidly
5
growing foreign markets. The Company has recently been awarded new business by
GM, Volkswagen, Mercedes Benz, Ford and Caterpillar in Brazil; Opel in Europe;
Daewoo Motors in India; and Mercedes Benz, Volvo Trucks, John Deere and Dina in
Mexico. The Company intends to supply its existing OEM customers on a global
basis as they expand their operations and require local supply of component
parts that meet their demands for quality, technology, delivery and service. The
Company believes that its global expansion will enable it to gain new
international OEM customers who will also require local production of high
quality products. In addition, the expansion of the Company's OEM business into
international markets has provided the Company with the infrastructure necessary
to develop an aftermarket presence in these countries. The Company has
established manufacturing operations and strategic ventures in Hungary, Korea
and Mexico, and plans to complete a strategic alliance in India and a joint
venture in Brazil in fiscal year 1998. The acquisition of Ballantrae will
provide the Company with a European manufacturing plant which has been in
operation since 1983. Aided by this facility, Ballantrae has developed strong
relationships with European customers for traction control systems, especially
in the market for construction equipment.
Introducing Technologically Advanced New Products
As a Tier 1 OEM supplier, the Company continues to provide technologically
advanced products by regularly updating and enhancing its product line. Since
the GM Acquisition, the Company has (i) completed the introduction of a new
family of gear reduction starters that will replace all straight drive starters
in GM vehicles by the end of the 1998 model year and (ii) introduced several
longer-life heavy duty alternators. The Company is also developing a small gear
reduction starter specifically designed for application on world car platforms.
These new products underscore the Company's commitment to developing
state-of-the-art products that address the higher output, lower weight and
increased durability requirements of OEM customers.
Operating Strategy
The Company's operating strategy is designed to improve manufacturing
efficiency, reduce costs and increase productivity while continuing to achieve
the highest levels of product quality. Key elements of this operating strategy
include:
"Focus" Factories to Drive Manufacturing Excellence
The Company is shifting its OEM production from old, vertically-integrated
manufacturing plants to new, smaller and more efficient "focus" factories. The
Company's focus factories generally produce one product line in a plant designed
to facilitate lean manufacturing techniques. The Company has successfully
launched three new focus factories since 1996. When the currently planned shift
to focus factories is completed, the Company will occupy five focus factories
and will have reduced its floor space for OEM production by more than 70%. The
Company believes that the benefits of the focus factories include reduced
overhead costs, enhanced productivity, increased product quality and lower
inventories.
Productivity Improvements
In conjunction with its emphasis on focus factories, the Company continues
to work with its local union representatives to establish best-in-class work
practices, such as reducing the number of job classifications per focus factory
and implementing team-based manufacturing processes. Since the GM Acquisition,
employee productivity has increased by 33%. The Company's labor contract with
the UAW (as defined) contains provisions that are expected to permit the Company
to continue to achieve productivity improvements in the existing and new focus
factories. The increased productivity achieved since the GM Acquisition is due
primarily to continuous improvement initiatives and the significant number of
employees who have exercised their contract rights to return ("flowback") to GM
or to retire.
Product Quality and Continuous Improvement
In July 1997, the Company received the prestigious Supplier of the Year
award from GM, an award given to fewer than 1% of all GM suppliers. The
Company's commitment to product quality and continuous improvement is further
evidenced by the QS9000 certification received by nine of its manufacturing and
remanufacturing facilities in 1997. The Company expects that the remainder of
its manufacturing and remanufacturing facilities will receive QS9000
certification by the end of fiscal year 1998. In addition, the Company's
powertrain/drivetrain operations that remanufacture products for Ford have
received the Q-1 rating, Ford's highest quality rating, and
6
the Company is a Ford Authorized Remanufacturer ("Ford FAR") in five of the
seven Canadian provinces. Global purchasing has further enhanced the Company's
continuous improvement efforts. The Company is utilizing its international
ventures to develop new, lower cost sources of materials and is consolidating
its vendor base to fewer, more competitive suppliers.
Recent Developments
On October , 1997, the Company entered into a definitive agreement to
acquire Ballantrae for $49.2 million (including assumed debt). Ballantrae
operates through two subsidiaries: Tractech, a leading producer of traction
control systems for heavy duty OEMs and the aftermarket; and Kraftube, Inc., a
tubing assembly business which sells products to compressor manufacturers for
commercial air conditioners and refrigeration equipment. In fiscal year 1997,
Tractech accounted for approximately 70% of Ballantrae's $37.6 million of net
sales. The Company's acquisition of Ballantrae strengthens the Company's overall
market position by (i) adding traction control systems to the Company's range of
drivetrain products, (ii) increasing sales to existing heavy duty OEM customers
and (iii) expanding the Company's customer base. The acquisition is expected to
be completed at or prior to the consummation of the Offerings. See "Risk
Factors--Acquisition of Ballantrae; Conflicts of Interest," "Company History,"
"Business--Acquisition of Ballantrae" and "Certain Transactions."
Other Information
For purposes of the financial information set forth in this Prospectus, (i)
EBITDA represents the sum of income from continuing operations before interest
expense, income taxes, preferred dividend requirement of subsidiary, minority
interest in income of subsidiaries, gain on sale of building and restructuring
charges, plus depreciation, amortization and non-cash post-retirement benefits
other than pensions, and (ii) unless otherwise indicated, all references to
years are to the twelve months ended July 31, the Company's fiscal year end.
The Company's world headquarters are located at 2902 Enterprise Drive,
Anderson, Indiana, 46013, and its telephone number is (765) 778-6499.
THE OFFERING
Notes Offered........................................ $130,000,000 principal amount of %
Senior Notes Due 2007.
Maturity............................................. , 2007.
Interest Payment Dates............................... and , commencing
, 1998.
Subsidiary Guaranties................................ The Notes will be fully and unconditionally guaranteed
on a joint and several basis by each of the Company's
existing and future Domestic Restricted Subsidiaries.
Optional Redemption.................................. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or
after , 2002, at the redemption
prices set forth herein, plus accrued and unpaid
interest, if any, to the date of redemption. In
addition, prior to , 2000, the
Company may use the proceeds of one or more Public
Equity Offerings to redeem up to 40% of the original
principal amount of the Notes at a redemption price
of % of the original aggregate principal amount
thereof, plus accrued and unpaid interest, if any, to
the date of redemption; provided that not less than 50%
of the original aggregate principal amount of the Notes
remains outstanding following any such redemption. See
"Description of Notes--Optional Redemption."
7
Sinking Fund......................................... None.
Change of Control.................................... Upon a Change of Control, each holder of Notes will have
the right to require the Company to repurchase all or a
portion of such holders' Notes at a purchase price equal
to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase. In the
event of a Change of Control, there can be no assurance
that the Company will have the financial resources or
be permitted under the terms of its other indebtedness to
repurchase the Notes. See "Description of Notes--Change
of Control."
Ranking.............................................. The Notes and the Subsidiary Guaranties will be general
unsecured obligations of the Company and the Subsidiary
Guarantors and will rank pari passu in right of payment
with all existing and future Senior Indebtedness of the
Company and the Subsidiary Guarantors and senior in right of
payment to all existing and future Subordinated Obligations
of the Company and the Subsidiary Guarantors. The Notes
and the Subsidiary Guaranties will be effectively subordinated
to all existing and future Secured Indebtedness of the Company
and the Subsidiary Guarantors (to the extent of the assets
securing such Indebtedness) and to any liabilities or preferred
stock of Subsidiaries (as defined) other than Subsidiary
Guarantors. As of July 31, 1997, after giving pro forma effect
to the Offerings and the other Transactions, (i) Senior
Indebtedness of the Company and the Subsidiary Guarantors would
have been approximately $51.9 million (excluding the Notes,
the Subsidiary Guaranties and unused commitments and
outstanding letters of credit), (ii) Subordinated Obligations
of the Company and the Subsidiary Guarantors would have
been approximately $157.9 million, (iii) Secured Indebtedness
of the Company and the Subsidiary Guarantors would have been
approximately $51.9 million (excluding unused commitments and
outstanding letters of credit under the Senior Credit Facility)
and (iv) all liabilities and preferred stock of the Company's
Subsidiaries (excluding the Subsidiary Guarantors) would have
been approximately $13.5 million. Although the Indenture contains
limitations on the amount of additional Indebtedness (as defined)
that the Company and its Restricted Subsidiaries may Incur (as
defined), under certain circumstances the amount of such
Indebtedness could be substantial and, in any case, such
Indebtedness may be Secured Indebtedness or Indebtedness of
Subsidiaries other than Subsidiary Guarantors. See "Description
of Notes."
8
Certain Covenants.................................... The Indenture for the Notes will contain limitations on,
among other things, (a) the ability of the Company and its
Restricted Subsidiaries to Incur additional Indebtedness, (b) the
payment of dividends and other distributions with respect to the
Capital Stock of the Company and its Restricted Subsidiaries and
the purchase, redemption or retirement of Capital Stock and
Subordinated Obligations of the Company and its Restricted
Subsidiaries, (c) the Incurrence of certain Liens, (d) the
issuance or sale of Restricted Subsidiary stock, (e) the sale of
assets of the Company or its Restricted Subsidiaries, (f)
transactions with Affiliates and (g) certain consolidations, mergers
and transfers of assets. All of these limitations are subject to a
number of important qualifications. See "Description of Notes--Certain
Covenants" and "--Certain Definitions."
Concurrent Offerings................................. Concurrently with the Notes Offering, the Company is offering shares
of Class A Common Stock (without giving effect to the over-allotment
option). The Notes Offering and the Equity Offering are each contingent
upon the consummation of the other. See "Use of Proceeds" and
"Description of Capital Stock."
Use of Proceeds...................................... The net proceeds of the Offerings (estimated to be approximately
$181.1 million) will be used primarily to repay outstanding
indebtedness. See "Use of Proceeds."
Risk Factors......................................... See "Risk Factors" beginning on page for a discussion of certain
factors that should be considered by prospective purchasers of the
Notes.
9
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary consolidated historical financial
data of the Company for the years ended July 31, 1995, 1996 and 1997 and as of
July 31, 1997 and summary consolidated pro forma financial data for the Company
as of and for the year ended July 31, 1997. The statement of operations data for
the years ended July 31, 1995, 1996 and 1997 and the balance sheet data as of
July 31, 1997 were derived from audited Consolidated Financial Statements of the
Company included elsewhere herein. The pro forma consolidated statement of
operations data for the year ended July 31, 1997 were prepared to illustrate the
estimated effect of the Transactions, including the Offerings and the
application of the estimated net proceeds therefrom, as if they had occurred on
August 1, 1996. The pro forma consolidated balance sheet data were prepared to
illustrate the estimated effect of the Transactions, including the Offerings and
the application of the estimated net proceeds therefrom, as if they had occurred
on July 31, 1997 (other than the acquisition of World Wide, which is reflected
in the consolidated historical balance sheet data). The pro forma data do not
purport to be indicative of the results of operations or the financial position
of the Company that would have been obtained if the Transactions had in fact
been completed as of such dates or to project the results of operations or the
financial position of the Company for any future date or period. The table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Consolidated Financial
Statements of the Company, "Pro Forma Condensed Consolidated Financial Data,"
related notes and other financial information included elsewhere in this
Prospectus.
For the Year Ended July 31
---------------------------------------------------------------
Pro Forma
1995 1996 1997 1997
------------- ------------- ------------- -------------
(dollars in thousands, except per share data)
Statement of operations data:
Net sales................................ $ 573,423 $ 636,852 $ 689,787 $ 776,368
Gross profit............................. 98,207 126,774 149,553 170,522
Selling, engineering and administrative
expenses............................. 61,206 77,994 89,098 101,567
Restructuring charges.................... -- 8,101 34,500 34,500
Operating income......................... 37,001 40,679 25,955 34,455
Interest expense......................... 18,432 27,367 38,774 35,295
Income (loss) from continuing
operations........................... 9,326 5,796 (10,263) (1,377)
Loss from discontinued operations, net of
tax.................................. 2,363 10,637 1,682 --
Net income (loss)........................ 6,963 (4,841) (14,296) --
Income (loss) from continuing
operations per share................. $ $ $ $
Net income (loss) per share..............
Financial ratios and other data:
Depreciation and amortization............ $ 14,533 $ 19,555 $ 22,323 $ 24,961
Capital expenditures..................... 11,241 32,741 31,888 32,974
EBITDA(a)................................ 55,968 72,087 87,269 99,493
Gross margin............................. 17.1% 19.9% 21.7% 22.0%
Cash flow from operations................ 21,921 (684) 22,537 33,832
EBITDA margin............................ 9.8% 11.3% 12.7% 12.8%
Ratio of EBITDA to interest expense...... 3.0x 2.6x 2.3x 2.8x
Ratio of total debt to EBITDA............ 3.5x 4.1x 4.2x 3.4x
Ratio of earnings to fixed charges(b).... 1.8x 1.3x --(c) 1.0x
As of July 31, 1997
------------------------------
Historical Pro Forma
------------- -------------
Balance sheet data:
Working capital.......................................................... $ 155,302 $ 171,023
Total assets............................................................. 570,569 632,060
Total debt............................................................... 363,768 341,294
Total stockholders' (deficit) equity..................................... (8,536) 86,153
10
(a) EBITDA represents the sum of income from continuing operations before
interest expense, income taxes, preferred dividend requirement of subsidiary,
minority interest in income of subsidiaries, gain on sale of building and
restructuring charges, plus depreciation, amortization and non-cash
post-retirement benefits other than pensions. EBITDA should not be construed as
a substitute for income from operations, net income or cash flow from operating
activities for the purpose of analyzing the Company's operating performance,
financial position and cash flows. The Company has presented EBITDA because it
is commonly used by certain investors to analyze and compare companies on the
basis of operating performance and to determine a company's ability to service
debt. This definition of EBITDA differs from the definition of EBITDA used in
the Indenture for the Notes and may not be comparable to EBITDA as defined by
other companies. See "Description of Notes--Certain Definitions."
(b) For purposes of computing the ratio of earnings to fixed charges,
earnings consist of income from continuing operations before income taxes and
fixed charges. Fixed charges include preferred dividend requirement of
subsidiary, interest expense and the portion of operating rents that is deemed
representative of an interest factor.
(c) The deficiency of earnings to fixed charges was $13.5 million.
Excluding the restructuring charge, the ratio of earnings to fixed charges would
have been 1.5x.
11
RISK FACTORS
In evaluating an investment in the securities offered hereby, prospective
investors should carefully consider the following risk factors, as well as the
other information set forth elsewhere in this Prospectus.
Substantial Leverage and Debt Service Obligations
The Company incurred substantial indebtedness in connection with the GM
Acquisition. After adjusting for the Transactions and the application of the net
proceeds therefrom, at July 31, 1997, the Company's total indebtedness would
have been $341.3 million (exclusive of unused commitments and outstanding
letters of credit), and the Company would have had common stockholders' equity
of $86.2 million. The degree to which the Company is leveraged could have
important consequences, including the following: (i) the Company's ability to
obtain additional financing for working capital, capital expenditures,
acquisitions or general corporate purposes may be impaired; (ii) a substantial
portion of the Company's cash flow from operations must be dedicated to the
payment of interest on its existing indebtedness, thereby reducing the funds
available to the Company for other purposes; (iii) the Company's operations are
restricted by the agreements governing the Company's long-term indebtedness
which contain certain financial and operating covenants; (iv) certain
indebtedness under the Senior Credit Facility will be at variable rates of
interest, which will cause the Company to be vulnerable to increases in interest
rates; (v) all of the indebtedness outstanding under the Senior Credit Facility
will be secured by substantially all the assets of the Company and that
indebtedness, together with the Senior Subordinated Notes (as defined), will
become due prior to the time the principal on the Notes will become due; (vi)
the Company may be hindered in its ability to adjust rapidly to changing market
conditions; and (vii) the Company's substantial degree of leverage could make it
more vulnerable in the event of a downturn in general economic conditions or in
its business.
The Company may be required to refinance all or a portion of its present
indebtedness, substantially all of which matures prior to the maturity of the
Notes, at or prior to the maturity of such indebtedness. In the event that the
Company is unable to refinance its existing indebtedness or otherwise raise
funds to repay such indebtedness, the Company's financial condition and ability
to fund its operations would be materially adversely affected. See "Description
of Capital Stock," "Description of Indebtedness" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Asset Encumbrance; Holding Company Structure
The Notes are unsecured and will be effectively subordinated to any Secured
Indebtedness of the Company. The indebtedness outstanding under the Senior
Credit Facility will be secured by liens on substantially all of the assets of
the Company located within the United States. The ability of the Company to
comply with the provisions of the Senior Credit Facility may be affected by
events beyond the Company's control. The breach of any such provisions could
result in a default under the Senior Credit Facility, in which case such lenders
could elect to declare all amounts borrowed under the Senior Credit Facility,
together with accrued interest, to be due and payable. If the Company were
unable to repay such borrowings, such lenders could proceed against the
collateral. If the maturity of the indebtedness under the Senior Credit Facility
were accelerated, there can be no assurance that the assets of the Company would
be sufficient to repay in full such indebtedness and the other indebtedness of
the Company, including the Notes.
The Company is a holding company which derives all of its operating income
from its subsidiaries. The holders of the Notes will have no direct claim
against any such subsidiaries other than the claim created against a Domestic
Restricted Subsidiary by the applicable Subsidiary Guaranty, which may be
subject to legal challenge in the event of the bankruptcy of such subsidiary.
See "Risk Factors--Fraudulent Conveyance." If such a challenge were upheld, the
Subsidiary Guaranty would be invalidated and unenforceable. To the extent that
the Subsidiary Guaranty is not enforceable, the rights of holders of the Notes
to participate in any distribution of assets of the applicable Subsidiary
Guarantor upon liquidation, bankruptcy, reorganization or otherwise may, as is
the case with other unsecured creditors of the Company, be subject to prior
claims of creditors of that Subsidiary Guarantor. The Company must rely on
dividends and other payments from its subsidiaries to generate the funds
necessary to meet its obligations, including the payment of principal and
interest on the Notes. The Indenture contains covenants that restrict the
ability of the Company's subsidiaries to enter into any agreement limiting
distributions and transfers,
12
including dividends to the Company. The ability of the Company's subsidiaries to
pay dividends and make other payments may be subject to certain statutory,
contractual and other restrictions. See "Description of Indebtedness" and
"Description of Notes--Ranking."
Dependence on General Motors
GM accounted for approximately 97% of the Company's 1997 pro forma
automotive OEM net sales and approximately 4.5% of the Company's 1997 pro forma
heavy duty OEM net sales. GM SPO accounted for approximately 24.2% of the
Company's 1997 pro forma aftermarket net sales, and GM and GM SPO collectively
accounted for approximately 38.8% of the Company's total 1997 pro forma net
sales. In connection with the GM Acquisition, GM entered into long-term
contracts pursuant to which it has agreed to purchase from the Company 100% of
its North American requirements for automotive starters (other than for Saturn
and Geo) and 100% of its U.S. and Canadian requirements for heavy duty starters
and alternators, in each case to purchase the existing product line (as of
August 1994). GM's obligations to purchase automotive starters and heavy duty
starters and alternators from the Company terminate in 2004 and 2000,
respectively, except for automotive products released in 1996 and 1997, for
which GM's obligation will terminate in 2006 and 2007, respectively. GM's
commitments to purchase products from the Company in the future are subject,
however, to the Company's remaining competitive as to technology, design and
price. See "Business--Customers." There can be no assurance that GM will not
develop alternative sources for components currently produced by the Company and
purchase some or all of its requirements for starters and alternators from these
alternative sources at the expiration of its obligation to purchase such
components from the Company. In addition, GM has been designated as an exclusive
distributor of a significant amount of the Company's automotive and heavy duty
aftermarket products and has agreed to provide the Company with purchasing
support, which enables it to obtain raw materials at competitive prices. The
Company's exclusive distribution arrangements with GM for the Company's heavy
duty aftermarket products and automotive aftermarket products terminate on July
31, 1998 and in 2009, respectively. There can be no assurance that the Company
and GM will negotiate a new arrangement for the distribution of heavy duty
aftermarket products when the current distribution arrangement terminates on
July 31, 1998, or whether the Company or GM will develop alternative
distribution channels.
The loss of GM as a customer of OEM or aftermarket products, the default by
GM on its obligations to act as a distributor or to purchase the Company's OEM
or aftermarket products, a substantial decrease in demand for GM's automobile
models containing the Company's products or the failure of the Company to obtain
supply orders for its products used in GM's new automobile models could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, strikes and work stoppages affecting GM's
operations may postpone GM's need for components produced by the Company, which,
because of the Company's highly leveraged position, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors--Labor Negotiations."
Relocation of Facilities
The Company is in the process of relocating certain of its manufacturing
facilities. Specifically, the Company has relocated certain production lines
from three of its OEM manufacturing facilities to three focus factories. The
Company has entered into leases for two additional focus factories and will
relocate additional production lines to those facilities and one additional
facility over the next year. At the conclusion of the relocation, the Company
will have vacated the three plants leased from GM. In addition, the Company
expects to relocate certain of its aftermarket facilities due to increased space
requirements and the need for a regional presence. The Company's subsidiaries
have conducted these moves in the past without significant disruption to
operations. While the Company believes that it has prepared for such
relocations, there can be no assurance that the complicated nature of such moves
will not result in unforeseen costs or delays or result in disruptions in the
Company's operations at the affected facilities. In addition, there can be no
assurance that additional moves will not be required in the future. The
restructuring charge recorded by the Company in 1997 does not include startup
costs the Company expects to incur, based on its prior startups, in connection
with the new focus factories. See "Risk Factors--Restructuring Charges; Net
Losses" and "Business--Manufacturing and Facilities."
13
Concentration of Ownership
Upon completion of the Transactions, CVC will own beneficially
approximately % of the Company's outstanding Common Stock (including non-
voting Class B Common Stock which, subject to applicable law, is convertible at
the holder's option into voting Class A Common Stock and after giving pro forma
effect to the exchange of the Company's Junior Subordinated Notes for Class A
Common Stock) and members of the management of the Company will own beneficially
approximately % of the Company's outstanding Common Stock. Certain other
existing stockholders of the Company will own beneficially approximately % of
the Company's outstanding Common Stock. If these stockholders were to vote all
of their shares in a similar manner, they would effectively control the Company.
In most circumstances, they would have sufficient voting power to elect the
entire Board of Directors of the Company and, in general, to determine (without
the consent of the Company's other stockholders) the outcome of any corporate
transaction or other matter submitted to the stockholders for approval,
including mergers, consolidations and the sale of all or substantially all of
the Company's assets, and to prevent or cause a change in control of the
Company. Further, CVC, certain members of management and other existing
stockholders have entered into a Stockholders' Agreement (as defined) whereby
they have agreed to vote their shares in such a manner as to elect the entire
Board of Directors of the Company. See "Principal Stockholders--Stockholders'
Agreement."
Restructuring Charges; Net Losses
The Company incurred restructuring charges totaling $34.5 million and $8.1
million in fiscal years 1997 and 1996, respectively. These charges contributed
to a loss from continuing operations and a net loss in fiscal year 1997 of $10.3
million and $14.3 million, respectively, and to a net loss in fiscal year 1996
of $4.8 million. These charges substantially reduced the Company's stockholders'
equity. For a discussion of these charges and other factors contributing to such
losses, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations." There can be no assurance that the Company will be able
to realize the benefits it anticipates from the restructurings or that the
Company will not incur additional charges in the future in connection with these
restructurings or other actions. See "Risk Factors--Relocation of Facilities"
and "Risk Factors--Labor Negotiations."
Restrictive Debt Covenants
The agreements governing the Company's bank and other indebtedness include
certain covenants that, among other things, restrict the Company's ability to:
(i) pay dividends and make certain other restricted payments; (ii) incur
additional indebtedness; (iii) grant liens, other than liens created pursuant to
such agreements and certain permitted liens; and (iv) sell material assets. The
Senior Credit Facility also requires the Company to maintain certain financial
ratios, including interest coverage and leverage ratios, and to maintain a
minimum level of consolidated cash flow. There can be no assurance that these
requirements will be met in the future. If they are not, the holders of the
indebtedness under such agreements would be entitled to declare such
indebtedness immediately due and payable. See "Description of Capital Stock" and
"Description of Indebtedness."
Dependence on Automotive Industry; Cyclical Business
The sale of a significant portion of the Company's products is directly
related to the overall level of automobile, truck and heavy duty vehicle
production in North America, which is cyclical. Consequently, a decline in the
demand for new automobiles and trucks, particularly in North America, could have
a material adverse effect on the Company's business, financial condition and
results of operations. The Company has not yet operated during a general
economic downturn, and historical financial information for the Company during
adverse economic conditions is not available.
Risk Relating to Acquisitions
To expand its markets and take advantage of the consolidation trend in the
automotive parts industry, the Company's business strategy includes growth
through acquisitions. Although the Company believes that the operations of the
five companies it has acquired since the GM Acquisition are being successfully
integrated with the Company's operations, there can be no assurance that such
integration will continue to be successful, that future acquisitions can be
consummated on acceptable terms or that any acquired companies can be
successfully integrated into the Company's operations. The Company currently has
no commitments, understandings or
14
arrangements with respect to any specific acquisitions (other than for
Ballantrae). However, the Company has entered into strategic joint ventures in
Mexico and Korea and expects to complete a strategic alliance in India and a
joint venture in Brazil in fiscal year 1998 and is continually investigating
opportunities for domestic and foreign acquisitions. The Company's ability to
make future acquisitions may also be constrained by its ability to obtain
financing. To the extent the Company uses equity to finance future acquisitions,
there is a risk of dilution to holders of Class A Common Stock. See "Risk
Factors--Substantial Leverage and Debt Service Obligations," "Risk Factors--
Restrictive Debt Covenants," "Risk Factors--Acquisition of Ballantrae; Conflicts
of Interest," "Business--Business Strategy" and "Description of Indebtedness."
In addition, acquisitions may involve a number of special risks, including:
initial reductions in the Company's reported operating results; diversion of
management's attention; unanticipated problems or legal liabilities; and a
possible reduction in reported earnings due to amortization of acquired
intangible assets in the event that such acquisitions are made at levels that
exceed the fair market value of net tangible assets. Some or all of these items
could have a material adverse effect on the Company. There can be no assurance
that businesses acquired in the future will achieve sales and profitability that
justify the investment therein. In addition, to the extent that consolidation
becomes more prevalent in the industry, the prices for attractive acquisition
candidates may increase to unacceptable levels.
Labor Negotiations
As of July 31, 1997, the Company employed 4,949 people, 848 of whom were in
management, engineering, supervision and administration and 4,101 of whom were
hourly employees. Of the Company's hourly employees, 1,969 are represented by
unions. In the United States, 1,485 of the Company's hourly workers are
represented by the International Union, United Automobile, Aerospace, and
Agricultural Implement Workers of America ("UAW") under a master agreement
between DRA (a wholly owned subsidiary of the Company) and the UAW. The Company
and the UAW agreed to a new master agreement in March 1997 when the agreement
that had been assumed by the Company expired. Wage and benefit increases under
the new contract generally follow the same pattern of the prior agreement and
continue to track the wages and benefits paid by GM and, as a result, the
Company will experience higher wage and benefit rates in future periods. In
addition, grow-in provisions under the new agreement will require the Company to
move lower wage and benefit employees to higher wage and benefit levels. There
can be no assurance that the Company will be able to effect cost reductions or
productivity improvements to offset such increased wage and benefit levels or
that the Company's labor costs will not increase significantly, in which case
the Company's competitive position and results of operations would be adversely
affected. The master agreement between the UAW and DRA will expire on March 22,
2001.
As of July 31, 1997, 141 of the Company's 459 Canadian employees were
represented by the Canadian Auto Workers and 97 were represented by the
Metallurgists Unis d'Amerique. The agreements with these unions expire on
November 8, 1999 and September 30, 1998, respectively.
As of July 31, 1997, approximately 246 of Autovill's 366 employees were
affiliated with the Hungarian Steel Industry Workers Union. The agreement was
signed July 17, 1996 and is perpetual, subject to termination upon three months'
notice from either party.
The Company's other facilities are primarily non-union. The Company is
unaware of any current efforts to organize any of the Company's facilities.
There can be no assurance that there will not be any labor union efforts to
organize employees at facilities that are not currently unionized.
Since the GM Acquisition, the Company has not experienced any organized
work stoppages. There can be no assurance, however, that any actions taken by
the Company, including the current restructurings, will not adversely affect the
Company's relations with its employees. At the present time, the Company
believes that its relations with its employees are good. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--General."
Competition
The motor vehicle parts industry in which the Company operates is highly
competitive. Some of the Company's OEM competitors are divisions or subsidiaries
of companies that are larger and have substantially
15
greater resources than the Company. There can be no assurance that the Company
will be able to compete successfully with its competitors. See "Business--
Competition."
Availability of Cores
In its remanufacturing operations, the Company obtains used components,
commonly known as "cores," from various sources, principally the Company's
existing customers. The Company also obtains cores from brokers who specialize
in buying and selling cores. The ability to obtain cores of the types and
quantities required by the Company is essential to the Company's ability to meet
demand and expand production in the remanufacturing business.
A sufficient supply of cores may not always be available to the Company to
permit it to respond fully to customer demands for the Company's remanufactured
products. Shortages of cores could result from, among other things, (i) a time
lag between the initial customer order for a remanufactured product and the
return of cores for such products, (ii) an inability to salvage cores for reuse
due to excessive wear or deterioration or (iii) an inability of the Company to
acquire cores because of loss or significant deterioration of the Company's
relationships with its customers. Although the Company believes that its
relationships with several of its customers will continue to provide it with
access to cores, there can be no assurance that the Company will continue to
have an adequate supply of cores for its remanufactured products.
Acquisition of Ballantrae; Conflicts of Interest
On October , 1997, the Company entered into an Agreement and Plan of
Merger to acquire Ballantrae (the "Ballantrae Acquisition Agreement"). Although
the Company has entered into the Ballantrae Acquisition Agreement and completed
its due diligence, the consummation of the transactions contemplated thereby are
subject to customary closing conditions for a transaction of this type,
including termination of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the lack of any material
adverse change in the business of Ballantrae. Although the Company does not
currently foresee any impediments to the consummation of the acquisition of
Ballantrae, the Company cannot offer any assurances that the acquisition will be
consummated. Even if consummated, the Company cannot guarantee that the
businesses conducted by Ballantrae can be effectively integrated into the
Company's other operations or that the Company will realize the benefits it
expects to achieve through the acquisition of Ballantrae. The Company has
incurred due diligence, legal and other expenses in anticipation of the
acquisition of Ballantrae. If the acquisition is not consummated, these expenses
will have to be written off as non-recurring charges. See "Company History,"
"Business--Acquisition of Ballantrae," and "Certain Transactions."
The terms of the Ballantrae Acquisition Agreement were not negotiated on an
arm's-length basis. As of July 31, 1997, CVC owned, on a fully-diluted basis,
71.9% of the outstanding common stock and 74.7% of the outstanding preferred
stock of Ballantrae. At that date, CVC also owned 47.5% of the Company's Common
Stock. See "Risk Factors--Concentration of Ownership." The Company believes,
however, that the terms of such agreement are fair to the Company and has
obtained a fairness opinion from Salomon Brothers Inc. The Company's directors,
excluding Messrs. Delaney, Cashin and Gerrity, have determined that the
acquisition of Ballantrae is in the best interests of the Company and its
stockholders and have approved the acquisition of Ballantrae. Because Mr.
Gerrity is a director of Ballantrae and as of July 31, 1997 owned, on a
fully-diluted basis, 15.0% of Ballantrae's common stock and 10.4% of its
preferred stock and Messrs. Delaney and Cashin are directors of Ballantrae, as
well as each being a stockholder and director of the Company, there is a
conflict of interest with respect to the acquisition of Ballantrae. As a
consequence, their economic interest in the transaction may result in decisions
that do not reflect the interests of the Company. Any damages which the Company
may suffer which result from a breach of the Ballantrae Acquisition Agreement
will be subject to a $10 million cap and the Company will only be able to
recover approximately % and % of its damages from CVC and Mr. Gerrity,
respectively (in each case including their affiliates). See "Company History,"
"Business--Acquisition of Ballantrae" and "Certain Transactions."
Environmental Risks
The Company's operations and properties are subject to federal, state,
local and foreign laws, regulations and ordinances relating to the use, storage,
handling, generation, transportation, treatment, emission, release, discharge
16
and disposal of certain materials, substances and wastes. The nature of the
Company's operations exposes it to the risk of liabilities or claims with
respect to environmental matters, including off-site disposal matters, and there
can be no assurance that material costs will not be incurred in connection with
such liabilities or claims or that the indemnities provided by the sellers of
the various businesses acquired will be applicable or available.
Based upon the Company's experience to date, the Company believes that the
future cost of compliance with existing environmental laws, regulations and
ordinances (or liability for known environmental claims) will not have a
material adverse effect on the Company's business, financial condition and
results of operations. However, future events, such as changes in existing laws
and regulations or their interpretation, may give rise to additional compliance
costs or liabilities that could have a material adverse effect on the Company's
business, financial condition and results of operations. Compliance with more
stringent laws or regulations, as well as more vigorous enforcement policies of
regulatory agencies or stricter or different interpretations of existing laws,
may require additional expenditures by the Company that may be material. See
"Business--Regulatory Matters."
Fraudulent Conveyance
If a court in a lawsuit brought by an unpaid creditor or representative of
creditors, such as a trustee in bankruptcy or the Company as a
debtor-in-possession, were to find under relevant federal or state fraudulent
conveyance statutes that the Company did not receive fair consideration or
reasonably equivalent value for incurring the indebtedness, including the Notes,
and that, at the time of such incurrence, the Company (i) was insolvent, (ii)
was rendered insolvent by reason of such incurrence or grant, (iii) was engaged
in a business or transaction for which the assets remaining with the Company
constituted unreasonably small capital or (iv) intended to incur, or believed
that it would incur, debts beyond its ability to pay such debts as they matured,
then such court, subject to applicable statutes of limitations, could void the
Company's obligations under the Notes, subordinate the Notes to other
indebtedness of the Company or take other action detrimental to the holders of
the Notes.
The measure of insolvency for these purposes will depend upon the governing
law of the relevant jurisdiction. Generally, however, a company will be
considered insolvent for these purposes if the sum of that company's debts is
greater than the fair value of all of that company's property or if the present
fair salable value of that company's assets is less than the amount that will be
required to pay its probable liability on its existing debts as they become
absolute and matured. Moreover, regardless of solvency, a court could void an
incurrence of indebtedness, including the Notes, if it determined that such
transaction was made with the intent to hinder, delay or defraud creditors. In
addition, a court could subordinate the indebtedness, including the Notes, to
the claims of all existing and future creditors on similar grounds. The Company
believes that, after giving effect to the Offerings, the Company will be (i)
neither insolvent nor rendered insolvent by the incurrence of indebtedness in
connection with the Offerings, (ii) in possession of sufficient capital to run
its business effectively and (iii) incurring debts within its ability to pay as
the same mature or become due.
There can be no assurance as to what standard a court would apply in order
to determine whether the Company was "insolvent" upon consummation of the GM
Acquisition, any of the Company's other acquisitions or the sale of the Notes or
that, regardless of the method of valuation, a court would not determine that
the Company was insolvent upon consummation of the GM Acquisition or any of the
other acquisitions or the sale of the Notes.
In addition, any Subsidiary Guaranty may be subject to review under
relevant federal and state fraudulent conveyance and similar laws in a
bankruptcy or reorganization case or a lawsuit brought by or on behalf of
creditors of the applicable Subsidiary Guarantor. In such a case, the analysis
set forth above would generally apply, except that the Subsidiary Guaranty could
also be subject to the claim that, since the Subsidiary Guaranty was incurred
for the benefit of the Company (and only indirectly for the benefit of the
Subsidiary Guarantor), the obligations of the Subsidiary Guarantor thereunder
were incurred for less than reasonably equivalent value or fair consideration. A
court could void the Subsidiary Guarantor's obligation under the Subsidiary
Guaranty, subordinate the Subsidiary Guaranty to other indebtedness of the
Subsidiary Guarantor or take other action detrimental to the holders of the
Notes.
17
Change of Control
Upon a Change of Control, each holder of the Notes will have the right to
require the Company to repurchase all or any part of such Notes at a price equal
to 101% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the date of repurchase. The occurrence of certain of the events that
constitute a Change of Control would constitute a default under the Senior
Credit Facility and would entitle the holders of the Company's Senior
Subordinated Notes (as defined) to require the Company to repurchase all or any
part of such Notes. The Company's failure to purchase the Notes would result in
a default under the Indenture. The inability to repay the indebtedness under the
Senior Credit Facility or the Senior Subordinated Notes, if their maturity is
accelerated, would also constitute an event of default under the Indenture,
which could have adverse consequences for the Company and the holders of the
Notes. In the event of a Change of Control, there can be no assurance the
Company would have sufficient financial resources available to satisfy all of
its obligations under the Senior Credit Facility, the Notes and the Senior
Subordinated Notes. See "Description of Indebtedness" and "Description of
Notes--Change of Control."
Lack of Public Market
The Notes are a new issue of securities for which there is currently no
active trading market. If the Notes are traded after their initial issuance,
they may trade at a discount from their initial offering price, depending upon
prevailing interest rates, the market for similar securities and other factors,
including general economic conditions and the financial condition of the
Company. The Company does not intend to apply for a listing or quotation of the
Notes on any securities exchange. The Underwriters have informed the Company
that they currently intend to make a market in the Notes. However, the
Underwriters are not obligated to do so, and any such market making may be
discontinued at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Notes. Accordingly, there can be no
assurance as to the development or liquidity of any market for the Notes.
The liquidity of, and trading market for, the Notes also may be adversely
affected by general declines in the market for similar securities. Such a
decline may adversely affect such liquidity and trading markets independent of
the financial performance of, and prospects for, the Company.
COMPANY HISTORY
The Company was formed in November 1993 for the purpose of acquiring
certain assets of the automotive starter business and the heavy duty starter and
alternator business of the Former GM Division, which businesses the Company
acquired in July 1994.
Between January 1995 and May 1997, the Company completed five strategic
acquisitions and two international joint ventures. On January 6, 1995, the
Company acquired all of the capital stock of Nabco, Inc. ("Nabco") (the "Nabco
Acquisition"), a producer of remanufactured automotive starters and alternators.
In addition to selling its products to national automotive parts chains
(primarily Western Auto), prior to its acquisition by the Company, Nabco
supplied remanufactured parts in bulk (known as "kits") to the Company and GM
for final assembly and distribution.
On March 31, 1995, the Company acquired all of the capital stock of The A&B
Group, Inc. ("A&B Group") (the "A&B Acquisition"), a remanufacturer of
automotive starters, heavy duty starters and alternators and related
subcomponents and parts. Prior to its acquisition by the Company, the A&B Group
was the Company's contract supplier of all heavy duty and certain automotive
remanufactured products.
On April 14, 1995, the Company acquired 96% of the capital stock of
Autovill, RT Ltd. ("Autovill") (the "Autovill Acquisition and, together with the
Nabco Acquisition and the A&B Acquisition, the "1995 Acquisitions"), a Budapest,
Hungary-based producer of new and remanufactured heavy duty starters and
alternators both for the OEM market and the aftermarket in Western and Eastern
Europe. Principal customers of Autovill include Caterpillar and Mercedes Benz.
The remaining 4% of the capital stock of Autovill is owned by current and former
employees of Autovill.
On February 6, 1996, the Company acquired 82.5% of the capital stock of
Power Investments, Inc. ("Power Investments") (the "Power Investments
Acquisition"), a remanufacturer of diesel and gasoline engines,
18
transmissions, fuel systems, alternators and starters for medium and heavy duty
trucks and automobiles; and, to a lesser extent, a remanufacturer of brakes,
water pumps, power steering pumps and various other truck parts and assemblies.
Power Investments has 15 facilities located in the United States and in five
provinces of Canada and is designated as a Ford FAR in such provinces. The
remaining 17.5% of the capital stock of Power Investments is owned by current
management of Power Investments, subject to put/call arrangements at a formula
price for the purchase by the Company of the remaining 17.5% of the shares of
Power Investments beginning in 2001.
In December 1996, the Company formed a 50/50 joint venture in Korea with
individual Korean investors to purchase the assets related to the starter motor
operations of the Company's former Korean licensee. In April 1997, the Company
and its former Mexican licensee, Sistemas y Electricos Componetos ("Sistemas"),
formed a joint venture, 76% of which is owned by the Company and 24% of which is
owned by an affiliate of Sistemas. Each of these joint ventures will manufacture
starters and alternators for the OEM market.
On May 8, 1997, the Company acquired 82.5% of the capital stock of World
Wide (the "World Wide Acquisition"), a remanufacturer and distributor of import
automotive starters and alternators. World Wide sells its products to national
automotive parts chains, including Auto Zone, Pep Boys, Advance Auto and
Discount Auto. The remaining 17.5% of the capital stock of World Wide is owned
by current management of World Wide, subject to put/call arrangements at a
formula price for the purchase by the Company of the remaining 17.5% of the
shares beginning in 2000.
On October , 1997, the Company entered into the Ballantrae Acquisition
Agreement to acquire Ballantrae for $49.2 million (including assumed debt).
Ballantrae operates through two subsidiaries: Tractech, a leading producer of
traction control systems for heavy duty OEMs and the aftermarket; and Kraftube,
Inc., a tubing assembly business which sells products to compressor
manufacturers for commercial air conditioners and refrigeration equipment. In
fiscal year 1997, Tractech accounted for approximately 70% of Ballantrae's $37.6
million of net sales. The Company will exchange shares of its Common Stock with
a value (at the initial public offering price in the Equity Offering) of
approximately $19 million for the equity of Ballantrae and will repay
approximately $30 million of Ballantrae's debt. The Common Stock of the Company
received by Ballantrae's existing stockholders in the acquisition will be
subject to resale restrictions under applicable securities laws. The acquisition
is expected to be completed at or prior to the consummation of the Offerings.
See "Risk Factors--Acquisition of Ballantrae; Conflicts of Interest,"
"Business--Acquisition of Ballantrae" and "Certain Transactions."
USE OF PROCEEDS
The net proceeds to the Company from the Offerings are estimated to be
approximately $181.1 million (approximately $189.4 million if the over-allotment
option in the Equity Offering is exercised in full) assuming an initial public
offering price of $ per share in the Equity Offering and after deduction of
underwriting discounts and commissions and estimated offering expenses. The use
of the proceeds of the Offerings, together with $1.4 million of available cash,
will be to repay in full the following indebtedness, which was incurred by the
Company in connection with the GM Acquisition and certain of the Company's
subsequent acquisitions: (i) the $75 million 10 1/2% Senior Note due July 31,
2003 to World Subordinated Debt Partners, L.P., an affiliate of one of the
Company's existing stockholders (the "World Note"), at a price equal to 103% of
such principal amount, (ii) the $59.2 million 11 1/2% Subordinated Note due July
31, 2004 to GM (the "GM Acquisition Note"), (iii) the $8.3 million 9.86%
Subordinated Notes due February 6, 2001 to the selling stockholders of Power
Investments (the "Power Investments Seller Notes"), (iv) the $3.5 million 10%
Subordinated Notes due September 30, 2001 to the selling stockholders of A&B
Group (the "A&B Seller Notes"), (v) the $20.8 million of borrowings outstanding
under Ballantrae's senior credit facility (the "Ballantrae Senior Bank Debt")
and (vi) $9.3 million of Tractech's $10.0 million 11% Subordinated Note due
October 31, 2006 to Dyneer Corporation (the "Ballantrae Subordinated Debt"). Any
accrued and unpaid interest on such indebtedness will also be repaid with the
proceeds of the Offerings.
19
The following table sets forth a summary of the expected sources and uses
of the estimated net proceeds from the Offerings, assuming no exercise of the
over-allotment option in the Equity Offering and including interest accrued to
December 15, 1997, the assumed date of the consummation of the Offerings (in
millions of dollars):
Sources of Funds (net of underwriting discounts and commissions)
Equity Offering..................................... $ 55.8
Notes Offering...................................... 126.8
Available Cash...................................... 1.4
-------------
Total sources of funds......................... $ 184.0
=============
Uses of Funds
Repayment of Power Investments Seller Notes......... $ 8.3
Repayment of World Note............................. 78.9
Repayment of GM Acquisition Note.................... 61.7
Repayment of A&B Seller Notes....................... 3.6
Repayment of Ballantrae Senior Bank Debt............ 20.8
Repayment of Ballantrae Subordinated Debt........... 9.2
Fees and expenses for the Offerings................. 1.5
-------------
Total uses of funds............................ $ 184.0
=============
20
CAPITALIZATION
The following table sets forth the current portion of the long-term debt
and the consolidated capitalization of the Company as of July 31, 1997 and pro
forma to give effect to the Transactions including the Offerings (assuming no
exercise of the over-allotment option in connection with the Equity Offering)
and the application of the net proceeds thereof. See "Use of Proceeds." This
table should be read in conjunction with the unaudited "Pro Forma Condensed
Consolidated Financial Data," "Selected Consolidated Historical Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related notes thereto
included elsewhere in this Prospectus. See also "Description of Capital Stock"
and "Description of Indebtedness."
As of July 31, 1997
-------------------------------------
Historical Pro Forma
----------------- ----------------
(in thousands)
Current portion of long-term debt.................................. $ 507 $ 507
================= ================
Long-term debt:
Senior Credit Facility........................................ $ 34,963 $ 34,963
Power Investments Seller Notes................................ 8,300 --
World Note.................................................... 75,000 --
% Senior Notes Due 2007................................... -- 130,000
Senior Subordinated Notes..................................... 140,000 140,000
GM Acquisition Note........................................... 59,155 --
8% Subordinated Debenture..................................... -- 17,942(a)
A&B Seller Notes.............................................. 3,500 --
Ballantrae Subordinated Debt.................................. -- 750
Other, including capital lease obligations.................... 17,132 17,132
Junior Subordinated Notes..................................... 25,211 --
----------------- ----------------
Total long-term debt...................................... 363,261 340,787
Minority interest.................................................. 8,032 8,032
Redeemable exchangeable preferred stock of subsidiary.............. 16,071(a) --
Stockholders' (deficit) equity:
Class A Common Stock (par value $.01; authorized 1,000,000;
issued and outstanding 525,477 historical, pro forma)... 5 5
Class B Common Stock (par value $.01; authorized 1,000,000;
issued and outstanding 385,523 historical, pro forma)... 4 4
Additional paid-in capital.................................... 10,194 109,455
Retained (deficit) earnings................................... (12,174) (16,746)
Cumulative translation adjustment............................. (1,752) (1,752)
Stock purchase plan........................................... (4,813) (4,813)
----------------- ----------------
Total stockholders' (deficit) equity...................... (8,536) 86,153
----------------- ----------------
Total capitalization...................................... $ 378,828 $ 434,972
================= ================
- --------------
(a) Reflects the exchange of the redeemable exchangeable preferred stock of
subsidiary to the 8% Subordinated Debenture as permitted by the terms of
such preferred stock. For details regarding this exchange, see footnote (d)
to the "Unaudited Pro Forma Condensed Consolidated Statement of
Operations."
21
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following table sets forth selected consolidated historical financial
data of the Company for and as of the years ended July 31, 1995, 1996 and 1997.
The statement of operations data for the years ended July 31, 1995, 1996 and
1997 and the balance sheet data as of July 31, 1995, 1996 and 1997 were derived
from audited Consolidated Financial Statements of the Company, which have been
audited by Ernst & Young LLP, independent auditors. The table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Consolidated Financial Statements of the Company
and related notes and the other financial information included elsewhere in this
Prospectus.
For the Year Ended July 31
---------------------------------------------------------
1995 1996 1997
---------------- ---------------- -----------------
(dollars in thousands, except per share data)
Statement of operations data:
Net sales................................ $ 573,423 $ 636,852 $ 689,787
Gross profit............................. 98,207 126,774 149,553
Selling, engineering and administrative
expense.............................. 61,206 77,994 89,098
Restructuring charges.................... -- 8,101 34,500
Operating income......................... 37,001 40,679 25,955
Interest expense......................... 18,432 27,367 38,774
Income (loss) from continuing operations. 9,326 5,796 (10,263)
Loss from discontinued operations, net of
tax benefit.......................... 2,363 10,637 1,682
Net income (loss)........................ 6,963 (4,841) (14,296)
Income (loss) from continuing operations per
share................................ $ $ $
Net income (loss) per share..............
Financial ratios and other data:
Depreciation and amortization............ $ 14,533 $ 19,555 $ 22,323
Capital expenditures..................... 11,241 32,741 31,888
EBITDA(a)................................ 55,968 72,087 87,269
Cash flow from operations................ 21,921 (684) 22,537
Gross margin............................. 17.1% 19.9% 21.7%
EBITDA margin............................ 9.8% 11.3% 12.7%
Ratio of EBITDA to interest expense...... 3.0x 2.6x 2.3x
Ratio of total debt to EBITDA............ 3.5x 4.1x 4.2x
Ratio of earnings to fixed charges(b).... 1.8x 1.3x --(c)
Balance sheet data (at end of period):
Working capital.......................... $ 61,268 $ 113,801 $ 155,302
Total assets............................. 322,527 475,082 570,569
Total debt............................... 196,988 298,796 363,768
Redeemable exchangeable preferred stock of
subsidiary........................... 12,903 14,420 16,071
Total stockholders' equity (deficit)..... 8,430 1,589 (8,536)
See Accompanying Notes
22
(a) EBITDA represents the sum of income from continuing operations before
interest expense, income taxes, preferred dividend requirement of subsidiary,
minority interest in income of subsidiaries, gain on sale of building and
restructuring charges, plus depreciation, amortization and non-cash
post-retirement benefits other than pensions. EBITDA should not be construed as
a substitute for income from operations, net income or cash flow from operating
activities for the purpose of analyzing the Company's operating performance,
financial position and cash flows. The Company has presented EBITDA because it
is commonly used by certain investors to analyze and compare companies on the
basis of operating performance and to determine a company's ability to service
debt. This definition of EBITDA differs from the definition of EBITDA used in
the Indenture for the Notes and may not be comparable to EBITDA as defined by
other companies. See "Description of Notes--Certain Definitions."
(b) For purposes of computing the ratio of earnings to fixed charges,
earnings consist of income from continuing operations before income taxes and
fixed charges. Fixed charges include preferred dividend requirement of
subsidiary, interest expense (which includes amortization of deferred financing
costs) and the portion of operating rents that is deemed representative of an
interest factor.
(c) Earnings were insufficient to cover fixed charges by $13.5 million.
Excluding the restructuring charge, the ratio of earnings to fixed charges would
have been 1.5x.
23
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
(UNAUDITED)
The following unaudited pro forma condensed consolidated financial data are
based on the Consolidated Financial Statements included elsewhere in this
Prospectus, adjusted to give effect to the Transactions, including the
Offerings.
The unaudited pro forma condensed consolidated statement of operations for
the year ended July 31, 1997 have been adjusted to give effect to the
Transactions, including the Offerings, as if they had occurred on August 1,
1996. The unaudited pro forma condensed consolidated balance sheet at July 31,
1997 has been adjusted to give effect to the Transactions, including the
Offerings, as if they had occurred on July 31, 1997 (other than the acquisition
of World Wide, which is reflected in the historical balance sheet data).
The unaudited pro forma financial data do not purport to be indicative of
the results of operations or the financial position that would actually have
been obtained if the Transactions, including the Offerings, had occurred on the
dates indicated or of the results of operations or the financial position that
may be obtained in the future. The unaudited pro forma financial data are
presented for comparative purposes only. The pro forma adjustments, as described
in the accompanying data, are based on available information and certain
assumptions that management believes are reasonable. The unaudited pro forma
financial data should be read in conjunction with the Consolidated Financial
Statements of the Company and related notes thereto included elsewhere in this
Prospectus.
The unaudited pro forma financial data with respect to the acquisitions of
World Wide and Ballantrae are based on the historical financial statements of
the businesses acquired and have been accounted for using the purchase method of
accounting. The purchase price, including the related fees and expenses, have
been allocated to the tangible and identifiable intangible assets and
liabilities of the acquired businesses based upon the Company's estimates of
their fair value, with the remainder allocated to goodwill. The pro forma
adjustments directly attributable to the acquisitions of World Wide and
Ballantrae include adjustments to interest expense related to the financing,
charges for amortization of intangible assets and depreciation of property and
equipment relating to the allocation of the purchase price and the related tax
effects.
24
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended July 31, 1997
(in thousands)
Adjustments Pro Forma
for the for the
Acquisitions Acquisitions
of of
World Wide World Wide Adjustments Pro Forma
and and for Other for
Historical Ballantrae(a) Ballantrae Transactions Transactions
------------ ------------- ------------ ------------ ------------
Net sales..................................... $ 689,787 $ 86,581 $ 776,368 $ -- $ 776,368
Cost of goods sold............................ 540,234 65,612 605,846 -- 605,846
------------ ------------- ------------ ------------ ------------
Gross profit.................................. 149,553 20,969 170,522 -- 170,522
Selling, engineering, and administrative
expenses................................. 89,098 12,469 101,567 -- 101,567
Restructuring charges......................... 34,500 -- 34,500 -- 34,500
------------ ------------- ------------ ------------ ------------
Operating income.............................. 25,955 8,500 34,455 -- 34,455
Other income (expense):
Gain on sale of building................. 2,082 -- 2,082 -- 2,082
Interest expense......................... (38,774) (4,905) (43,679) 8,384 (b) (35,295)
------------ ------------- ------------ ------------ ------------
(Loss) income from continuing operations
before income taxes, preferred dividend
requirement of subsidiary, and minority
interest................................. (10,737) 3,595 (7,142) 8,384 1,242
Minority interest in income of subsidiary..... 892 -- 892 -- 892
Income taxes (benefit)........................ (3,014) 1,387 (1,627) 3,354 (c) 1,727
Preferred dividend requirement of subsidiary.. 1,648 -- 1,648 (1,648)(d) --
------------ ------------- ------------ ------------ ------------
(Loss) income from continuing operations...... $ (10,263) $ 2,208 $ (8,055) $ 6,678 $ (1,377)
============ ============= ============ ============ ============
Loss from continuing operations per share..... $
============
See Accompanying Notes
25
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations
(in thousands)
(a) The adjustments for the acquisitions of World Wide and Ballantrae represent
the effects on the statement of operations of such acquisitions as if they
occurred on August 1, 1996. These adjustments are summarized in the
following table:
World Wide Ballantrae Combined
-------------- --------------- ---------------
Net sales.................................................. $ 49,014 $ 37,567 $ 86,581
Cost of goods sold......................................... 40,935 24,677 65,612
-------------- --------------- ---------------
Gross profit............................................... 8,079 12,890 20,969
Selling, engineering, and administrative expenses.......... 6,319 6,150 12,469
-------------- --------------- ---------------
Operating income........................................... 1,760 6,740 8,500
Interest expense........................................... (2,280) (2,625) (4,905)
Income taxes (benefit)..................................... (47) 1,434 1,387
-------------- --------------- ---------------
(Loss) income from continuing operations................... $ (473) $ 2,681 $ 2,208
============== =============== ===============
(b) Reflects decreases (or increases) in interest expense and amortization of
deferred financing costs as if the Transactions occurred on August 1, 1996
as follows:
For the
Year Ended
July 31, 1997
---------------
Reduced interest from the amendment of the Senior Credit Facility.............. $ 190
Amortization of deferred financing costs associated with the amendment to the
Senior Credit Facility.................................................... (30)
Repayment of Power Investments Seller Notes.................................... 818
Repayment of World Note........................................................ 7,875
Reversal of 1997 amortization of deferred financing costs associated with
repayment of World Note................................................... 454
Interest expense for the % Senior Notes Due 2007......................... (11,050)
Amortization of deferred financing costs associated with % Senior
Notes Due 2007............................................................ (400)
Repayment of GM Acquisition Note............................................... 6,552
Repayment of A&B Seller Notes.................................................. 350
Repayment of Ballantrae Senior Bank Debt....................................... 1,552
Repayment of Ballantrae Subordinated Debt...................................... 1,073
Exchange of Junior Subordinated Notes.......................................... 2,593
Interest expense relating to the 8% Subordinated Debenture exchanged for the
redeemable exchangeable preferred stock of subsidiary..................... (1,593)
---------------
Net reduction in interest expense.............................................. $ 8,384
===============
The interest rate on the % Senior Notes Due 2007 is assumed to be 8 1/2%. For
each 1/4% difference in the interest rate the annual interest expense would
change by $325.
(c) Represents the income tax expense related to the pro forma interest expense
reduction at an assumed marginal tax rate of 40%.
26
(d) Represents the reversal of preferred dividend requirement of subsidiary
recorded in 1997 which results from the assumed exchange of the preferred
stock for the 8% Subordinated Debenture effective August 1, 1996.
A deemed preferred dividend of subsidiary arises from the exchange of the
redeemable exchangeable preferred stock of subsidiary for the excess of the
fair value of the 8% Subordinated Debenture over the carrying value of the
redeemable exchangeable preferred stock of subsidiary as shown below. This
nonrecurring charge, which has not been reflected in the pro forma
condensed consolidated statement of operations, will be charged against the
income of the Company in the period of exchange. Upon completion of the
exchange no further dividends will occur.
For the
Year Ended
July 31, 1997
---------------
Fair value of the 8% Subordinated Debenture.................................... $ 17,942
Carrying value of the redeemable exchangeable preferred stock of subsidiary.... 16,071
---------------
Deemed preferred dividend of subsidiary arising from exchange.................. $ 1,871
===============
27
Unaudited Pro Forma Condensed Consolidated Balance Sheet
July 31, 1997
(in thousands)
Adjustments Pro Forma Adjustments Pro Forma
for Ballantrae for Ballantrae for Other for
Historical Acquisition(a) Acquisition Transactions Transactions
-------------- -------------- -------------- -------------- --------------
Assets:
Current Assets:
Cash and cash equivalents.......... $ 10,050 $ 347 $ 10,397 $ 2,635(b) $ 13,032
Trade accounts receivable.......... 110,184 5,838 116,022 -- 116,022
Other receivables.................. 10,487 -- 10,487 -- 10,487
Recoverable income tax............. 2,889 -- 2,889 1,801(g) 4,690
Inventories........................ 164,417 10,127 174,544 -- 174,544
Deferred income taxes.............. 21,474 -- 21,474 -- 21,474
Other current assets............... 4,643 55 4,698 -- 4,698
-------------- -------------- -------------- -------------- --------------
Total current assets............... 324,144 16,367 340,511 4,436 344,947
Property and equipment................. 147,222 16,834 164,056 -- 164,056
Less accumulated depreciation.......... 26,858 -- 26,858 -- 26,858
-------------- -------------- -------------- -------------- --------------
120,364 16,834 137,198 -- 137,198
Deferred financing costs............... 8,803 -- 8,803 1,958(c) 10,761
Goodwill (less accumulated
amortization)...................... 86,612 21,168 107,780 -- 107,780
Net assets held for disposal........... 25,279 -- 25,279 -- 25,279
Investment in affiliate................ 3,119 -- 3,119 -- 3,119
Other assets........................... 2,248 728 2,976 -- 2,976
-------------- -------------- -------------- -------------- --------------
Total assets........................... $ 570,569 $ 55,097 $ 625,666 $ 6,394 $ 632,060
============== ============== ============== ============== ==============
Liabilities and stockholders'
(deficit) equity:
Current liabilities:
Accounts payable................... $ 88,578 $ 2,398 $ 90,976 -- $ 90,976
Accrued interest payable........... 3,107 2,078 5,185 -- 5,185
Accrued restructuring charges...... 37,377 -- 37,377 -- 37,377
Liabilities related to
discontinued operations 3,324 -- 3,324 -- 3,324
Other liabilities and accrued
expenses........................... 35,949 606 36,555 -- 36,555
Current portion of long-term debt.. 507 -- 507 -- 507
-------------- -------------- -------------- -------------- --------------
Total current liabilities.......... 168,842 5,082 173,924 -- 173,924
Deferred income taxes.................. 1,556 265 1,821 -- 1,821
Long-term debt, less current 363,261 30,750 394,011 (53,224) 340,787
portion(d).........................
Post-retirement benefits other than
pension............................ 12,677 -- 12,677 -- 12,677
Accrued pension benefit................ 4,542 -- 4,542 -- 4,542
Other non-current liabilities.......... 4,124 -- 4,124 -- 4,124
Minority interest in subsidiary........ 8,032 -- 8,032 -- 8,032
Redeemable exchangeable preferred
stock of subsidiary................ 16,071 -- 16,071 (16,071)(e) --
Stockholders' (deficit) equity:
Common Stock:......................
Class A Shares.................. 5 -- 5 -- 5
Class B Shares.................. 4 -- 4 -- 4
Paid-in capital(f)................. 10,194 19,000 29,194 80,261(f) 109,455
Retained earnings (deficit)........ (12,174) -- (12,174) (4,572)(g) (16,746)
Cumulative translation adjustment.. (1,752) -- (1,752) -- (1,752)
Stock purchase plan................ (4,813) -- (4,813) -- (4,813)
-------------- -------------- -------------- -------------- --------------
Stockholders' (deficit) equity......... (8,536) 19,000 10,464 75,689 86,153
-------------- -------------- -------------- -------------- --------------
Total liabilities and stockholders'
(deficit) equity................... $ 570,569 $ 55,097 $ 625,666 $ 6,394 $ 632,060
============== ============== ============== ============== ==============
See Accompanying Notes
28
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
(in thousands)
(a) Represents the adjustments for the Ballantrae acquisition as if it had
occurred as of July 31, 1997. The acquisition will be accounted for by the
purchase method of accounting. Using the purchase method of accounting, the
total purchase price will be allocated to tangible and intangible assets
and liabilities of Ballantrae based upon the Company's estimates of their
respective fair values at the date of the acquisition.
(b) Represents the sources and uses of cash in connection with the Transactions
as follows:
As of
July 31, 1997
---------------
Estimated proceeds from the Offerings (net of underwriting
discounts and commissions)............................... $ 182,550
Senior Credit Facility refinancing fee........................ (210)
Repayment of Power Investments Seller Notes................... (8,300)
Repayment of World Note....................................... (77,250)
Repayment of GM Acquisition Note.............................. (59,155)
Repayment of A&B Seller Notes................................. (3,500)
Repayment of Ballantrae Senior Bank Debt...................... (20,750)
Repayment of Ballantrae Subordinated Debt..................... (9,250)
Other fees and expenses of the Offerings...................... (1,500)
---------------
Cash available for general corporate purposes................. $ 2,635
===============
(c) Represents the change in the deferred financing costs and related tax
benefit with respect to the World Note as follows:
As of
July 31, 1997
---------------
Deferred financing costs related to the Offerings............. $ 4,000
Deferred financing costs related to the Senior Credit Facility
refinancing.............................................. 210
Write-off of World Note deferred financing costs as a result
of early extinguishment.................................. (2,252)
---------------
$ 1,958
===============
29
(d) Details regarding the changes to long-term debt are as follows:
Total long-term debt (historical)............................ $ 363,261
Ballantrae Senior Bank Debt.................................. 20,750
Ballantrae Subordinated Debt................................. 10,000
-----------------
Pro forma for Ballantrae Acquisition......................... 394,011
-----------------
Power Investments Seller Notes............................... (8,300)
World Note................................................... (75,000)
GM Acquisition............................................... (59,155)
A&B Seller Notes............................................. (3,500)
Ballantrae Senior Bank Debt.................................. (20,750)
Ballantrae Subordinated Debt................................. (9,250)
Junior Subordinated Notes.................................... (25,211)
% Senior Notes Due 2007................................ 130,000
8% Subordinated Debenture.................................... 17,942
-----------------
Adjusted for other Transactions.............................. (53,224)
-----------------
Pro forma for Transactions................................... $ 340,787
=================
(e) Elimination of redeemable exchangeable preferred stock of subsidiary
exchanged for the 8% Subordinated Debenture.
(f) Details regarding the changes to equity, exchange of equity, issuance of
Common Stock and exchange of Junior Subordinated Notes are as follows:
Paid in capital (historical)....................................... $ 10,194
Common Stock issued in Ballantrae acquisition...................... 19,000
---------------
Pro forma for Ballantrae acquisition............................... 29,194
---------------
Equity Offering.................................................... 55,800
Exchange of Junior Subordinated Notes.............................. 25,211
Fees for Equity Offering........................................... (750)
---------------
Adjusted from other transactions................................... 80,261
---------------
Pro forma for Transactions......................................... $ 109,455
===============
30
(g) Represents the extraordinary loss relating to the early extinguishment of
the World Note net of taxes at a marginal rate of 40% and the deemed
preferred dividend of subsidiary arising from the exchange of the
redeemable exchangeable preferred stock of subsidiary as follows:
As of
July 31, 1997
---------------
Early extinguishment penalty on World Note.................... $ (2,250)
Write-off of World Note deferred financing costs as a result
of early extinguishment.................................. (2,252)
Tax effect of early extinguishments........................... 1,801
Deemed dividend of preferred stock of subsidiary.............. (1,871)
---------------
Net charge to retained earnings (deficit)..................... $ (4,572)
===============
31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company sells its products in the aftermarket and the OEM market,
principally in North America and also in Europe, Latin America and Asia-Pacific.
In addition to purchasing newly manufactured parts for use in new vehicle
production, OEMs are also significant customers of the Company's aftermarket
products. These aftermarket products are distributed through the OEMs'
affiliated dealer networks.
The aftermarket is highly fragmented and competitive. The Company believes
that consolidation of aftermarket suppliers is occurring due, in part, to higher
quality standards for remanufactured products, which may be more expensive or
technically difficult for smaller remanufacturers to meet. The Company plans to
continue to increase its penetration of the aftermarket through internal growth
and strategic acquisitions.
The demand for components in the OEM market is cyclical. The Company
believes that opportunities for growth in the OEM market will come primarily
through the introduction of new products and expansion of the Company's global
operations. The Company believes that its aftermarket and OEM businesses are
complementary and provide the Company with a competitive advantage in meeting
customer needs and maintaining the high levels of expertise necessary to compete
successfully in both markets. The high capability necessary to meet the
stringent requirements for OEM technology and quality are transferable by the
Company to its aftermarket operations.
For 1997, the aftermarket accounted for approximately 45.2% of the
Company's net sales and approximately 62.8% of the Company's EBITDA (as
defined). Net sales and EBITDA attributable to the OEM market accounted for the
remainder.
The primary components of cost of goods sold in the Company's aftermarket
business include the cost of cores and component parts, labor costs and
overhead. While the availability and cost of cores fluctuate based on supply and
demand, the Company's relationships with dealers and other customers have
historically provided it with sufficient access to cores at favorable prices.
The primary components of cost of goods sold in the Company's OEM business
include material, labor and overhead. The Company's domestic OEM labor force is
represented primarily by the UAW. In March 1997, the Company signed a new master
agreement with the UAW. Wage and benefit increases under the new agreement
generally follow the same pattern as the prior agreement and continue to track
the wages and benefits paid by GM and, as a result, the Company will experience
higher wage and benefit rates in future periods. In addition, grow-in provisions
under the new agreement will require the Company to move lower wage and benefit
employees to higher wage and benefit levels. Under provisions of the national
agreement, the UAW and the Company have recently developed a special program of
incentives for hourly employees who agree to leave the Company. The cost of this
program is included in the restructuring charges for fiscal year 1997 described
below. The Company is in the process of shifting OEM production to focus
factories which the Company believes can reduce costs.
Since the GM Acquisition, the Company has completed five strategic
acquisitions, substantially increasing the Company's aftermarket operations, and
entered into two international joint ventures. These acquisitions and joint
ventures have broadened the Company's product line, expanded its remanufacturing
capability, extended its participation in international markets and increased
its penetration of the retail automotive parts channel. As a result of these
acquisitions, joint ventures and the Company's focus on increasing its
participation in the aftermarket, the Company's reliance on GM has declined
since the Company's formation. Net sales to customers other than GM increased
from 41.0% in fiscal year 1995 to 56.1% in fiscal year 1997.
The portion of the Company's net sales derived from the aftermarket have
increased significantly over the past two years, from approximately 19.2% in
fiscal year 1995 to 45.2% in fiscal year 1997. For fiscal year 1997, GM
accounted for approximately 43.7% of the Company's total net sales, of which
30.3% were to GM's OEM businesses and 13.4% were to GM SPO. Substantially all of
the Company's fiscal year 1997 automotive OEM sales were to GM.
32
In connection with the GM Acquisition, GM entered into long-term contracts
(the "Supply Agreements") pursuant to which it has agreed to purchase from the
Company 100% of its North American requirements for automotive starters (other
than for Saturn and Geo) and 100% of its U.S. and Canadian requirements for
heavy duty starters and alternators, in each case with respect to the Company's
existing product line. In addition, GM has been designated as an exclusive
distributor of a significant amount of the Company's automotive and heavy duty
aftermarket products and has agreed to provide the Company with purchasing
support, which enables it to obtain raw materials at competitive prices. GM's
obligations to purchase the Company's automotive starters and heavy duty
starters and alternators under the Supply Agreements are subject to such
products remaining competitive as to price, technology and design. However, GM
may not terminate the Supply Agreement for the Company's prices of automotive
products for failing to be so competitive prior to July 31, 2001. The Supply
Agreements will terminate (i) with respect to automotive products, on July 31,
2004 (except that GM's obligations with respect to automotive products
introduced in 1996 and 1997 will terminate on July 31, 2006 and July 31, 2007,
respectively), and (ii) with respect to heavy duty products, July 31, 2000. GM's
obligations to distribute the Company's heavy duty aftermarket products
terminate on July 31, 1998, and GM's obligations to distribute the Company's
automotive aftermarket products terminate on July 31, 2009. See
"Business--Customers." Although the Company expects that its automotive and
heavy duty products will remain competitive throughout the term of the
agreements with GM, there can be no assurance that GM will not develop
alternative sources for such components and purchase some or all of its
requirements from these sources prior to or following the expiration of the
agreements. See "Risk Factors--Dependence on General Motors."
In fiscal year 1997, the Company decided to restructure its OEM
manufacturing operations, incurring a restructuring charge of $34.5 million and
establishing a reserve for that amount. The Company's OEM business has seven
principal manufacturing operations, two in Meridian, Mississippi and five in
Anderson, Indiana. The Company has announced its intention to close its two
facilities in Meridian, Mississippi by the end of the 1998 fiscal year,
including one facility leased from GM at the time of the GM Acquisition. The
balance of the Company's OEM facilities are located in Anderson, Indiana. Two of
the Anderson facilities are leased from GM and will be vacated by the end of
1999. The Company is operating three new focus factories in Anderson and intends
to begin operations in two additional focus factories by the end of 1999. This
restructuring will provide a reduction of over 70% in square footage from the
Company's existing plants to the focus factories due to streamlining of
manufacturing processes, phasing out of certain manufacturing equipment and
elimination of excess unutilized floor space or floor space used by GM in each
of the existing facilities. The restructuring reserve does not include
approximately $3 million in startup costs the Company expects to incur, based on
its prior focus factory startups, in connection with the two additional focus
factories.
The restructuring plan included accelerating the Company's move to focus
factories and closing the Company's operations in three old,
vertically-integrated factories. These decisions resulted in the impairment of
certain production assets with a carrying amount of $30.3 million, which the
Company plans to dispose of. The Company has estimated the loss on disposal
including related costs at $26.3 million. In addition, the Company has estimated
a cost of $8.2 million for reducing its workforce through several transition
programs related to the restructuring of the operations. The results of
operations for the products which will be discontinued are not separately
identifiable. The 1997 restructuring reserve is expected to be utilized
throughout 1998 and 1999. In 1998, the Company expects to reduce the 1997
restructuring reserve balance to approximately $12.1 million through cash
payments of $5.8 million and other charges of $16.6 million. The remaining
balance is expected to be completely utilized in 1999 through cash payments of
$4.5 million and other charges of $7.6 million. See "Risk Factors--Restructuring
Charges; Net Losses."
In fiscal year 1996, the Company decided to eliminate the production of
certain parts and certain straight drive starter motors and offered a voluntary
retirement transition program to certain eligible salaried employees resulting
in the recognition of a restructuring charge of $8.1 million. The Company
purchased new, more efficient equipment for use in the production of certain
heavy duty alternators resulting in the impairment of certain production
equipment with a carrying amount of approximately $5.2 million, which the
Company plans to dispose of at an estimated loss of $4.4 million, including
disposal costs. The retirement transition program, which was charged to
operations for $3.7 million in 1996, was offered in conjunction with a similar
plan offered by GM which allowed employees special additional benefits not
typically provided upon retirement. These additional benefits included salaried
payments for six months and future supplemental payments under the salaried
retirement
33
plan. Cost savings have been identified and realized in the decisions to
eliminate specific parts and motors and implement the voluntary retirement
transition program. The results of operations for the parts and straight drive
starter motors for which production will be discontinued are not separately
identifiable.
In fiscal year 1996, cash payments of $1.7 million and other charges of
$0.9 million reduced the outstanding balance of the restructuring reserves to
$5.5 million as of July 31, 1996. In 1997, cash payments of $0.8 million and
other charges of $1.8 million further reduce the outstanding balance to $2.9
million as of July 31, 1997. This remaining balance is expected to be completely
utilized during 1998.
The following table sets forth certain statement of operations data
expressed as a percentage of sales:
For the Year Ended July 31
----------------------------------------------
1995 1996 1997
------------- ------------- -------------
Net sales........................................................ 100.0% 100.0% 100.0%
Cost of goods sold............................................... 82.9 80.1 78.3
------------- ------------- -------------
Gross profit..................................................... 17.1 19.9 21.7
Selling, engineering and administrative expenses................. 10.7 12.2 12.9
Restructuring charges............................................ -- 1.3 5.0
------------- ------------- -------------
Operating income................................................. 6.5 6.4 3.8
Other income (expense):
Gain on sale of building.................................... -- -- 0.3
Interest expense............................................ (3.2) (4.3) (5.6)
------------- ------------- -------------
Income (loss) from continuing operations before minority
interest, income taxes and preferred divided requirement
of subsidiary............................................... 3.2 2.1 (1.6)
Minority interest................................................ -- 0.0 0.1
Income taxes..................................................... 1.4 0.9 (0.4)
Preferred dividend requirement of subsidiary..................... 0.2 0.2 0.2
------------- ------------- -------------
Income (loss) from continuing operations......................... 1.6 0.9 (1.5)
Discontinued operations:
Loss from operations of discontinued businesses
(less applicable income tax benefit).................... 0.4 0.2 0.1
Loss on disposal of businesses
(less applicable income tax benefit).................... -- 1.4 0.1
Extraordinary item:
Write-off of debt issuance costs (less applicable income tax
benefit).................................................... -- -- 0.3
------------- ------------- -------------
Net income (loss)................................................ 1.2% (0.8)% (2.0)%
============= ============= =============
Fiscal Year Ended July 31, 1997 Compared to Fiscal Year Ended July 31, 1996
Net Sales. Net sales were $689.8 million for 1997, an increase of $52.9
million, or 8.3%, over the prior year. The increase resulted from the inclusion
of the net sales of World Wide from its acquisition date and Power Investments
for the entire 1997 fiscal year. These sales increases were partially offset by
the absence in 1997 of orders for the initial stocking of stores that occurred
when the Company added a new retail customer and one of its existing retail
customers made significant acquisitions.
34
Gross Profit. Gross profit was $149.6 million for 1997, an increase of
$22.8 million, or 18.0%, over the prior year. As a percentage of net sales,
gross profit increased to 21.7% for the year ended July 31, 1997 from 19.9% for
the prior year. This increase was primarily attributable to the higher gross
profit margins of the Power Investments Acquisition and the World Wide
Acquisition as well as improved productivity and cost reductions in the
Company's OEM operations. These profitability improvements and cost reductions
represent the benefits from the restructuring actions begun in 1996 and were
partially offset by start-up costs for the focus factories. The Company also
launched a family of new gear reduction starters that initially generate lower
margins than those of the mature straight drive starters. The continued
replacement of the straight drive starter with the new gear reduction starter is
expected to have a less adverse effect on gross profit margin in 1998.
Selling, Engineering and Administrative Expenses. Selling, engineering and
administrative ("SE&A") expenses were $89.1 million for 1997, an increase of
$11.1 million, or 14.2%, over the prior year. As a percentage of net sales, SE&A
expenses increased to 12.9% for 1997 from 12.2% during the prior year. The
increase in SE&A expense as a percent of net sales resulted primarily from
higher SE&A expense as a percent of net sales for the acquired companies,
start-up costs for the focus factories and costs for information systems.
Operating Income. Operating income was $26.0 million for 1997, a decrease
of $14.7 million, or 36.2%, from the prior year. As a percent of net sales,
operating income decreased to 3.8% for the year ended July 31, 1997 from 6.4%
for the prior year. This decrease was attributable to the inclusion of $34.5
million of restructuring charges, as compared to restructuring charges of $8.1
million in 1996, as discussed above. Excluding the restructuring charges,
operating income was 8.8% of sales in 1997 and 7.7% in 1996.
Interest Expense. Interest expense was $38.8 million for 1997, an increase
of $11.4 million, or 41.7%, over the prior year. The increase was due primarily
to the additional debt incurred to finance acquisitions and increased borrowings
to fund working capital requirements.
Income Taxes. The Company had an income tax benefit of $3.0 million in 1997
as compared to income tax expense of $5.7 million for 1996. The tax benefit was
28.1% of the loss from continuing operations before tax in 1997, and the income
tax expense was 43.1% of income from continuing operations before tax for the
prior year. Due to continuing tax planning initiatives, the Company expects its
effective tax rate to be approximately 38% in future years.
Loss From Discontinued Operations. The after-tax loss from discontinued
operations of $1.7 million for 1997 relates to the Company's plan to divest its
large bore diesel remanufacturing operations and its marine operations. These
operations were not part of the Company's core strategic focus. The loss
reflects the direct costs of production and identifiable SE&A expense expected
to be incurred by these businesses from the date the Company decided to dispose
of them until the expected disposal date, and a loss on disposal of assets and
an allocation of interest expense based on capital employed by the business.
Net Income (Loss). As a result of the foregoing factors, the net loss was
$14.3 million for 1997, compared to a loss of $4.8 million in the prior year.
Excluding restructuring charges and loss on discontinued operations, the
Company's net income for 1997 was $10.5 million and $10.7 million for 1996.
Fiscal Year Ended July 31, 1996 Compared to Fiscal Year Ended July 31, 1995
Net Sales. Net sales were $636.9 million for 1996, an increase of $63.4
million, or 11.1%, over the prior year. The increase resulted from the inclusion
of the net sales of the 1995 Acquisitions for the entire 1996 fiscal year and
the net sales of the Power Investments Acquisition for the last six months of
the 1996 fiscal year. Sales increases from these newly-acquired subsidiaries
were partially offset by decreased sales to GM as a result of certain work
actions at GM, GM's high inventory levels at the beginning of 1996, and an
industry-wide softening of OEM heavy duty truck production.
Gross Profit. Gross profit was $126.8 million for 1996, an increase of
$28.6 million, or 29.1%, over the prior year. As a percentage of net sales,
gross profit increased to 19.9% for the year ended July 31, 1996 from 17.1% for
the prior year. This increase was attributable primarily to the higher gross
profit margins of the businesses acquired as well as improved productivity and
cost reductions in the OEM operations. These benefits were partially offset by
decreased sales to GM which negatively affected gross profit margins at certain
of the Company's OEM operations.
35
Selling, Engineering and Administrative Expenses. SE&A expenses were $78.0
million for 1996, an increase of $16.8 million, or 27.4%, over the prior year.
As a percentage of net sales, SE&A expenses increased to 12.2% for 1996 from
10.7% during the prior year. The increase in SE&A expenses as a percent of net
sales reflects the relatively higher SE&A expenses the acquired businesses
incurred in order to service the aftermarket.
Operating Income. Operating income was $40.7 million for 1996, an increase
of $3.7 million, or 9.9%, over the prior year. As a percentage of net sales,
operating income decreased slightly to 6.4% for the year ended July 31, 1996
from 6.5% for the prior year. This decrease was attributable to the inclusion of
restructuring charges of $8.1 million, as discussed above. Excluding the
restructuring charges, operating income was 7.7% of sales in 1996.
Interest Expense. Interest expense was $27.4 million for 1996, an increase
of $8.9 million, or 48.5% over the prior year. The increase was due primarily to
the additional debt incurred to finance acquisitions and increased borrowings to
fund working capital requirements.
Income Taxes. Income taxes were $5.7 million for 1996, a decrease of $2.1
million from the prior year. The Company's effective tax rate was 43.1% for 1996
and 42.3% for the prior year. The increase in the effective tax rate was due, in
part, to the inclusion of Power Investments and higher tax rates in foreign
operations.
Loss From Discontinued Operations. The after-tax loss from discontinued
operations of $10.6 million for 1996 relates principally to the Company's Powder
Metal Forge ("PMF") business. PMF manufactures products that are not part of the
Company's core business. This loss reflects the direct costs of production and
identifiable SE&A expense incurred by the PMF business, and estimated losses
from operations during a transition period from the date the Company decided to
dispose of PMF until production is relocated to the seller's facility, as well
as a loss on disposal of assets and an allocation of interest expense based on
capital employed by the business.
Net Income (Loss). Net loss was $4.8 million for 1996, an earnings decrease
of $11.8 million from the prior year. The decrease in net income was
attributable to the restructuring charges and the loss on discontinued
operations discussed above. Excluding loss from discounted operations and
restructuring charges, net income was $10.7 million in 1996.
Quarterly Results of Operations
The following table sets forth, for the periods shown, certain statements
of operations data for the Company (in millions):
Fiscal 1996 Quarter Ended Fiscal 1997 Quarter Ended
---------------------------------- -------------------------------------
Oct. 31 Jan. 31 April 30 July 31 Oct. 31 Jan. 31 April 30 July 31
------- ------- -------- ------- ------- ------- -------- -------
Net sales.................. $ 156.7 $ 147.8 $ 164.5 $ 167.9 $ 167.6 $ 164.9 $ 180.4 $ 176.9
Gross profit............... 31.1 28.3 34.1 33.4 38.8 32.0 38.4 40.2
SE&A....................... 17.8 17.5 21.4 21.3 24.1 20.4 23.3 21.3
Restructuring charges...... -- -- -- 8.1 -- -- -- 34.5
Operating income........... 13.3 10.8 12.6 4.0 14.7 11.6 15.1 (15.4)
EBITDA..................... 17.9 15.5 17.4 21.3 22.6 18.6 21.9 24.2
The following table sets forth, for the periods shown, certain statement of
operations data for the Company, expressed as a percent of sales:
Fiscal 1996 Quarter Ended Fiscal 1997 Quarter Ended
---------------------------------- -------------------------------------
Oct. 31 Jan. 31 April 30 July 31 Oct. 31 Jan. 31 April 30 July 31
------- ------- -------- ------- ------- ------- -------- -------
Net sales................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit.............. 19.8% 19.1% 20.7% 19.9% 23.2% 19.4% 21.3% 22.7%
SE&A...................... 11.4% 11.8% 13.0% 12.7% 14.4% 12.3% 12.9% 12.0%
Restructuring charges..... -- -- -- 4.8% -- -- -- 19.5%
Operating income.......... 8.5% 7.3% 7.7% 2.4% 8.8% 7.0% 8.4% (8.7)%
EBITDA.................... 11.4% 10.5% 10.6% 12.7% 13.5% 11.3% 12.1% 13.7%
36
Liquidity and Capital Resources
The Company's liquidity needs include required debt service, working
capital needs and the funding of capital expenditures. The Company does not
currently have any significant maturities of long-term debt prior to 2006 other
than the Senior Credit Facility, any potential payments under the GM Contingent
Note and the 8% Subordinated Debenture. See "Description of Indebtedness." The
Company anticipates temporary additional working capital requirements for
increased inventories at its existing facilities in connection with the
relocation to focus factories.
The Company estimates that net proceeds from the Offerings will be
approximately $181.1 million, net of fees and related costs and assuming no
exercise of the over-allotment option in the Equity Offering. The net proceeds
will be used to repay (i) the World Note with a principal amount of $75.0
million at a price equal to 103% of the principal amount, (ii) the GM
Acquisition Note of $59.2 million, (iii) the Power Investments Seller Notes and
the A&B Seller Notes of in an aggregate of $11.8 million, (iv) the Ballantrae
Senior Bank Debt of $20.8 million and (v) the Ballantrae Subordinated Debt of
$9.3 million. Any accrued and unpaid interest on such indebtedness will also be
repaid with the proceeds of the Offerings. See "Use of Proceeds."
In connection with the Offerings, the Company will amend and restate its
Senior Credit Facility to provide up to $180 million of revolving credit
availability. Each of the Company's domestic operating subsidiaries will be
parties to the Senior Credit Facility. The obligations under the Senior Credit
Facility of each domestic operating subsidiary will be unconditionally
guaranteed by each other domestic operating subsidiary and each of the Company
and its domestic subsidiaries which are holding companies.
Initially, the amount available to the Company for borrowing under the
Senior Credit Facility (the "Commitment Amount") will be $180 million, all of
which will be available for general corporate purposes including acquisitions
(with a sub-limit for letters of credit equal to the lesser of the Commitment
Amount at the time of issuance of a letter of credit and $30 million). Beginning
with the thirteenth quarter following the date of the Senior Credit Facility,
the Commitment Amount will decrease by $11.25 million at the end of each quarter
through the twenty-eighth such quarter, at which time the Senior Credit Facility
terminates. As of July 31, 1997, after giving pro forma effect to the
Transactions, approximately $35.0 million in borrowings would have been
outstanding under the Senior Credit Facility, together with approximately $11.6
million in outstanding stand-by letters of credit thereunder.
Cash interest expense for 1995, 1996 and 1997 was $10.3 million, $19.5
million and $30.8 million, respectively. The portion of total interest
represented by non-cash interest for the three years was $8.1 million, $7.9
million and $7.9 million for 1995, 1996 and 1997 respectively. Interest payments
under the Company's indebtedness will continue to result in significant
liquidity requirements for the Company. Following the Offerings, all of the
Company's interest payments must be made in cash.
The Company's capital expenditures were $31.9 million in 1997 and are
expected to be $22.5 million in 1998. Planned capital expenditures consist
primarily of new capacity to accommodate the introduction of several new
products, including additional gear reduction starters for automotive
applications and alternators with enhanced features for the medium and heavy
duty truck market, as well as production equipment for the Company's new focus
factories. Cost reduction programs account for a significant portion of planned
capital expenditures and include upgrades in machinery technology, new quality
standards and environmental compliance. The Company's ability to make capital
expenditures is subject to certain restrictions under the Senior Credit
Facility.
The Company granted put/call options in connection with the acquisitions of
Power Investments and World Wide that become exercisable in March 2001 for Power
Investments and November 2000 for World Wide. The exercise prices of the
put/call options are based on an earnings formula and cannot now be estimated.
See "Company History."
The Company's principal sources of cash to fund its liquidity needs will be
net cash from operating activities and borrowings under the Senior Credit
Facility. The Company's cash position increased to $10.0 million at year end
1997 compared to $3.4 million at year end 1996. Cash provided by operating
activities was $22.5 million in 1997 as compared to cash used in operating
activities of $684,000 in 1996. Non-cash items in 1997, including
37
$22.0 million of depreciation and amortization and the $32.9 million
restructuring reserve, more than offset the Company's net loss and increased
working capital requirements. From July 31, 1996 to July 31, 1997, the Company's
inventory increased by $40.8 million. The increase in inventory was attributable
primarily to the Company's expanding aftermarket business, including inventory
associated with the World Wide acquisition as well as higher levels of finished
goods inventory required to service aftermarket customers. Cash used in
investing activities of $74.1 million in 1997 was composed of $42.2 million for
the acquisition of World Wide and $31.9 million of capital expenditures. Cash
provided by financing activities in 1997 was $57.8 million, as debt issuances
exceeded debt repayments. The components of net cash from operating activities
are detailed in the Consolidated Financial Statements and related notes.
Under the terms of the GM Acquisition, GM retained the liability for
post-retirement benefits earned by the Company's employees while employed by GM.
In addition, GM retained the liability for post-retirement benefits for all of
the Company's employees that return to GM pursuant to contractual arrangements
at the time of the GM Acquisition. Since relatively senior employees have
returned to GM and have been replaced by the Company with employees who have
later retirement dates, the Company's actual cash expenditures for
post-retirement benefits will be significantly less than the amount recorded as
an expense over the next ten years. The excess of the amount accrued over the
cash paid for post-retirement benefits during 1995, 1996 and 1997 was $4.4
million, $3.8 million and $4.5 million, respectively.
The Company believes that cash generated from operations, together with the
amounts available under the Senior Credit Facility, will be adequate to meet its
debt service requirements, capital expenditures and working capital needs for at
least the next twelve months, although no assurance can be given in this regard.
The Company's future operating performance and ability to extend or refinance
its indebtedness will be dependent on future economic conditions and financial,
business and other factors that are beyond the Company's control.
Seasonality
The Company's business is moderately seasonal, as its major OEM customers
historically have one- to two-week summer shutdowns of operations during July.
In addition, the Company typically has shut down its own operations for one week
each July, depending on backlog, scheduled maintenance and inventory buffers, as
well as an additional week during the December holidays. Consequently, the
Company's second and fourth quarter results reflect the effects of these
shutdowns.
Effects of Inflation
The Company believes that the relatively moderate inflation over the last
few years has not had a significant impact on the Company's revenues or
profitability and that it has been able to offset the effects of inflation by
increasing prices or by realizing improvements in operating efficiency. The
Company has provisions in many of its contracts which provide for the pass
through of fluctuations in the price of certain raw materials, such as copper
and aluminum.
Foreign Sales
Approximately 15.9%, 12.4% and 21.1% of the Company's 1995, 1996 and 1997
net sales, respectively, were derived from sales made to customers in foreign
countries. Because of these foreign sales, the Company's business is subject to
the risks of doing business abroad, including currency exchange rate
fluctuations, limits on repatriation of funds, compliance with foreign laws and
other economic and political uncertainties.
Accounting Pronouncements
For a discussion of pending accounting pronouncements that may affect the
Company, see Note 2 to the Consolidated Financial Statements included elsewhere
in this Prospectus.
38
BUSINESS
General
The Company designs, manufactures, remanufactures and distributes
electrical, powertrain/drivetrain and related components for automobiles and
light trucks, medium and heavy duty trucks and other heavy duty vehicles. The
Company's products include starter motors ("starters"), alternators, engines,
transmissions, traction control systems and fuel systems. The Company serves the
aftermarket and the original equipment manufacturer ("OEM") market, principally
in North America as well as in Europe, Latin America and Asia-Pacific. Net sales
and EBITDA (as defined) for fiscal year 1997 were $689.8 million and $87.3
million, respectively. For the same period, the aftermarket accounted for
approximately 45.2% of the Company's net sales and 62.8% of EBITDA, with the OEM
market accounting for the balance.
The Company believes that it is the largest manufacturer and remanufacturer
in North America of (i) starters for automobiles and light trucks (including
sport-utility vehicles, minivans and pickup trucks) and (ii) starters and
alternators for medium and heavy duty vehicles. The Company's products are
principally sold or distributed to OEMs for both original equipment manufacture
and aftermarket operations, as well as to warehouse distributors and retail
automotive parts chains. Major customers include General Motors ("GM"), General
Motors Service Parts Operations ("GM SPO"), Navistar, Caterpillar, Freightliner,
PACCAR, Auto Zone, Cummins, Western Auto, Ford, Detroit Diesel, Volvo Trucks,
Mack, Pep Boys, Advance Auto and O'Reilly Automotive.
The Company sells its products principally under the "Delco Remy" brand
name and other major brand names worldwide. In connection with the GM
Acquisition (as defined), the Company obtained perpetual rights to the "Delco
Remy" brand name, which was first used in 1918. The Company also received the
right to use "Delco Remy" as a corporate name until 2004 and the "Remy" name in
perpetuity. In addition, GM entered into a long-term contract to purchase from
the Company substantially all of its North American requirements for automotive
starters and its U.S. and Canadian requirements for heavy duty starters and
alternators. GM also entered into a distribution agreement to sell the Company's
aftermarket products through the GM SPO distribution system. See
"Business--Customers."
Citicorp Venture Capital Ltd. ("CVC") and Harold K. Sperlich, former
president of Chrysler Corporation, together with a subsidiary of MascoTech Inc.
("MascoTech") and certain senior management of the former Delco Remy Division of
GM (the "Former GM Division"), formed the Company for the purpose of acquiring
the assets of the automotive starter and the heavy duty starter and alternator
businesses of the Former GM Division (the "GM Acquisition"). Upon consummation
of the Offerings and the other Transactions, CVC, management of the Company and
other existing stockholders of the Company will beneficially own approximately
% of the Company's outstanding Common Stock ( % of the voting power), and
will be able to control the Company and elect its Board of Directors.
Since the GM Acquisition, the Company has completed five strategic
acquisitions, substantially increasing the Company's aftermarket operations, and
entered into two international joint ventures. The Company is also in the
process of completing the strategic acquisition of Ballantrae, which will expand
the Company's drivetrain product position. Through Ballantrae's wholly owned
subsidiary, Tractech Inc. ("Tractech"), the Company will offer high quality
traction control systems to heavy duty OEMs and the aftermarket. These
acquisitions and joint ventures have broadened the Company's product line,
expanded its remanufacturing capability, extended its participation in
international markets and increased its penetration of the retail automotive
parts channel. As a result of these acquisitions and joint ventures and the
Company's focus on increasing its participation in the aftermarket, the
Company's reliance on GM has declined since the Company's formation. Net sales
to customers other than GM increased from 41.0% in fiscal year 1995 to 56.3% in
fiscal year 1997.
The Company's expanding aftermarket business benefits from the
non-deferrable nature of the repairs for which many of the Company's products
are used. Additionally, the Company's aftermarket business benefits from the
design, manufacturing and technological expertise of the Company's OEM
operations. This OEM expertise provides the Company with advantages over many of
its aftermarket competitors. The Company believes that its participation in both
OEM and aftermarket businesses and its diversified customer base reduce its
exposure to the
39
cyclicality of the automotive industry. The Company's growth strategy is
designed to capitalize on its position as a consolidator in the large and highly
fragmented remanufacturing aftermarket.
Growth Strategy
The Company plans to continue to increase revenues and profitability of its
aftermarket and OEM businesses through a strategy of internal growth and growth
through acquisitions. Key elements of the Company's growth strategy include:
Increasing Aftermarket Presence
Strengthening Customer Relationships. The Company intends to increase its
sales to new and existing customers by capitalizing on its balanced coverage of
the key channels of aftermarket distribution and its competitive strengths as an
OEM supplier. The Company plans to strengthen its customer relationships by (i)
continuing to expand its product offerings, (ii) capitalizing on the expansion
of the national automotive retail parts chains and warehouse distributors that
are customers of the Company, (iii) meeting the increasing demands of OEMs and
their dealer networks for high quality remanufactured units, which enable them
to reduce warranty and extended service costs, and (iv) growing sales of
existing and new product lines to OEM dealer networks as dealers continue to
capture an increasing percentage of vehicle repairs, due to longer warranty and
service programs and growing vehicle complexity. Additionally, with the recent
acquisition of World Wide, the Company expanded its product line and now offers
a full line of starters and alternators for domestic and import vehicles. The
acquisition also has improved the Company's distribution capabilities, which now
include a nationwide overnight delivery service.
Consolidating the Fragmented Aftermarket. The portion of the aftermarket in
which the Company participates is large and highly fragmented, with most
participants being small, regional companies offering relatively narrow product
lines. Although the Company believes that it is the largest manufacturer and
remanufacturer of aftermarket starters and alternators in North America, its
sales of these products account for less than 12% of this market. Consolidation
of the aftermarket is occurring as many competitors are finding it difficult to
meet the increasing quality, cost and service demands of customers, who, in
turn, are seeking to rationalize their supplier base. With its OEM capabilities,
remanufacturing expertise, full product line, greater access to "cores" and
ability to capitalize on economies of scale, the Company is well positioned to
benefit from the consolidation of the aftermarket.
Expanding Globally
The Company is expanding its international operations in order to (i)
benefit from the trend toward international standardization of automotive and
heavy duty vehicle platforms and (ii) participate in rapidly growing foreign
markets. The Company has recently been awarded new business by GM, Volkswagen,
Mercedes Benz, Ford and Caterpillar in Brazil; Opel in Europe; Daewoo Motors in
India; and Mercedes Benz, Volvo Trucks, John Deere and Dina in Mexico. The
Company intends to supply its existing OEM customers on a global basis as they
expand their operations and require local supply of component parts that meet
their demands for quality, technology, delivery and service. The Company
believes that its global expansion will enable it to gain new international OEM
customers who will also require local production of high quality products. In
addition, the expansion of the Company's OEM business into international markets
has provided the Company with the infrastructure necessary to develop an
aftermarket presence in these countries. The Company has established
manufacturing operations and strategic ventures in Hungary, Korea and Mexico,
and plans to complete a strategic alliance in India and a joint venture in
Brazil in fiscal year 1998. The acquisition of Ballantrae will provide the
Company with a European manufacturing plant which has been in operation since
1983. Aided by this facility, Ballantrae has developed strong relationships with
European customers for traction control systems, especially in the market for
construction equipment.
Introducing Technologically Advanced New Products
As a Tier 1 OEM supplier, the Company continues to provide technologically
advanced products by regularly updating and enhancing its product line. Since
the GM Acquisition, the Company has (i) completed the introduction of a new
family of gear reduction starters that will replace all straight drive starters
in GM vehicles by the end of the 1998 model year and (ii) introduced several
longer-life heavy duty alternators. The Company is also developing a small gear
reduction starter specifically designed for application on world car platforms.
These new
40
products underscore the Company's commitment to developing state-of-the-art
products that address the higher output, lower weight and increased durability
requirements of OEM customers.
Operating Strategy
The Company's operating strategy is designed to improve manufacturing
efficiency, reduce costs and increase productivity while continuing to achieve
the highest levels of product quality. Key elements of this operating strategy
include:
"Focus" Factories to Drive Manufacturing Excellence
The Company is shifting its OEM production from old, vertically-integrated
manufacturing plants to new, smaller and more efficient "focus" factories. The
Company's focus factories generally produce one product line in a plant designed
to facilitate lean manufacturing techniques. The Company has successfully
launched three new focus factories since 1996. When the currently planned shift
to focus factories is completed, the Company will occupy five focus factories
and will have reduced its floor space for OEM production by more than 70%. The
Company believes that the benefits of the focus factories include reduced
overhead costs, enhanced productivity, increased product quality and lower
inventories.
Productivity Improvements
In conjunction with its emphasis on focus factories, the Company continues
to work with its local union representatives to establish best-in-class work
practices, such as reducing the number of job classifications per focus factory
and implementing team-based manufacturing processes. Since the GM Acquisition,
employee productivity has increased by 33%. The Company's labor contract with
the UAW (as defined) contains provisions that are expected to permit the Company
to continue to achieve productivity improvements in the existing and new focus
factories. The increased productivity achieved since the GM Acquisition is due
primarily to continuous improvement initiatives and the significant number of
employees who have exercised their contract rights to return ("flowback") to GM
or to retire.
Product Quality and Continuous Improvement
In July 1997, the Company received the prestigious Supplier of the Year
award from GM, an award given to fewer than 1% of all GM suppliers. The
Company's commitment to product quality and continuous improvement is further
evidenced by the QS9000 certification received by nine of its manufacturing and
remanufacturing facilities in 1997. The Company expects that the remainder of
its manufacturing and remanufacturing facilities will receive QS9000
certification by the end of fiscal year 1998. In addition, the Company's
powertrain/drivetrain operations that remanufacture products for Ford have
received the Q-1 rating, Ford's highest quality rating, and the Company is a
Ford Authorized Remanufacturer ("Ford FAR") in five of the seven Canadian
provinces. Global purchasing has further enhanced the Company's continuous
improvement efforts. The Company is utilizing its international ventures to
develop new, lower cost sources of materials and is consolidating its vendor
base to fewer, more competitive suppliers.
Acquisition of Ballantrae
Pursuant to the Ballantrae Acquisition Agreement, the Company will acquire
all of the capital stock of Ballantrae in a merger of Ballantrae and a
subsidiary of the Company in which Ballantrae will be the surviving corporation.
The aggregate cost will be $49.2 million, subject to a working capital
adjustment and including assumed debt. Ballantrae operates through two
subsidiaries: Tractech, a leading producer of traction control systems for heavy
duty OEMs and the aftermarket; and Kraftube, Inc., a tubing assembly business
which sells products to compressor manufacturers for commercial air conditioners
and refrigeration equipment. In fiscal year 1997, Tractech accounted for 70% of
Ballantrae's $37.6 million of net sales. The Company will exchange shares of its
Common Stock with a value (at the initial public offering price in the Equity
Offering) of approximately $19 million for the equity of Ballantrae and will
repay approximately $30 million of Ballantrae's debt. The Common Stock of the
Company received by Ballantrae's existing stockholders in the merger will be
subject to resale restrictions under applicable securities laws. The merger is
expected to be completed at or prior to the consummation of the Offerings. The
Company will pay up to an aggregate of $ in respect of any dissenters' rights
exercised by existing stockholders of Ballantrae. Any damages which the Company
may suffer which result from a breach of the Ballantrae Acquisition Agreement
will be subject to a $10 million cap and the
41
Company will only be able to recover approximately % and % of its
damages from CVC and James R. Gerrity, respectively (in each case including
their affiliates). The Company's acquisition of Ballantrae strengthens the
Company's overall market position by (i) adding traction control systems to the
Company's range of drivetrain products, (ii) increasing sales to existing heavy
duty OEM customers and (iii) expanding the Company's customer base. The
acquisition is expected to be completed at or prior to the consummation of the
Offerings. See "Risk Factors--Acquisition of Ballantrae; Conflicts of Interest,"
"Company History" and "Certain Transactions."
Industry Overview
In general, the Company's business is influenced by the underlying trends
of the automotive industry. The Company's focus on expanding its remanufacturing
capabilities, however, heightens the importance of the aftermarket.
Aftermarket. The aftermarket consists of the production and sale of both
new and remanufactured parts used in the maintenance and repair of automobiles,
trucks and other vehicles. Remanufacturing is a process through which used
components ("cores") are disassembled into their subcomponents, cleaned,
inspected, tested, combined with new subcomponents and reassembled into finished
products. A remanufactured product can be produced at lower cost than a
comparable individually repaired unit due to effective salvage technology
methods, high volume precision manufacturing techniques and rigorous inspection
and testing procedures. The ability to procure cores is critical to the
remanufacturing process. See "Business--Manufacturing and Facilities."
Aftermarket parts are supplied principally through three distribution
channels: (i) car and truck dealers that obtain parts either through an OEM
parts organization (e.g., GM SPO, Ford Parts & Service, Chrysler Mopar,
Navistar, etc.) or directly from an OEM-authorized remanufacturer; (ii) retail
automotive parts chains and mass merchandisers; and (iii) wholesale distributors
and jobbers who supply independent service stations, specialty and general
repair shops, farm equipment dealers, car dealers and small retailers.
The Company believes that the aftermarket has been and will continue to be
impacted by the following trends: (i) the increasing number and average age of
vehicles in use and the number of miles driven annually; (ii) the increasing
demands of customers that their aftermarket suppliers meet high quality
standards; (iii) the increasing use of remanufactured parts for OEM warranty and
extended service programs; (iv) the growth and consolidation of large retail
automotive parts chains; and (v) particularly with respect to many of the
Company's products, the increasing engine output and durability demands related
to the high temperatures at which engines operate.
According to R. L. Polk, as of 1996, there were approximately 198 million
cars and light trucks registered in the United States, as compared with 162
million cars and light trucks in 1986. The average age for cars and light trucks
in 1996 was 8.5 years, as compared with an average car age of 7.9 years in 1986.
The use of remanufactured components for warranty and extended service
repairs has increased in recent years as OEMs have offered extended warranty and
extended service coverage and dealers have begun to provide extended service
plans and warranties on used vehicles. OEMs have sought to reduce warranty and
extended service costs by using remanufactured components, which generally offer
the same degree of quality and reliability as OEM products at a lower cost. This
trend has resulted in aftermarket customers requiring higher quality standards
for remanufactured products.
Recently, large retail automotive parts chains offering a broad range of
new and remanufactured products have experienced rapid growth at the expense of
small, independent retail stores. The Company has significantly grown its sales
to this channel and believes that further increasing its sales to retail chains
offers a significant opportunity for growth. Retail chains generally prefer to
deal with large, national suppliers capable of meeting their cost, quality,
volume and service requirements. See "Business--Growth Strategy."
OEM Market. The OEM market consists of the production and sale of new
component parts for use in the manufacture of new vehicles. The OEM market
includes two major classes of customers: (i) automobile and light truck
manufacturers; and (ii) medium and heavy duty truck and engine manufacturers and
other heavy duty vehicle manufacturers.
The OEM market has been impacted by recent fundamental changes in the OEMs'
sourcing strategies. OEMs are consolidating their supplier base, demanding that
their suppliers provide technologically advanced product
42
lines, greater systems engineering support and management capabilities,
just-in-time sequenced delivery and lower system costs. As a result, each OEM
has selected its own preferred suppliers. OEMs are increasingly requiring that
their preferred suppliers establish global production capabilities to meet their
needs as they expand internationally and increase platform standardization
across multiple markets.
OEMs continue to outsource component manufacturing of non-strategic parts.
Outsourcing has taken place in response to competitive pressures on OEMs to
improve quality and reduce capital outlays, production costs, overhead and
inventory levels. In addition, OEMs are increasingly purchasing integrated
systems from suppliers who provide the design, engineering, manufacturing and
project management support for a complete package of integrated products. By
purchasing complete systems, OEMs are able to shift design, engineering and
product management to fewer and more capable suppliers. Integrated systems
suppliers are generally able to design, manufacture and deliver components at a
lower cost than the OEMs due to (i) their lower labor costs and other
manufacturing efficiencies, (ii) their ability to spread research and
development and engineering costs over products provided to multiple OEMs and
(iii) other economies of scale inherent in high volume manufacturing such as the
ability to automate and leverage global purchasing capabilities.
Products
Aftermarket. The Company's aftermarket product line includes a diverse
array of remanufactured and new products sold as replacement parts under the
"Delco Remy" brand name or under a private-label brand name specified by the OEM
or the automotive parts retailer. The Company remanufactures parts for both
domestic and imported vehicles.
Products remanufactured by the Company include starters, alternators,
engines, fuel injectors, injection pumps and turbo chargers (fuel systems),
transmissions, torque converters, water pumps, rack and pinions, power steering
pumps and gears and clutches. The Company also remanufactures subcomponents,
such as automotive armatures, rotors and solenoids, as well as component parts
shipped in bulk ("kits") for future assembly. These subcomponents are either
used internally in the remanufacturing process by the Company or sold to outside
customers.
OEM. The Company's starters are used in all cars and trucks manufactured by
GM in North America (except Saturn and Geo). The Company manufactures two types
of starters: straight drive starters and gear reduction starters. Since the
beginning of 1994, the Company has been transitioning its production line from
straight drive starters to more technologically advanced gear reduction
starters. For the 1997 model year, the Company's gear reduction starters were
used on 44% of GM's North American automotive platforms (other than Saturn and
Geo). The balance of GM North American automotive platforms (other than Saturn
and Geo) will be converted to the Company's gear reduction starters by the end
of the 1998 model year, at which time the Company expects to discontinue OEM
production of straight drive starters. The Company's gear reduction starters are
globally competitive and offer greater output at lower weight than comparable
straight drive designs. For example, the Company's principal PG-260 gear
reduction starter offers the highest power to mass ratio in the industry,
producing the same power at 7.7 pounds as a comparable straight drive design
weighing 13.6 pounds. The Company has begun development of a small gear
reduction starter that will enable the Company to offer its OEM customers an
application on their world car platforms. Reduced component weight is important
to OEMs, as total vehicle weight is a critical factor in each OEM's ability to
achieve federal Corporate Average Fuel Economy standards (CAFEs).
The Company manufactures a full line of heavy duty starters and alternators
for use primarily with large diesel engines. The Company's starters and
alternators are specified as part of the standard electrical system by most
North American heavy duty truck and engine manufacturers. The Company's starters
cover a broad range of torque and speed requirements. The Company manufactures a
full line of alternators, some of which utilize premium design features that
yield increased durability and a longer service life. Certain of the Company's
automotive starters are also currently being produced under technology licenses
by manufacturers in China and India, and by the Company's joint ventures in
Mexico and Korea.
The Company has recently developed several new products for heavy duty
applications, including a high output, premium heavy duty brushless alternator
for high vibration applications; a new large frame alternator designed to meet
the increasing demands in the upper power ranges of new heavy duty vehicles; and
a small heavy duty alternator for use in low output, high durability and severe
environmental applications, which the Company
43
expects will be used principally for agricultural and construction vehicles. The
Company's OEM customers and major truck fleet operators designate it as an
electrical system supplier that provides value-added systems such as the "Road
Gang." The Road Gang system includes a premium starter and brushless alternator
produced by the Company and premium batteries produced by GM and offered by the
Company under a long-term agreement with GM. Engineered as a package, these
products provide increased performance, reliability and durability.
Ballantrae's Tractech subsidiary produces traction control systems for use
in construction, industrial and agricultural equipment and in medium duty
trucks. The traction control systems business combines valuable product
engineering skills with strong machining and fabrication capabilities to
manufacture products with custom designed applications.
Quality Standards. The Company is required to meet numerous quality
standards in order to qualify as a supplier to major OEMs and their dealer
networks, as well as certain automotive parts retailers. The Company has
achieved significant recognition by its customers for its continuous commitment
to quality. In July 1997, the Company received the prestigious Supplier of the
Year award from GM, an award given to fewer than 1% of all GM suppliers. The
Company's aftermarket operations that produce products for Ford have received
the Q-1 rating, which is Ford's highest quality rating. Moreover, the Company is
a Ford FAR in five of the seven Canadian provinces. The Company also has been
awarded Navistar's highest quality rating for its engine remanufacturing
operations. In addition, the Company has received quality awards from certain of
its other customers, including Caterpillar, Cummins, OshKosh and Teledyne.
Ford, Chrysler and GM have initiated quality standards (QS9000) applicable
to suppliers such as the Company. International and domestic automobile and
truck manufacturers developed the QS9000 standards to ensure that their
suppliers meet consistent quality standards that can be independently audited.
These quality standards, which are required by customers to be in place by
December 1997, impose processes and procedures in addition to those in effect
prior to December 1997. Management also believes that these standards may have
the effect of accelerating consolidation in the remanufacturing industry, as
smaller remanufacturers may be unable to meet or afford the cost of complying
with these new quality standards. The Company has received QS9000 certification
at nine of its manufacturing and remanufacturing facilities, and expects the
balance to be certified by the end of fiscal 1998.
Ballantrae's traction control systems unit has received several quality
awards, has been designated a Caterpillar "Certified Supplier" in every year
since 1985 and holds an ISO9002 certification.
Engineering and Development. The Company's engineering staff works
independently and with OEMs to design new products, improve performance and
technical features of existing products and develop methods to lower
manufacturing costs. The Company's engineering staff includes application
engineers, manufacturing engineers and advanced engineers. Application engineers
are assigned to various platforms or geographic regions to work directly with
customers on product design changes and corrective actions. Manufacturing
engineers are responsible for the planning, layout, design, equipment selection
and global implementation of production capacity for the Company's domestic and
foreign manufacturing facilities. Advanced engineers work in conjunction with
the customer's forward planning or advanced powertrain engineers on product
design and development for products with a five to ten year planning horizon.
In support of its engineering efforts, the Company has formed technical
alliances with a select number of engineering and technology firms to identify
long-term engineering advances and opportunities. In January 1996, the Company
entered into a joint development agreement with SatCon Technology Corporation
with the goal of developing an alternator with substantially higher power output
than the current generation of alternators. The Company has also formed
technical alliances with EcoAir Corp. and Arthur D. Little to support the
Company's advanced research and development of starters and alternators.
Customers
Aftermarket. The Company's principal aftermarket customers include OEM
dealer networks of GM, Navistar, Ford, Freightliner, Caterpillar and PACCAR and
leading automotive parts retain chains such as Auto Zone, Western Auto, Pep
Boys, Advance Auto, O'Reilly Automotive and Discount Auto. The Company's
products are also used for warranty replacement under procedures established by
certain of the Company's OEM customers.
44
In connection with the GM Acquisition, the Company entered into a long-term
agreement pursuant to which it designated GM, through GM SPO, as its exclusive
distributor of "Delco Remy" brand remanufactured automotive and heavy duty
starters and alternators within North America to specified customers, including
certain GM dealers, direct GM accounts, certain warehouse distributors and, with
respect to automotive products, certain retail chains. In consideration of its
being granted the foregoing exclusive distribution rights, GM agreed to purchase
from the Company 100% of its requirements for automotive starters and heavy duty
starters and alternators for sale in the aftermarket and has further agreed not
to sell any competitive products in the aftermarket channels specified above
during the term of the distribution agreement. Sales to GM SPO under the
distribution agreement accounted for approximately 24.2% of the Company's
aftermarket 1997 pro forma net sales. With respect to heavy duty starters and
alternators, the term of the current agreement will end on July 31, 1998. As to
automotive starters, the agreement terminates on July 31, 2009. The agreement,
with respect to either heavy duty or automotive products, may be terminated
prior to the end of the applicable term (i) by mutual agreement of the parties,
(ii) by either party upon a material breach by the other party, (iii) by the
Company if GM fails to achieve certain goals and objectives for reasons other
than a general decline in the economy and (iv) by GM to the extent the Company
fails to meet certain quality standards. See "Risk Factors--Dependence on
General Motors."
Ballantrae's traction control systems are offered on an aftermarket basis
for sport utility vehicles ("SUV") through independent wholesale distributors
for installation by the end user after the original vehicle purchase.
Aftermarket sales represent approximately 25% of Tractech's total sales.
OEM. The Company's principal customers in its OEM automotive business are
GM's North American Operations and various GM International affiliates, who
collectively accounted for substantially all of the Company's OEM 1997 pro forma
automotive starter sales, approximately 54.7% of total OEM 1997 pro forma net
sales and approximately 29.7% of total 1997 pro forma net sales. The GM
International affiliates to which the Company sells products include GM Brazil,
GM Holden (Australia), GM Mexico and Isuzu. Beginning with the 2001 model year,
the Company will also sell products to GM Europe. Remy Korea, a joint venture in
which the Company has a 50% interest, sells automotive starters using the
Company's technology to Daewoo Motors, Kia Motors, Asia Motors and Ssangyong
Motors. The Company will also sell automotive starters to Opel in Europe and,
through its licensee, to Daewoo Motors in India.
Principal customers of the Company's heavy duty OEM business include
Navistar, Freightliner, Cummins, Caterpillar, PACCAR, Detroit Diesel, GM, Ford,
Mack and Volvo Trucks, with the top ten customers accounting for approximately
59% of heavy duty pro forma net sales in 1997. The Company has long-term
agreements, with terms typically ranging from three to five years, to supply
starters and alternators to GM, Navistar, Freightliner, PACCAR, Cummins, Volvo
Trucks and Mack. In addition, the Company is the specified supplier of heavy
duty starters and alternators for trucks manufactured for several major North
American truck fleet operators, including Penske Truck Leasing, Ryder System,
Inc., Yellow Freight System and J.B. Hunt Transport.
Pursuant to long-term supply agreements, GM has agreed to purchase from the
Company 100% of its North American automotive starter requirements (other than
Saturn and Geo) and 100% of its U.S. and Canadian requirements for heavy duty
starters and alternators, in each case with respect to the Company's existing
product line as of August 1994. GM's commitments to purchase such products from
the Company in the future are subject, however, to the Company remaining
competitive as to technology, design and price. Nonetheless, GM may not
terminate the automotive starter supply agreement for failure of the Company to
be price, technology or design competitive prior to July 31, 2001. GM's
obligations to purchase automotive starters and heavy duty starters and
alternators from the Company terminate on July 31, 2004 and 2000, respectively,
except for automotive products released in 1996 and 1997, for which GM's
obligation will terminate on July 31, 2006 and 2007, respectively. GM may cancel
either agreement in the event that 35% of the Company's voting shares become
owned, directly or indirectly, by another manufacturer of passenger cars or
light trucks. During the term of the relevant supply agreement, GM has granted
the Company the right to bid on starter and alternator supply contracts for GM's
operations worldwide. See "Risk Factors--Dependence on GM."
Ballantrae's principal customers for traction control systems include OEMs
of construction, industrial and agricultural equipment and medium duty trucks.
Ballantrae's principal traction control systems customers include Caterpillar,
John Deere, Eaton, Dana, Rockwell and Clark Hurth.
45
The Company employs its own direct sales force, which develops and
maintains sales relationships with major North American truck fleet operators as
well as its OEM customers worldwide. These sales efforts are supplemented by a
network of field service engineers and product service engineers.
Manufacturing and Facilities
Aftermarket. The Company's aftermarket business has operations located
principally in 33 production facilities and seven warehouses in the United
States and Canada.
In its remanufacturing operations, the Company obtains used starters,
alternators, engines and related components, commonly known as cores, which are
sorted by make and model and either placed into immediate production or stored
until needed. During remanufacturing, the cores are completely disassembled into
their component parts. Components which can be incorporated into the
remanufactured product are thoroughly cleaned, tested and refinished. All
components subject to major wear as well as those which cannot be remanufactured
are replaced by new components. The unit is then reassembled into a finished
product. Inspection and testing are conducted at various stages of the
remanufacturing process, and each finished product is inspected and tested on
equipment designed to simulate performance under operating conditions.
The majority of the cores remanufactured by the Company are obtained from
customers in exchange for remanufactured units and are credited against the
purchase prices of these units. When the Company has an insufficient number of
components from salvageable cores, the Company's remanufacturing operations may
purchase new parts from the Company's OEM operations. Core prices fluctuate on
the basis of several economic factors, including market availability and demand
and core prices then being paid by other remanufacturers and brokers.
OEM. The Company's OEM business has seven principal manufacturing
operations, two in Meridian, Mississippi and five in Anderson, Indiana. The
Company has announced its intention to close its two facilities in Meridian,
Mississippi by the end of the 1998 fiscal year, including one facility leased
from GM at the time of the GM Acquisition. The balance of the Company's OEM
facilities are located in Anderson, Indiana. Two of the Anderson facilities are
leased from GM and will be vacated by the end of 1999. The Company is operating
three new focus factories and intends to have a total of five in operation by
the end of 1999. This restructuring will provide a reduction of over 70% in
square footage from the Company's existing plants to the focus factories due to
streamlining of manufacturing processes, phasing out of certain manufacturing
equipment and elimination of excess unutilized floor space or floor space used
by GM in each of the existing facilities. The restructuring reserve does not
include the startup costs the Company expects, based on its three prior focus
factory startups, to incur in connection with the two new focus factories.
The manufacturing process of the focus plants varies significantly from the
traditional process flow of existing plants. The Company utilizes a flexible
cell-based manufacturing approach to the production of all new and/or
re-engineered product lines within the focus plants as contrasted with the
existing vertically integrated, primarily synchronous process used in
traditional factories. The cell-based manufacturing system provides flexibility
by allowing efficient changes to the number of operations each operator performs
and is capable of both low- and high-volume production runs. When compared to
the more traditional, less flexible assembly line process, cell manufacturing
allows the Company to match its production output better to customers'
requirements while reducing required inventory levels and improving quality.
The Company's focus plants generally produce one product line in a plant
design based on cell-based, semi-automated manufacturing utilizing kaizen
techniques. The focus plant process creates a team-based environment of involved
workers who better understand and control the manufacturing process. In
addition, the Company has worked with the Company's unions to reduce the number
of job classifications so that workers can be shifted among various work areas
as production demands dictate. The Company is presently expanding lean
manufacturing techniques to its aftermarket facilities.
Ballantrae's traction control systems manufacturing facilities are located
in the Detroit suburb of Warren, Michigan, and in Sligo, Ireland. These
facilities have used cellular manufacturing for more than seven years.
The Company utilizes frequent communication meetings at all levels of
manufacturing to provide training and instruction as well as to assure a
cohesive, focused effort toward common goals. The Company encourages
46
employee involvement in all production activity and views such involvement as a
key element toward the success of the Company.
Competition
Aftermarket. The aftermarket is highly fragmented and competitive.
Competition is based primarily on quality of products, service, delivery,
technical support and price. The Company's principal aftermarket competitors
include Arrow, Automotive Parts Exchange (APE), Champion, Genuine Parts
(Rayloc), Motorcar Parts & Accessories (MPA), Prestolite and Unit Parts.
OEM. The automotive parts market is highly competitive. Competition is
based primarily on quality of products, service, delivery, technical support and
price. Most OEMs source parts from one or two suppliers. The Company competes
with a number of companies who supply automobile manufacturers throughout the
world. In the North American automotive market, the Company's principal
competitors include Nippondenso, Valeo, Mitsubishi and Bosch. GM purchases
automotive starters from the Company pursuant to its long-term supply agreement
with the Company. See "Business--Customers." Chrysler has eliminated production
of its own starters and currently purchases starters from independent suppliers.
Ford continues to produce certain parts for the majority of its domestic and
international applications and purchases the remainder from independent
suppliers.
The heavy duty parts market is characterized by one or two dominant
suppliers in each major geographic region of the world. No competitor has a
substantial share in all regions. In the North American heavy duty market, where
the Company is the largest manufacturer, the Company's principal competitors
include Prestolite, Nippondenso and Bosch.
Employees
As of July 31, 1997, the Company employed 4,949 people, 848 of whom were in
management, engineering, supervision and administration and 4,101 of whom were
hourly employees. Of the Company's hourly employees, 1,969 are represented by
unions. In the United States, 1,485 of the Company's hourly workers are
represented by the UAW under an agreement between the Company and the UAW, the
applicable provisions of which were assumed by the Company in connection with
the GM Acquisition. The Company and the UAW agreed to a new master agreement in
March 1997 when the agreement that had been assumed by the Company expired. Wage
and benefit increases under the new contract generally follow the same pattern
of the prior agreement and continue to track the wages and benefits paid by GM
and, as a result, the Company will experience higher labor costs in the future.
In addition, grow-in provisions under the new agreement will require the Company
to move lower wage and benefit employees to higher wage and benefit levels.
There can be no assurance that the Company will be able to effect cost
reductions or productivity improvements to offset such increased wage and
benefit levels or that the Company's labor costs will not increase
significantly, in which case the Company's competitive position and results of
operations would be adversely affected. The agreement between the UAW and the
Company expires on September 14, 2000 which will require negotiation of new
agreements.
As of July 31, 1997, 141 of the Company's 459 Canadian employees were
represented by the Canadian Auto Workers and 97 were represented by the
Metallurgists Unis d'Amerique. The agreements with these unions expire on
November 8, 1999 and September 30, 1998, respectively, which will require
negotiation of new agreements.
As of July 31, 1997, approximately 246 of Autovill's 366 employees were
affiliated with the Hungarian Steel Industry Workers Union. The agreement was
signed July 17, 1996 and is perpetual, subject to termination upon three months'
notice from either party.
The Company's other facilities are primarily non-union. The Company is
unaware of any current efforts to organize. There can be no assurance that there
will not be any labor union efforts to organize employees at facilities that are
not currently unionized.
Since the GM Acquisition, the Company has not experienced any organized
work stoppages. There can be no assurance, however, that any actions taken by
the Company, including the current restructurings, will not adversely affect the
Company's relations with its employees. At the present time, the Company
believes that its relations with its employees are good. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--General."
47
Patents, Trademarks and Licenses
Pursuant to a Trademark Agreement between the Company and GM, GM has
granted the Company an exclusive license to use the "Delco Remy" trademark on
and in connection with automotive starters and heavy duty starters and
alternators until July 31, 2004, extendible indefinitely at the Company's option
upon payment of a fixed $100,000 annual licensing fee to GM. The Company has
also been granted a perpetual, royalty-free license to use the "Remy" trademark.
The "Delco Remy" and "Remy" trademarks are registered in the United States,
Canada and Mexico and in most major markets worldwide. GM has agreed with the
Company that, upon the Company's request, GM will register the trademarks in any
jurisdiction where they are not currently registered.
The Company has also been granted an exclusive license to use the "Delco
Remy" name as a tradename and corporate name worldwide until July 31, 2004
pursuant to a Tradename License Agreement between the Company and GM. In
addition, GM has granted the Company a perpetual license to use the "Remy" name
as a tradename and corporate name worldwide.
The Company owns and has obtained licenses to various domestic and foreign
patents and patent applications related to its products and processes. The
patents expire at various times over the next 16 years. While these patents and
patent applications in the aggregate are important to the Company's competitive
position, no single patent or patent application is material to the Company.
Raw Materials
Principal raw materials for the Company's business include bare copper
strap, insulated copper, aluminum castings, forgings, outer frames, nomex paper,
steel coils, steel bars, copper tube, copper wire, flat steel, coil steel, bar
steel, gray iron castings, ductile iron castings, copper cross-section coils,
magnets, steel shafts, steel cores, steel wire and molding material. All
materials are readily available from a number of suppliers, and management does
not foresee any difficulty in obtaining adequate inventory supplies. The Company
and GM have entered into a long-term worldwide purchasing support agreement that
allows the Company to purchase copper wire and steel, which are used in the
manufacture of starters sold to GM, at prices that the Company believes
generally to be lower than those that would otherwise be obtainable by the
Company. This agreement expires on July 31, 2004, or earlier, upon termination
of the automotive and heavy duty supply OEM agreements between the Company and
GM. The Company generally follows the North American industry practice of
passing on to its customers the costs or benefits of fluctuation in copper and
aluminum prices on an annual or semi-annual basis. See "Business--Customers."
Backlog
The majority of the Company's products are not on a backlog status. They
are produced from readily available materials and have a relatively short
manufacturing cycle. For products supplied by outside suppliers, the Company
generally purchases products from more than one source. The Company expects to
be capable of handling the anticipated 1998 sales volumes.
Properties
The world headquarters of the Company are located at 2902 Enterprise Drive,
Anderson, Indiana 46013. The Company leases its headquarters.
The following table sets forth certain information regarding manufacturing
and certain other facilities operated by the Company as of August 31, 1997. The
designation "F" indicates a focus plant. See "Business--Manufacturing and
Facilities."
OEM or Approx. Owned/Lease
Location Aftermarket Use Sq. Ft. Expiration
-------- ----------- --- --------- ------------
Anderson, IN Headquarters Office 70,000 2000
Anderson, IN OEM Manufacturing 597,000 2004
Anderson, IN OEM Manufacturing 430,000 2004
Anderson, IN OEM(F) Manufacturing 117,000 2001
Anderson, IN OEM(F) Manufacturing 51,000 2001
48
OEM or Approx. Owned/Lease
Location Aftermarket Use Sq. Ft. Expiration
-------- ----------- --- --------- ------------
Anderson, IN OEM(F) Manufacturing 36,695 2006
Anderson, IN OEM Manufacturing 33,500 2007
Anderson, IN OEM/Aftermarket Testing 15,000 2001
Anderson, IN Aftermarket Warehouse 20,220 2000
Anderson, IN Aftermarket Warehouse 50,220 2000
Bay Springs, MS Aftermarket Manufacturing 73,000 2003
Budapest, Hungary Aftermarket Leased to 3rd party 55,709 Owned
Chantilly, VA Aftermarket Manufacturing 120,000 2014
Edmonton, Canada Aftermarket Manufacturing 141,300 Owned
Etobicoke, Canada Aftermarket Manufacturing 114,120 2002
Findlay, OH Aftermarket Manufacturing 6,400 Owned
Franklin, IN Aftermarket Manufacturing 48,400 Owned
Franklin, IN Aftermarket Manufacturing 16,625 Owned
Franklin, IN Aftermarket Manufacturing 15,580 Owned
Gallatin, TN Aftermarket Manufacturing 20,000 Owned
Gallatin, TN Aftermarket Manufacturing 20,000 *
Heidelberg, MS Aftermarket Manufacturing 45,000 2003
Heidelberg, MS Aftermarket Manufacturing 5,000 2003
Indianapolis, IN Aftermarket Manufacturing 5,500 1999
Kaleva, MI Aftermarket Manufacturing 82,000 2000
Mansfield, TX Aftermarket Manufacturing 43,000 2000
Marion, MI Aftermarket Manufacturing 59,400 2000
Memphis, TN Aftermarket Warehouse 7,500 2002
Meridian, MS Aftermarket Office 2,400 2003
Meridian, MS Aftermarket Manufacturing 15,000 1998
Meridian, MS OEM Manufacturing 319,000 2004
Meridian, MS OEM(F) Manufacturing 68,000 2000
Meridian, MS Aftermarket Manufacturing 12,000 2003
Mezokovesd, Hungary Aftermarket Manufacturing 175,598 Owned
Mezokovesd, Hungary Aftermarket Warehouse 8,612 Owned
Peru, IN Aftermarket Manufacturing 30,000 2003
Peru, IN Aftermarket Manufacturing 14,111 2003
Raleigh, MS Aftermarket Manufacturing 43,000 2003
Raleigh, MS Aftermarket Manufacturing 75,000 2003
Raleigh, MS Aftermarket Manufacturing 8,000 Own
Reed City, MI Aftermarket Manufacturing 92,000 2000
Reed City, MI Aftermarket Manufacturing 34,000 2000
Reed City, MI Aftermarket Manufacturing 26,000 2000
Reed City, MI Aftermarket Warehouse 7,350 1999
Reed City, MI OEM/Aftermarket Manufacturing 90,000 Owned**
and Office
San Luis Potosi, Mexico OEM Manufacturing 37,000 2001
Sligo, Ireland OEM/Aftermarket Manufacturing 53,400 2018**
St. Laurent, Canada Aftermarket Warehouse 17,000 1997
Sylvarena, MS Aftermarket Manufacturing 1,300 *
Taylorsville, MS Aftermarket Manufacturing 27,000 2003
Toledo, OH Aftermarket Manufacturing 4,500 2000
Toronto, Canada Aftermarket Manufacturing 36,778 1997
Warren, MI OEM/Aftermarket Manufacturing 100,049 Owned**
and Office
49
OEM or Approx. Owned/Lease
Location Aftermarket Use Sq. Ft. Expiration
-------- ----------- --- --------- ------------
Winchester, VA Aftermarket Warehouse 55,000 2000
Winchester, VA Aftermarket Office/Whse 55,000 2000
Winnepeg, Canada Aftermarket Manufacturing 38,000 Owned
- ----------------
* Leased on a month-to-month basis.
** Ballantrae facilities.
Legal Proceedings
From time to time, the Company is party to various legal actions in the
normal course of its business. The Company believes it is not currently party to
any litigation that, if adversely determined, would have a material adverse
effect on the Company's business, financial condition and results of operations.
Regulatory Matters
The Company's facilities and operations are subject to a wide variety of
federal, state, local and foreign environmental laws, regulations and
ordinances, including those related to air emissions, wastewater discharges and
chemical and hazardous waste management and disposal ("Environmental Laws"). The
Company's operations also are governed by laws relating to workplace safety and
worker health, primarily the Occupational Safety and Health Act, and foreign
counterparts to such laws ("Employee Safety Laws"). The Company believes that
its operations are in compliance in all material respects with current
requirements under Environmental Laws and Employee Safety Laws, with the
exception of certain matters of which the Company is aware, including: (i)
failure to submit certain filings pursuant to the New Jersey Industrial Site
Recovery Act ("ISRA") in connection with the closure of the Company's former
Edison, New Jersey plant; (ii) air permits or registration requirements at
certain facilities; and (iii) one isolated instance of noncompliance with import
requirements of the Hazardous Materials Transportation Act (relating to shipment
of lead-acid batteries) now under review by the United States Department of
Transportation. The Company believes that any costs it may incur to resolve such
matters will not be material. The nature of the Company's operations, however,
exposes it to the risk of liabilities or claims with respect to environmental
and worker health and safety matters. There can be no assurance that material
costs will not be incurred in connection with such liabilities or claims.
Based on the Company's experience to date, the Company believes that the
future cost of compliance with existing environmental laws, regulations and
ordinances (or liability for known environmental claims) will not have a
material adverse effect on the Company's business, financial condition or
results of operations. However, future events, such as changes in existing laws
and regulations or their interpretation, may give rise to additional compliance
costs or liabilities that could have a material adverse effect on the Company's
business, financial condition or results of operations. Compliance with more
stringent laws or regulations, as well as more vigorous enforcement policies of
regulatory agencies or stricter or different interpretations of existing laws,
may require additional expenditures by the Company that may be material.
Certain Environmental Laws hold current owners or operators of land or
businesses liable for their own and for previous owners' or operators' releases
of hazardous or toxic substances, materials or wastes, pollutants or
contaminants, including petroleum and petroleum products ("Hazardous
Substances"). Because of its operations, the long history of industrial uses at
some of its facilities, the operations of predecessor owners or operators of
certain of the businesses, and the use, production and release of Hazardous
Substances at these sites, the Company is affected by such liability provisions
of Environmental Laws. Various of the Company's facilities have experienced some
level of regulatory scrutiny in the past and are or may be subject to further
regulatory inspections, future requests for investigation or liability for past
disposal practices.
During the environmental due diligence performed in connection with the GM
Acquisition, GM and the Company identified certain on-site pre-closing
environmental conditions including the presence of certain Hazardous Substances
in the soil at the Company's Meridian, Mississippi property and in the soil and
groundwater at the Company's Anderson, Indiana property. GM has reported the
presence of these substances in the groundwater to the United States
Environmental Protection Agency ("EPA") and the Indiana Department of
50
Environmental Management ("IDEM") and has notified residents who live
downgradient of the affected GM properties. GM conducted further investigation,
which included the sampling of the residents' water wells and the installation
of an additional well offsite, and is working with EPA to resolve this issue.
Based on the Company's experience to date, the terms of the indemnification in
the GM Acquisition agreement and GM's continuing performance in responding to
these conditions, the Company does not believe that it will expend material
costs in responding to these on-site environmental conditions.
In connection with its acquisition of facilities and businesses from GM,
Nabco, A&B Group, Autovill, Power Investments, and World Wide, the Company
obtained various indemnities for certain claims related to on-site and off-site
environmental conditions and violations of Environmental Laws which arose prior
to such acquisitions. The environmental indemnities are subject to certain
deductibles, caps, cost sharing and time limitations depending on the nature and
timing of the environmental claim.
The Comprehensive Environmental Response, Compensation, and Liability Act,
as amended by the Superfund Amendments and Reauthorization Act of 1986
("CERCLA"), provides for responses to and joint and several liability for
releases of certain Hazardous Substances into the environment. The Company has
received requests for information or notifications of potential liability from
EPA under CERCLA for certain off-site locations. The Company has not incurred
any significant costs relating to these matters, and based on the existence of
certain indemnification agreements from its predecessors and their assumption of
liabilities to date and other legal defenses, believes that it will not incur
material costs in the future in responding to conditions at these sites.
The Company's Meridian, Mississippi facility has been designated by EPA as
requiring no further action under CERCLA and has since been "delisted" from the
Comprehensive Environmental Response, Compensation, and Liability Information
System ("CERCLIS") (a list of sites which may require investigation or
remediation under CERCLA). Although this does not assure that expenditures would
not be required under other federal and/or state programs, as a result of the
indemnifications in the GM Acquisition agreement, the Company does not believe
that it will expend material costs for this site under the CERCLA program or for
any other environmental conditions at this site.
The Resource Conservation and Recovery Act ("RCRA") and the regulations
thereunder and similar state counterparts to this law regulate hazardous wastes.
The Company's Anderson, Indiana facilities were once part of a larger industrial
complex owned and operated by GM (the "GM Complex"). Since 1990 (when owned by
GM), the GM Complex has been undergoing corrective action under RCRA. In
connection with the RCRA corrective action requirements, GM is required to
investigate various solid waste management units ("SWMUs") and areas of concern
("AOCs") identified in the federal and state RCRA permits. Some of these SWMUs
and AOCs are located on portions of the Anderson, Indiana properties leased by
the Company from GM and certain SWMUs are used by the Company. The costs of
responding to releases, if any, from those SWMUs used by the Company would
presumptively be borne by the Company. To date, no claims for any such liability
have been made, and GM continues to respond to EPA and IDEM with respect to the
investigation of these AOCs and SWMUs. Subject to the terms and conditions of
GM's environmental indemnity provided in connection with the GM Acquisition, GM
is indemnifying the Company with respect to certain of these areas.
One of the Company's facilities in Franklin, Indiana is undergoing a RCRA
site investigation and clean-up of volatile organic compounds ("VOCs") in the
soil and groundwater pursuant to an EPA Administrative Order on Consent ("EPA
Order") issued to both Franklin Power Products, one of the subsidiaries of the
Company, and Amphenol Corporation, a prior owner of the property. Pursuant to
the EPA Order, Franklin Power Products and Amphenol Corporation have jointly
submitted corrective measures studies which have been approved by EPA, and the
parties expect to enter into a new EPA Administrator Order on Consent in the
near future setting forth the selected remedy (including further investigation).
Amphenol indemnified Franklin Power Products for certain liabilities associated
with the EPA Order and Amphenol has satisfied and continues to satisfy the
requirements of the EPA Order. Based on the Company's experience to date and the
indemnities from Amphenol and the sellers of Franklin Power Products to the
Company, the Company believes that future costs associated with this site will
not have a material adverse effect on the Company's results of operations,
business or financial condition.
The Company's Marion, Michigan facility was listed on Michigan's state list
of sites pursuant to the Michigan version of CERCLA (the "Michigan SCL") in 1993
because of suspected releases of Hazardous Substances, primarily volatile
organic compounds (mineral spirits), to the soils and groundwater at the
facility. An
51
investigation conducted by Nabco prior to its acquisition by the Company
determined that the levels of volatile organic compounds in the soils and
groundwater are below the applicable state clean-up levels. Although the Company
proposed no further action at this facility, the Michigan environmental
authorities are requiring further investigation. Even if the Michigan
environmental authorities were to require remedial action with respect to this
site, the Company does not believe that it will expend material costs in
connection with the conditions giving rise to this Michigan SCL.
52
MANAGEMENT
Directors and Executive Officers
The following table sets forth the name, age and position of each of the
directors and senior officers of the Company. Each director of the Company will
hold office until the next annual meeting of stockholders of the Company or
until his successor has been elected and qualified. Officers of the Company and
its subsidiaries serve at the discretion of their respective Boards of
Directors.
Name Age Positions
---- --- ---------
Harold K. Sperlich (1)........... 67 Chairman of the Board of Directors
Thomas J. Snyder (2)............. 53 President, Chief Operating Officer and Director
David L. Harbert................. 55 Executive Vice President and Chief Financial Officer
Susan E. Goldy................... 43 Vice President and General Counsel
Joseph P. Felicelli.............. 51 Group Vice President, Aftermarket
M. Lawrence Parker............... 49 Senior Vice President, Quality & Heavy Duty Systems, Delco Remy
America
Richard L. Stanley............... 41 Senior Vice President, Automotive Systems Division, Delco Remy
America
Roderick English................. 45 Senior Vice President, Human Resources and Communications,
Delco Remy America
Thomas R. Jennett................ 45 Senior Vice President and General Manager, Aftermarket Division
Patrick Mobouck.................. 43 Vice President-Managing Director, Europe
John M. Mayfield................. 43 President of A&B Group
Nicholas J. Bozich............... 53 President of Nabco
J. Michael Jarvis................ 53 President of Power Investments
Richard L. Keister............... 51 President of World Wide
Ralph E. McGee................... 59 President of Tractech
E.H. Billig (1).................. 70 Vice Chairman of the Board of Directors
Richard M. Cashin, Jr. (2)....... 44 Director
James R. Gerrity (2)............. 56 Director
Michael A. Delaney (1)........... 43 Director
Robert J. Schultz................ 67 Director
- -------------------
(1) Member of the Compensation Committee of the Board of Directors. (2) Member
of the Audit Committee of the Board of Directors.
Harold K. Sperlich, Chairman of the Board of Directors. Mr. Sperlich has
been Chairman of the Board of Directors since the Company's inception in 1994.
Since retiring from Chrysler Corporation in 1988, having served as its
President, Mr. Sperlich has served as a consultant to the automotive industry.
Before joining Chrysler in 1977, Mr. Sperlich held several senior administrative
and operating posts with Ford Motor Company.
53
Thomas J. Snyder, President, Chief Operating Officer and Director. Mr.
Snyder has been President and Chief Operating Officer since the Company's
inception in 1994. From 1962 to 1994, Mr. Snyder held several aftermarket and
OEM executive positions with the Delco Remy Division of GM, most recently as
Product Manager, Heavy Duty Systems. He is a member of the board of St. John's
Health Systems and a Director of CLARK Material Handling Company.
David L. Harbert, Executive Vice President and Chief Financial Officer. Mr.
Harbert has been the Executive Vice President and Chief Financial Officer of the
Company since October 1994. Before joining the Company, Mr. Harbert was Senior
Vice President and Chief Financial Officer of Applied Power Inc. since 1992 and,
prior to that, served as Vice President and Chief Financial Officer of System
Software, Inc. since 1990.
Susan E. Goldy, Esquire, Vice President and General Counsel. Ms. Goldy has
been Vice President and General Counsel since February 1997. Before joining the
Company, she was an associate, and since 1993, was a partner in the law firm of
Dechert Price & Rhoads.
Joseph P. Felicelli, Group Vice President, Aftermarket. Mr. Felicelli has
been Group Vice President since September 1997. Prior to joining the Company,
Mr. Felicelli served in various management positions for Cooper Industries.
M. Lawrence Parker, Sr. Vice President, Quality and Heavy Duty Systems,
Delco Remy America. Mr. Parker has been the Senior Vice President, Quality and
Heavy Duty Systems since June 1995 and, prior to that, was Senior Vice
President, Quality and Customer Satisfaction beginning with the Company's
inception in 1994. Before joining the Company, Mr. Parker served in a number of
executive positions at Ford Motor Company since 1967 and at Chrysler Corporation
since 1984, most recently as Director, Corporate Quality Programs since 1991.
Richard L. Stanley, Sr. Vice President, Automotive Systems Division, Delco
Remy America. Mr. Stanley has been Senior Vice President, Automotive Systems
since the Company's inception in 1994. Mr. Stanley joined the Delco Remy
Division of GM in 1978, serving most recently as Director of Customer Programs
since 1992 and as European Chief Engineer since 1988.
Roderick English, Sr. Vice President, Human Resources and Communications,
Delco Remy America. Mr. English has been Senior Vice President of Human
Resources and Communications since the Company's inception in 1994. Mr. English
joined the Delco Remy Division of GM in 1976 and became Plant Manager of plant
17 in 1993. Prior to that, Mr. English served as Divisional Manager of Labor
Relations since 1989.
John M. Mayfield, President of A&B Group. Mr. Mayfield has been President
of A&B Group since its acquisition by the Company in March 1995. Mr. Mayfield
joined A&B Group in 1988 as Controller and became its Operations Director in
1991.
Nicholas J. Bozich, President, Nabco. Mr. Bozich has been President of
Nabco since March, 1997. Before joining the Company, Mr. Bozich was with General
Motors for 34 years in various managerial positions, most recently with the
Saturn Division.
J. Michael Jarvis, President, Power Investments. Mr. Jarvis has been
President of Power Investments since its formation in 1983.
Richard L. Keister, President, World Wide. Mr. Keister has been President
of World Wide since its formation in 1976.
Ralph F. McGee, President, Tractech. Mr. McGee started as Sales and
Marketing Manager of TracTech in 1968. He was appointed President in 1980, a
position he has held since then except for two years when he served in corporate
level development positions for Titan Wheel, Inc.
Thomas R. Jennett, Senior Vice President and General Manager, Aftermarket
Division. Mr. Jennett joined the Company in October 1996. Prior to such time he
held various management positions with Prestolite Electric Inc. since 1974,
including President of the Aftermarket Division and the Leece-Neville Heavy Duty
Division.
Patrick Mobouck, Vice President-Managing Director-Europe and Vice
President. Mr. Mobouck has been Vice President and General Manager Europe since
August 1997. He has also been Chairman of Autovill since August
54
1997. Before joining the Company, Mr. Mobouck was with Monroe Auto Equipment
since 1988, most recently as Managing Director-Europe, Middle East and Africa.
E.H. Billig, Vice Chairman of the Board of Directors. Mr. Billig has been
Vice Chairman of the Board of Directors since the Company's inception in 1994.
He was former President and Chief Operating Officer of MascoTech Automotive
Systems Group, Inc., where he continues to serve as Vice Chairman. He is also a
director of Emco Limited, Titan Wheel International, Inc. and OEA, Inc.
Richard M. Cashin, Jr., Director. Mr. Cashin has been a director since the
Company's inception in 1994. Mr. Cashin has been President since 1994, and a
Managing Director for more than the past five years, of CVC. In addition, Mr.
Cashin serves as a director of Levitz Furniture Incorporated and Titan Wheel
International Inc.
James R. Gerrity, Director. Mr. Gerrity has been a director since the
Company's inception in 1994. From 1986 to 1993, Mr. Gerrity was President and a
director of Dyneer Corporation. Mr. Gerrity currently is a director of Palomar
Technologies Corporation, Wescor Graphics, Inc. and Ballantrae Corporation.
Michael A. Delaney, Director. Mr. Delaney has been a director since the
Company's inception in 1994. Mr. Delaney has been a Vice President of CVC since
1989. From 1986 through 1989, he was Vice President of Citicorp Mergers and
Acquisitions. Mr. Delaney is also a director of Sybron Chemicals, Inc., CVC
Holdings, JAC Holdings, CORT Business Services, Inc., Palomar Technologies,
Inc., Enterprise Media Inc., FF Holdings Corporation, SC Processing, Inc.,
Triumph Holdings, Inc. and AmeriSource Health Corporation.
Robert J. Schultz, Director. Mr. Schultz became a director in 1997. Mr.
Schultz retired as Vice Chairman and a member of the Board of Directors of GM in
1993. Mr. Schultz joined GM in 1955 and served as Group Executive of
Chevrolet-Pontiac-GM of Canada and General Manager of GM's Delco Electronic's
Division. Mr. Schultz is also a member of the Board of Trustees of California
Institute of Technology and a director of OEA, Inc. and Texco Communications.
Director Compensation and Arrangements*
Any outside director of the Company is paid an annual fee of $ for
service as a director of the Company, plus an additional fee of $
for attendance at each meeting of the Board of Directors in excess of
annually and $ per telephonic meeting of the board of directors. [There
are no fees paid for attendance at committee meetings.] Certain outside
directors of the Company may also be entitled to receive stock options for Class
A Common Stock pursuant to the stock option plan the Company intends to adopt
prior to the consummation of the Offerings. See "Management--Stock Option Plan."
CVC, certain members of management and other Existing Stockholders have entered
into a Stockholders' Agreement whereby they have agreed to vote their shares in
such a manner so as to elect the entire Board of Directors of the Company. See
"Principal Stockholders--Stockholders' Agreement."
- -------------------
* To be completed by amendment
55
Executive Compensation*
The following table sets forth, for the fiscal year ending July 31, 1997,
certain information regarding the cash compensation paid by the Company, as well
as certain other compensation paid or accrued for such year, to each of the
executive officers of the Company named below, in all capacities in which they
served:
Other Annual All Other
Name and Principal Position Salary Bonus Compensation Compensation
Harold K. Sperlich $ $ $
Chairman of the Board
Thomas J. Snyder $ $ $
President and
Chief Operating Officer
$ $ $
$ $ $
$ $ $
- ----------
* Table to be completed by amendment.
Stock Option Plan. The Company expects to adopt a stock option plan
immediately prior to the consummation of the Offerings.
401(k) Plan. The Company established the Salaried 401(k) Savings Plan (the
"401(k) Plan") to allow eligible employees to help meet their long-term savings
needs. Except for eligible employees who transferred to DRA directly from GM and
began immediate participation, generally all employees who are compensated on a
salaried basis are eligible to participate in the 401(k) Plan after completing
six months of continuous employment. The 401(k) Plan is a defined contribution,
tax-qualified plan under section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), with employer and employee pre-tax contributions
deductible by the Company for income tax purposes for the year contributed, and
such contributions and earnings thereon are not taxable to employees until paid
to them.
An employee in the 401(k) Plan may elect to have from 1% to 15% of base
salary contributed from pay to the 401(k) Plan on a pre-tax, after-tax, or
combination of pre-tax and after-tax, basis, and receive a 25% matching
contribution on the sum of the employee's pre-tax and after-tax contributions up
to 6% of base salary. Except for certain GM employees who transferred employment
to DRA, employees also receive a 1% of base salary contribution for their
retiree medical care account under the 401(k) Plan. Under the Code, the total
contributions allocated to an employee's accounts for a plan year cannot exceed
the lesser of $30,000 or 25% of the employee's compensation, and the employee's
pre-tax contributions are limited in a calendar year to $9,500 (subject to cost
of living increases under the Code).
Employees are immediately 100% vested in their 401(k) Plan benefits except
for the matching and retiree medical care contributions, which vest after the
earliest of five years of service, death, attaining age 65, or attaining an
early retirement date under the Retirement Plan. Any forfeitures which may
result under the 401(k) Plan are used to reduce future contributions of the
companies. Employees generally may withdraw their vested benefits from the
401(k) Plan on termination of employment, retirement, or death, and may also
under certain circumstances withdraw benefits while still employed (including
certain financial hardship, plan loan and pre- and post-age 59 1/2,
withdrawals). Until fully withdrawn, employees may direct the investment of
their 401(k) Plan benefits among a broad range of investment funds.
Retirement Plan. The Company established the Retirement Plan primarily to
provide eligible employees with a monthly pension benefit after retirement for
life. Except for eligible employees who transferred to DRA directly from GM and
began immediate participation, generally all employees of the Company who are
compensated on a salaried basis are eligible to participate in the Retirement
Plan after completing one year of service and attaining
56
age 21. The Retirement Plan is a defined benefit, tax-qualified plan under
section 401(a) of the Code, and contributions to the Plan generally are
deductible by the companies for income tax purposes for the year contributed,
and benefits are not taxable to employees until paid.
The standard retirement benefit under the Retirement Plan is a monthly,
single life annuity starting at age 65, equal to 1.25% of an employee's average
monthly pay multiplied by the employee's years of service with the companies.
Average monthly pay is generally based on the employee's 60-consecutive month
highest average base pay during the ten-year period before retirement. The
benefit for certain long-service GM employees who transferred to DRA, however,
is not less than $60 times their years of service with the Company. Under the
Code the annual benefit provided by the Retirement Plan cannot exceed the lesser
of $125,000 or 100% of compensation (subject to certain further limitations
under the Retirement Plan and Code). Eligible employees generally may retire on
or after age 55 with 10 years of service, with their monthly Retirement Plan
benefit actuarially reduced if payment actually starts prior to age 62.
Employees who terminate with less than five years of service forfeit any
benefits which they may have accrued, and such forfeitures are used to offset
future contributions otherwise required to fund the Plan. Certain death and
disability benefits also may be paid under the Retirement Plan.
Supplemental Executive Retirement Plan. The Company established and
maintains the Supplemental Executive Retirement Plan ("SERP") to provide
additional retirement benefits to a select group of management who experience
reductions in their 401(k) Plan and Retirement Plan benefits due to limitations
imposed by the Code. The SERP is a non-qualified deferred compensation "top hat"
plan with a defined benefit formula, is generally exempt from most of the
federal pension laws applicable to tax-qualified deferred compensation plans,
and SERP benefits are unsecured and paid from the general assets of the
companies when due. The Delco Remy International, Inc. Executive Benefit
Committee selects the group of eligible management employees and the date as of
which each individual may participate.
The benefit under the SERP is 2% of the employee's final plan compensation
multiplied by the employee's years of service with the companies, with such
benefit not less than 25% nor more than 50% of such final plan compensation,
payable in quarterly installments over five years. The employee's final plan
compensation for this purpose generally is the employee's base compensation
(subject to certain adjustments and limitations) which is in excess of the
applicable compensation limit in effect under Code Section 401(a)(17) (currently
$160,000). The SERP benefit generally is payable when a participant terminates
employment after completing five years of service or dies. However, the SERP
benefit may be forfeited under certain circumstances, including termination for
cause or engaging in prohibited competition.
The following table sets forth the estimated annual benefits payable upon
retirement:*
Remuneration Years of Service
- --------------------------------- -----------------------------------------
Executive Incentive Plan. The Company's executives participate in an
Executive Incentive Plan by which they are entitled to receive certain
percentages of their base compensation as a bonus if a designated target or
objective is met. Designated targets related to earnings and/or cash flow are
set at the beginning of each year, based on the
- ----------
* To be completed by amendment.
57
prior year's results. The Executive Incentive Plan provides that if a target is
exceeded, then any bonus payable under the plan is commensurately increased,
subject to a cap. The Company expects to continue the Executive Incentive Plan
and has established a Compensation Committee made up of non-management directors
who will fix the target objectives for each executive for each year.
Insurance and Indemnification
The Company has obtained customary directors' and officers' insurance
against certain liabilities such persons may incur on behalf of the Company. For
a discussion of the limitations on liability of the Company's directors and the
indemnification by the Company of such directors set forth in the Company's
Restated Certificate of Incorporation, see "Description of Capital
Stock--Limitation on Liability and Indemnification."
Employment Agreements
The Company has entered into an Employment Agreement with Thomas J. Snyder
which provides for his employment until 1999. Mr. Snyder receives an annual base
salary of $ * . The agreement provides that the executive may not engage
in any business competitive with the Company while employed by the Company and
for a period of one year thereafter.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors during fiscal year
1997 was composed of Messrs. Delaney, Sperlich and Billig. Upon completion of
the Offerings, the Compensation Committee will be composed of the same
individuals.
- -------------------
* To be completed by amendment
58
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of October 1, 1997 with
respect to shares of each class of Common Stock beneficially owned by (i) each
person or group that is known to the Company to be the beneficial owner of more
than 5% of each class of outstanding Common Stock, (ii) each director and senior
officer of the Company and (iii) all directors and senior officers of the
Company as a group. Unless otherwise specified, all shares are directly held.
Each share of Class A Common Stock is convertible into one share of Class B
Common Stock, and each share of Class B Common Stock is convertible into one
share of Class A Common Stock. See "Description of Capital Stock."
Class A Common Stock
Percent of
Class Before Percent of Class
Amount of Offerings and After Offerings
Beneficial Owner Ownership(1)(2) Transactions(1) and Transactions(1)
---------------- --------------- --------------- -------------------
Citicorp Venture Capital Ltd.(3).................. 19.8%
399 Park Avenue
New York, NY 10043
MascoTech Automotive Systems Group, Inc........... 30.7
275 Rex Boulevard
Auburn Hills, MI 48326
World Equity Partners, L.P........................ 17.0
399 Park Avenue
New York, NY 10043
Harold K. Sperlich(5)............................. 10.2
Delco Remy International, Inc.
2902 Enterprise Drive
Anderson, IN 46013
Thomas J. Snyder.................................. 5.1
Delco Remy International, Inc.
2902 Enterprise Drive
Anderson, IN 46013
James R. Gerrity(6)............................... 3.1
E.H. Billig(7).................................... 3.1
Richard M. Cashin, Jr.(8)......................... 2.2
Michael A. Delaney................................ *
Robert J. Schultz................................. *
All directors and senior officers as a group 36.2
(19 persons)......................................
- ----------
* Represents less than 1%.
(1) After giving effect to the Stock Split to be effected in connection with
the Transactions; does not include shares of Class B Common Stock
convertible into Class A Common Stock.
(2) Includes shares issuable upon exercise of the Warrants which are
exercisable within 60 days of the stated date.
(3) CVC owns beneficially approximately 47.5% of the shares of Common Stock
outstanding.
(4) Represents Warrants to acquire Class A Common Stock.
59
(5) Held as trustee under agreement dated February 4, 1985, as amended, with
Harold K. Sperlich, as Settlor.
(6) Held as trustee under Living Trust dated March 16, 1990.
(7) Held by The Billig Family Limited Partnership.
(8) Does not include shares beneficially held by CVC or World Equity Partners,
L.P., which may be deemed to be beneficially owned by Messrs. Delaney and
Cashin. Messrs. Delaney and Cashin disclaim beneficial ownership of shares
held by CVC or World Equity Partners, L.P.
Class B Common Stock
Amount of Percent of
Beneficial Owner Ownership(1) Class(1)
---------------- ------------ --------
Citicorp Venture Capital Ltd.(2)................................ 86.5%
399 Park Avenue
New York, NY 10043
CCT Partners I, L.P............................................. 10.0
399 Park Avenue
New York, NY 10043
Michael A. Delaney(3)........................................... *
Richard M. Cashin, Jr.(3)....................................... *
All directors and senior officers as a group *
(19 persons)(2).................................................
- ----------
* Represents less than 1%.
(1) After giving effect to the Stock Split to be effected in connection with
the Transactions; does not include shares of Class A Common Stock
convertible into Class B Common Stock.
(2) CVC owns beneficially approximately 47.5% of the shares of Common Stock
outstanding.
(3) Does not include shares held by CVC and CCT Partners I, L.P. which may be
deemed to be beneficially owned by Messrs. Delaney and Cashin. Messrs.
Delaney and Cashin disclaim beneficial ownership of such shares.
Stockholders' Agreement
In connection with the GM Acquisition, certain stockholders of the Company,
including CVC, World Equity Partners, L.P. ("WEP"), MascoTech Automotive Systems
Group, Inc. ("MascoTech"), Harold K. Sperlich, James R. Gerrity and the
individuals named therein as management investors (the "Management Investors")
(collectively the "Investors"), entered into a Securities Purchase and Holders
Agreement (the "Stockholders' Agreement") for a ten-year term containing certain
agreements among such stockholders with respect to the capital stock and
corporate governance of the Company. The following is a summary description of
the principal terms of the Stockholders' Agreement and is subject to and
qualified in its entirety by reference to the Stockholders' Agreement, which has
been filed as an exhibit to the Registration Statement which includes this
Prospectus.
Pursuant to the Stockholders' Agreement, the Investors agreed to vote their
shares in favor of the Board of Directors of the Company being composed of six
to nine directors as follows: Harold K. Sperlich (so long as he continues to
serve as chairman of the Board of Directors); one individual designated by
MascoTech; two individuals designated by CVC; James R. Gerrity (so long as he
continues to serve as an officer or a consultant to the Company); and Thomas J.
Snyder (so long as he continues to serve as President of the Company and, when
he ceases to serve in such office, his successor in such office). CVC also has
the right to nominate up to 3 independent directors.
If CVC elects not to nominate any such nominees, no other persons will be
nominated or elected to such independent director positions. So long as CVC or
its affiliates own at least 5% of the outstanding shares of the Company's Common
Stock, CVC also has the right pursuant to the Stockholders' Agreement to
designate two observers to attend meetings of the Company's Board of Directors
and committees thereof. The Investors have
60
agreed to vote their shares in favor of any proposal by CVC or MascoTech (a) to
remove directors nominated by CVC or MascoTech or (b) to fill directorships
vacated by directors nominated by CVC or MascoTech.
Following the Equity Offering, the Investors will beneficially own over 50%
of the outstanding shares of Class A Common Stock and, pursuant to the foregoing
described provisions, will be able to elect the entire Board of Directors of the
Company. The Stockholders' Agreement contains similar provisions regarding the
control by the Investors of DRA and its Board of Directors.
Each Investor has agreed in the Stockholders' Agreement not to vote in
favor of any amendment or other modification to the Company's Restated
Certificate of Incorporation or By-laws unless CVC votes in favor of such
amendment or modification. CVC has agreed not to vote in favor of any such
amendment that adversely affects MascoTech's right to designate one individual
to the Company's Board of Directors.
The Stockholders' Agreement contains certain provisions which restrict,
with certain exceptions, the ability of the Investors from transferring any
shares of Common Stock or warrants to purchase Common Stock unless such transfer
is approved by Investors holding at least 40% of the outstanding Common Stock
and otherwise complies with the terms of the Stockholders' Agreement. If the
Board of Directors of the Company and holders of more than 50% of the shares of
Common Stock then outstanding approve the sale of the Company (an "Approved
Sale"), each Investor has agreed to consent to such sale and, if such sale
includes the sale of stock, each Investor has agreed to sell all of such
Investor's Common Stock on the terms and conditions approved by the Board of
Directors and holders of a majority of the shares of Common Stock then
outstanding. If the holders of at least 66% of the shares of Common Stock then
outstanding approve the sale of the Company (a "Required Sale"), each Investor
has agreed to consent to such sale and, if the sale is structured as a sale of
stock, each Investor has agreed to sell all of such Investor's Common Stock on
the terms and conditions approved by the holders of at least 66% of the shares
of Common Stock then outstanding. CVC holds a right of first refusal to purchase
MascoTech's shares in the event that MascoTech receives a bona fide offer to
sell its shares. If CVC elects to purchase less than all of MascoTech's shares
under CVC's right of first refusal, then the Company may be obligated to
purchase the remainder of MascoTech's shares.
The Stockholders' Agreement also provides for certain additional
restrictions on transfer by Management Investors, including, subject to certain
exemptions, the right of the Company to repurchase shares held by Management
Investors upon termination of employment prior to July 31, 1999, at a formula
price, and the grant of a right of first refusal in favor of the Company in the
event a Management Investor elects to transfer such Management Investor's shares
of Common Stock.
Registration Rights Agreement
In connection with the GM Acquisition, the Company entered into a
Registration Rights Agreement with the Investors covering all of the
shares of Common Stock held by the Investors ("Registration Rights Agreement").
The following description of the Registration Rights Agreement is subject to and
qualified in its entirety by reference to the Registration Rights Agreement,
which has been filed as an exhibit to the Registration Statement which includes
this Prospectus. CVC and, upon consummation of the Equity Offering, WEP and
WEP's permitted transferees have been granted the right one or more times to
require the Company to file one or more registration statements with the
Securities and Exchange Commission (the "Commission") registering the shares
held by them. The Investors have been granted the right, subject to certain
restrictions, to require the Company to include shares held by the Investors in
any registration statements filed by the Company with the Commission subject to
certain limited exceptions. The Company has agreed to pay certain expenses
relating to any registration of shares effected pursuant to the Registration
Rights Agreement and to indemnify the Investors against certain liabilities in
connection with any such registration.
Lock-Up Agreements
In connection with the Equity Offering, the Investors and certain other
stockholders have agreed, subject to certain exceptions, not to register for
sale or offer, sell or transfer any shares of Common Stock for a period of 180
days after the date of the Equity Offering, without the prior written consent of
Morgan Stanley & Co. Incorporated. This agreement covers all of the
shares of Common Stock held by the Investors and approximately
shares of Common Stock held by other stockholders.
61
CERTAIN TRANSACTIONS
CVC and James R. Gerrity, each of whom is an existing stockholder of the
Company, beneficially own approximately 71.9% and 15.0% of Ballantrae's issued
and outstanding common stock, on a fully-diluted basis, respectively, and 74.7%
and 10.4% of Ballantrae's issued and outstanding preferred stock, respectively.
The Ballantrae Acquisition Agreement provides that CVC and Mr. Gerrity and their
affiliates will receive in connection with the acquisition of Ballantrae
and additional shares of the Company's Common Stock, respectively,
based on an assumed offering price in the Equity Offering of $ per share of
Class A Common Stock (the "Merger Consideration"); however such stock will be
subject to certain restrictions against transfer under applicable securities
laws. The Company believes that the Ballantrae Acquisition Agreement and in
particular the Merger Consideration to be received by CVC and Mr. Gerrity and
their affiliates are commercially reasonable. The Company's Board of Directors
has received a fairness opinion from Salomon Brothers Inc. Messrs. Delaney,
Gerrity and Cashin, directors of the Company, have served as directors of
Ballantrae since its formation in 1996. See "Company History," "Risk Factors--
Acquisition of Ballantrae; Conflicts of Interest" and "Business--Acquisition of
Ballantrae."
The Company currently leases eight properties in Mississippi from entities
controlled by family members of John M. Mayfield, President of A&B Group. These
leases were entered into in connection with the acquisition of A&B Group by the
Company in March 1995. All leases are triple net leases, five of which expire on
March 31, 2003 and three of which expire on March 31, 2000, each subject to
renewal. Aggregate annual rent payments for these leases for fiscal year 1997,
not including tax and maintenance expenses constituting additional rent, equaled
approximately $646,200.
Mr. Richard L. Keister, President of World Wide, borrowed $90,000 from the
Company to purchase 10,000 shares of Class A Common Stock from the Company in
May 1997. Interest on the loan accrues at a rate of % and the loan is due.
In 1997, Mr. Nicholas J. Bozich, President of Nabco, borrowed $15,000 and
$80,000 from the Company to purchase 1,500 shares of Class A Common Stock and to
purchase a home, respectively. Interest on the loans accrues at a rate of %
and %, respectively, and the loans are due in and ,
respectively.
The Company will exchange the Junior Subordinated Notes for
shares of the Company's Class A Common Stock. The Junior Subordinated Notes were
issued in an aggregate principal amount of $18.2 million to CVC, certain
employees and former employees of CVC and MascoTech in connection with the GM
Acquisition. The exchange ratio will be based upon the initial public offering
price of the Class A Common Stock of the Company for the Equity Offering less
underwriting discounts and commissions.
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company is subject to
and qualified in its entirety by reference to the Company's Restated Certificate
of Incorporation, which has been filed as an exhibit to the Registration
Statement which includes this Prospectus.
The Company may issue ,000,000 shares of Common Stock, divided into two
classes consisting of ,000,000 shares of Class A Common Stock, par value $.01
per share, and ,000,000 shares of Class B Common Stock, par value $.01 per
share.
As of July 31, 1997, giving effect to the Transactions, there were
shares of Class A Common Stock outstanding, held of record by holders, and
shares of Class B Common Stock outstanding. In addition,
Warrants to purchase shares of Class A Common Stock were issued and
outstanding and shares of Class A Common Stock were available to be
issued pursuant to the stock option plan which the Company expects to adopt
prior to the consummation of the Offerings.
Class A Common Stock
Holders of Class A Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders and have
no cumulative voting rights. Holders of Class A Common Stock do not have
preemptive rights pursuant to the Restated Certificate of Incorporation. Holders
of Class A Common
62
Stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Company's Board of Directors out of legally available
funds therefor; provided, however, that if dividends are declared that are
payable in shares of Class A Common Stock or Class B Common Stock, dividends
must be declared which are payable at the same rate on each class of Common
Stock and the dividends payable in shares of Class A Common Stock must be paid
to holders of Class A Common Stock and the dividends payable in shares of Class
B Common Stock must be paid to holders of Class B Common Stock. All outstanding
shares of Class A Common Stock are fully-paid and nonassessable. Shares of Class
A Common Stock are convertible at any time at the election of the holder thereof
into shares of Class B Common Stock on a one-for-one basis.
Upon liquidation, dissolution or winding up of the Company, holders of
Class A Common Stock, together with holders of Class B Common Stock, are
entitled to a pro rata share of the distribution of assets remaining after the
payment of debts and expenses and after payment of the liquidation preference
accorded to the holders of any preferred stock of the Company which may be
issued in the future. Each share of Class A Common Stock has the same rights,
privileges and preferences as every other share of Class A Common Stock.
Class B Common Stock
The rights of holders of Class B Common Stock and holders of Class A Common
Stock are identical and entitle the holders thereof to the same rights,
privileges, benefits and notices, except as otherwise described herein. Holders
of Class B Common Stock generally do not possess the right to vote on any
matters to be voted upon by the stockholders of the Company, except as provided
by law. Under Section 242(b)(2) of the Delaware General Corporation Law
("DGCL"), the holders of the Class B Common Stock shall be entitled to vote as a
class upon any proposed amendment to the Company's Restated Certificate of
Incorporation, if such amendment would increase or decrease the number of shares
or the par value of the shares of such class, or alter or change the powers,
preferences or special rights of the shares of such class so as to affect them
adversely. Holders of Class B Common Stock may elect at any time to convert any
and all of such shares into Class A Common Stock, on a share-for-share basis, to
the extent the holder thereof is permitted pursuant to applicable law to hold
the total number of shares of voting securities such holder would hold after
giving effect to such conversion.
Warrants
On July 31, 1994, the Company issued to WEP warrants to purchase from the
Company shares of the Company's Class A Common Stock for an exercise
price of $. per share (the "Warrants"). The Warrants can be exercised in
whole or in part at any time prior to July 31, 2004. The exercise price and the
number of shares of Common Stock issuable upon exercise are subject to
adjustment upon the occurrence of certain events.
Dividends
The holders of the Company's Class A Common Stock and Class B Common Stock
are entitled to share ratably in dividends declared by the Board of Directors of
the Company out of funds legally available therefor. The Company's ability to
pay dividends is dependent on the ability of the Company's subsidiaries,
including DRA, to pay dividends to the Company. The ability of the Company's
subsidiaries to pay dividends and make other payments are subject to certain
statutory, contractual and other restrictions. The terms of the Company's
indebtedness, including the Senior Credit Facility, will restrict the payment of
dividends by the Company. The Company does not expect to declare or pay cash
dividends to holders of its Class A Common Stock or Class B Common Stock in the
foreseeable future.
Delaware Anti-Takeover Law
Section 203 of the DGCL provides, with certain exceptions, that a Delaware
corporation may not engage in certain business combinations with a person or
affiliate or associate of such person who is an "interested stockholder" for a
period of three years from the date such person became an interested stockholder
unless: (i) the transaction resulting in the acquiring person's becoming an
interested stockholders, or the business combination, is approved by the board
of directors of the corporation before the person becomes an interested
stockholder; (ii) the interested stockholder acquires at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned (a) by persons who are directors and also officers and (b) employee
stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be
63
tendered in a tender or exchange offer; or (iii) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66-2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholders. An "interested
stockholder" is defined as any person that is (x) the owner of 15% or more of
the outstanding voting stock of the corporation or (y) an affiliate or associate
of the corporation and was the owner of 15% or more of the outstanding voting
stock at any time within the three-year period immediately prior to the date on
which it is sought to be determined whether such person is an interested
stockholder. As permitted by the DGCL, the Company has elected not to be
governed by Section 203.
Limitation of Liability and Indemnification
As permitted by the DGCL, the Company's Restated Certificate of
Incorporation provides that directors of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, relating to prohibited
dividends or distributions or the repurchase or redemption of stock or (iv) for
any transaction from which the director derives an improper personal benefit. In
addition, the Company's bylaws provide for indemnification of the Company's
officers and directors to the fullest extent permitted under Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act, may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of the Commission such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is American Stock
Transfer and Trust Agency.
DESCRIPTION OF INDEBTEDNESS
The following is a summary of the material debt instruments of the Company
and its subsidiaries which will remain outstanding following completion of the
Offerings and the application of the net proceeds thereof. See "Use of
Proceeds." To the extent such summary contains descriptions of credit documents,
such descriptions do not purport to be complete and are subject to and qualified
in their entirety by reference to such documents, which are filed as exhibits to
the Registration Statement which includes this Prospectus.
Senior Credit Facility
General. The Company intends to enter into an amended and restated credit
agreement with a syndicate of lenders led by Bank One, Indianapolis, N.A. ("Bank
One") concurrently with the consummation of the Offerings, providing for up to
$180 million of revolving credit availability (the "Senior Credit Facility").
Each of the Company's domestic operating subsidiaries (the "Senior Credit
Obligors") will be parties to the Senior Credit Facility. The obligations under
the Senior Credit Facility of each Senior Credit Obligor (the "Obligations")
will be unconditionally guaranteed by each other Senior Credit Obligor and each
of the Company and its domestic subsidiaries which are holding companies (the
"Senior Credit Guaranties"). The Obligations will be secured by a first lien on
substantially all the assets of the Company and its domestic subsidiaries,
including a pledge of the stock of such subsidiaries. The Obligations and the
Senior Credit Guaranties will rank pari passu with the Notes and will rank
senior to all other indebtedness of the Company.
Initially, the amount available to the Company for borrowing under the
Senior Credit Facility (the "Commitment Amount") will be $180 million, which
will be available for general corporate purposes (including acquisitions).
Beginning with the thirteenth quarter following the date of the Senior Credit
Facility, the Commitment Amount will decrease by $11.25 million at the end of
each quarter until July 2003, at which time the Senior Credit Facility
terminates. There is a sub-limit for letters of credit equal to the lesser of
the Commitment Amount at the time of the issuance of a letter of credit and $30
million.
64
Interest Rates. Interest on outstanding borrowings under the Senior Credit
Facility will be payable monthly and will accrue at an annual rate equal to
either (i) the Prime Rate (as defined in the Senior Credit Facility) or (ii) the
London Interbank Offered Rate plus the Applicable Spread (a "LIBOR-based Rate"),
at the option of the Company. The Applicable Spread will be based upon the
Company's trailing four quarter Ratio of Total Funded Debt to EBITDA (as defined
in the Senior Credit Facility) as follows:
Ratio of Total Funded Debt to EBITDA Over LIBOR
-------------------------------------------- ---------------------
4.00x or above............................ 200 basis points
3.50-3.99................................. 175 basis points
3.00-3.49................................. 150 basis points
2.50-2.99................................. 125 basis points
Maturity and Optional Prepayments. All borrowings under the Senior Credit
Facility will mature on July 1, 2003, except that the aggregate principal amount
outstanding may not exceed the Commitment Amount at any time. Borrowings under
the Senior Credit Facility will be prepayable at any time without premium or
penalty, except that any prepayment of a LIBOR-based Rate loan that is made
prior to the end of the applicable interest period will be subject to
reimbursement of breakage costs.
Covenants. The Senior Credit Facility will contain certain customary
covenants, including reporting and other affirmative covenants; financial
covenants, including ratio of senior funded debt to EBITDA, ratio of funded debt
to EBITDA, ratio of EBIT to cash interest, fixed charge coverage ratio, minimum
current ratio and minimum net income excluding extraordinary items (each as
defined in and calculated pursuant to the Senior Credit Facility); and negative
covenants, including restrictions on incurrence of other indebtedness, payment
of cash dividends and other distributions to stockholders, liens in favor of
parties other than the lenders under the Senior Credit Facility, certain
guaranties of obligations of or advances to others, sales of material assets not
in the ordinary course of business, certain acquisitions of assets, making of
certain investments and capital expenditures.
Events of Default. The Senior Credit Facility will contain customary events
of default including non-payment of principal, interest or fees; violation of
covenants; inaccuracy of representations or warranties; cross-default to certain
other indebtedness including the Notes; bankruptcy; a change of control of the
Company or certain domestic subsidiaries; and any failure to apply proceeds of
an underwritten public offering of equity securities of the Company as required
by the Senior Credit Facility.
Fees. The Company will pay, on a quarterly basis, a per annum fee on the
unused Commitment Amount ranging from 3/20% to 1/2% based on certain financial
ratios of the Company.
GM Contingent Purchase Price Note
In connection with the GM Acquisition, DRA issued to GM a Contingent
Purchase Price Note. The principal amount of the Contingent Purchase Price Note
(the "Contingent Payment") is calculated by (A) multiplying five by (i) the
three-year average EBIT (as defined) of the Company for the years ending
December 31, 2001, 2002 and 2003 minus (ii) the average three-year Imputed
Return (as defined) on Additional Investments (as defined) made after July 31,
1994 and on the Company's balance sheet at December 31, 2001, 2002 and 2003, (B)
subtracting therefrom the Senior Obligations (as defined) outstanding on
December 31, 2003 and (C) multiplying the result by the percentage obtained by
dividing 100,000 (as adjusted for stock splits, reverse splits and stock
dividends) by the total number of shares of all classes of Common Stock
outstanding on a fully diluted basis as of the date of determination, excluding
any shares issued subsequent to July 31, 1994 to the extent the proceeds
therefrom have been accounted for as an Additional Investment. The Contingent
Payment, if any, shall be paid in five equal consecutive annual installments
commencing on July 31, 2004. No interest accrues on the Contingent Payment. The
GM Contingent Purchase Price Note is subordinated in right of payment to the
Senior Credit Facility pursuant to the terms of a Subordination Agreement by and
among DRA and the lenders under the Senior Credit Facility (the "GM
Subordination Agreement"). Pursuant to the terms of the GM Subordination
Agreement, DRA may make payments of interest and principal on the GM Acquisition
Note when due unless a representative of the lenders under the Senior Credit
Facility gives a notice to GM that an event of default has occurred under the
Senior Credit Facility (a "Suspension Notice"). GM may not receive any payments
or take any legal action for the collection of the GM Contingent Purchase Note
during the 179-day period following the receipt of a Suspension
65
Notice (or such shorter period if such event of default under the Senior Credit
Facility shall have been waived or cured).
Senior Subordinated Notes
In 1996, the Company issued to Salomon Brothers Inc and Smith Barney Inc.
as initial purchasers an aggregate of $140 million aggregate principal amount of
105/8% Senior Subordinated Notes Due August 1, 2006 (the "Senior Subordinated
Notes"). Interest on the Senior Subordinated Notes is payable in cash
semi-annually. The Senior Subordinated Notes are fully and unconditionally
guaranteed on a senior subordinated basis by each of the Company's Domestic
Restricted Subsidiaries. The indenture governing the Senior Subordinated Notes
contains certain covenants by the Company in favor of the holders of the Senior
Subordinated Notes ("Senior Subordinated Note Holders"), including but not
limited to certain restrictions on the ability of the Company and certain of its
subsidiaries to: (i) incur indebtedness, except for permitted indebtedness; (ii)
pay dividends or purchase or redeem their stock or repay before maturity any
obligation subordinate to the Senior Subordinated Notes; (iii) incur future
restrictions on their ability to pay dividends and transfer assets; (iv) sell
assets and capital stock of their subsidiaries; (v) engage in transactions with
their affiliates; (vi) incur or permit to exist liens on their assets, except
for permitted liens; and (vii) engage in mergers, consolidations or transfers of
all or substantially all their assets. The Senior Subordinated Notes are
subordinate in right of payment to all senior indebtedness of the Company,
including the Senior Credit Facility and the Notes being sold as part of the
Notes Offering. The Senior Subordinated Notes are redeemable in whole or in part
at the option of the Company at any time on or after August 1, 2001, at a price
beginning at 105.313% of the aggregate principal amount to be redeemed,
declining ratably to 100% on and after August 1, 2004, and up to 35% of the
original principal amount of the Senior Subordinated Notes may be redeemed by
the Company at any time prior to August 1, 1999, with the proceeds of certain
public equity offerings, at a price equal to 110% of such principal amount
provided that at least 50% of the original principal amount of the Senior
Subordinated Notes remains outstanding. Upon the occurrence of certain changes
in control of the Company, each Senior Subordinated Note Holder has the right to
require the Company to purchase all or a portion of such Senior Subordinated
Note Holder's notes at a price equal to 101% of the aggregate principal amount
thereof. The failure of the Company and certain of its subsidiaries to pay
certain indebtedness when due constitutes, among other things, an event of
default under the Senior Subordinated Notes and can lead to the acceleration of
the payment of the Senior Subordinated Notes. In connection with the initial
placement of the Senior Subordinated Notes, the Company agreed, for the benefit
of the Senior Subordinated Note Holders and at the Company's expense, to file
and cause to become effective an exchange offer or resale shelf registration
statement with the Commission. If neither such registration statement is filed
or declared effective by certain dates or certain other conditions are not
satisfied, additional interest will accrue on the Senior Subordinated Notes.
See Note 7 to the Consolidated Financial Statements included elsewhere in this
Prospectus.
8% Subordinated Debenture of DRA
In connection with the Offerings, DRA will issue to GM an 8% Subordinated
Debenture in the principal amount of $17.9 million (the "8% Subordinated
Debenture") in exchange for Series A 8% Preferred Stock of DRA held by GM. The
8% Subordinated Debenture will be due July 31, 2004 and will bear interest,
payable in cash, at the rate of 8% per year. DRA will be able to prepay the 8%
Subordinated Debenture at any time in whole or in part without premium or
penalty. The 8% Subordinated Debenture will be subordinate in right of payment
to the Senior Credit Facility, the Notes and the Senior Subordinated Notes. The
8% Subordinated Debenture will contain default provisions in the event that DRA
fails to pay principal or interest on the 8% Subordinated Debenture when due or
upon the occurrence of certain bankruptcy events.
Ballantrae Subordinated Debt
In 1996, Tractech issued a note in the original principal amount of $10
million in favor of Dyneer Corporation ("Dyneer") that matures on October 31,
2006 (the "Ballantrae Subordinated Debt"). The Ballantrae Subordinated Debt
bears interest at a rate of 11% per annum. Tractech may prepay the Ballantrae
Subordinated Debt at any time in whole or in part without premium or penalty.
Tractech has the right to set-off $750,000 against the outstanding amount of the
Ballantrae Subordinated Debt within thirty days of the entry of a final
non-appealable order by a court of competent jurisdiction in certain patent
litigation, if such order fails to grant Tractech the unfettered and exclusive
right to make, manufacture, have made, market and sell the E-Z Locker line of
differentials without geographic or other restrictions and without cash
payments. The Company expects that Tractech will prepay with
66
proceeds of the Offerings all of the outstanding principal amount of the
Ballantrae Subordinated Debt except for $750,000. Tractech's obligations under
the Ballantrae Subordinated Debt are guaranteed by Ballantrae, and the
Ballantrae Subordinated Debt is subject to the Subordination Agreement dated as
of October 24, 1996 among Tractech, Dyneer, Ballantrae and Bank One.
67
DESCRIPTION OF NOTES
General
The Notes are to be issued under an Indenture to be dated as of , 1997
(the "Indenture"), among the Company, the Subsidiary Guarantors and United
States Trust Company of New York, as Trustee (the "Trustee").
A copy of the proposed form of Indenture has been filed as an exhibit to
the Registration Statement of which this Prospectus forms a part. The Indenture
is subject to and is governed by the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"). The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part thereof by the
Trust Indenture Act. Capitalized terms used herein and not otherwise defined
have the meanings set forth in the section "--Certain Definitions."
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company, which, unless otherwise provided by the Company, will be the offices of
the Trustee. At the option of the Company, payment of interest may be made by
check mailed to the address of the Holders as such address appears in the Note
register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
Terms of the Notes
The Notes will be unsecured senior obligations of the Company, limited to
$130 million aggregate principal amount, and will mature on , 2007.
The Notes will bear interest at the rate per annum shown on the cover page
hereof from , 1997, or from the most recent date to which interest has been paid
or provided for, payable semi-annually to Holders of record at the close of
business on the or immediately preceding the interest
payment date on and of each year, commencing
, 1998. The Company will pay interest on overdue principal at 1%
per annum in excess of such rate, and it will pay interest on
overdue installments of interest at such higher rate to the extent lawful.
Optional Redemption
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Company prior to , 2002. Thereafter,
the Notes will be redeemable, at the Company's option, in whole or in part, at
any time or from time to time, upon not less than 30 nor more than 60 days'
prior notice mailed by first-class mail to each Holder's registered address, at
the following redemption prices (expressed in percentages of principal amount),
plus accrued and unpaid interest 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
commencing on of the years set forth below:
Redemption
Period Price
------ -------------------
2002....................................... %
2003.......................................
2004.......................................
2005 and thereafter........................
In addition, at any time and from time to time prior to , 2000, the
Company may redeem in the aggregate up to 40% of the original principal amount
of the Notes with the proceeds of one or more Public Equity Offerings, at a
redemption price (expressed as a percentage of principal amount) of % plus
accrued and unpaid interest, if any, to the redemption date (subject to the
right of Holders of record on the relevant record date
68
to receive interest due on the relevant interest payment date); provided,
however, that at least 50% of the original aggregate principal amount of the
Notes must remain outstanding after each such redemption.
Selection
In the case of any partial redemption, selection of the Notes for
redemption will be made by the trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
will be redeemed in part. If any Note is to be redeemed in part only, the notice
of redemption relating to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note.
Subsidiary Guaranties
Each of the Company's Domestic Restricted Subsidiaries, as primary obligors
and not merely as sureties, will unconditionally Guarantee on an unsecured
senior basis the performance and punctual payment when due, whether at Stated
Maturity, by acceleration or otherwise, of all obligations of the Company under
the Indenture and the Notes, whether for payment of principal of or interest on
the Notes, expenses, indemnification or otherwise (all such obligations
guaranteed by the Subsidiary Guarantors being herein called the "Guaranteed
Obligations"). The Subsidiary Guarantors will agree to pay, in addition to the
amount stated above, any and all expenses (including reasonable counsel fees and
expenses) incurred by the Trustee or the Holders in enforcing any rights under
the Subsidiary Guaranties. Each of the Company and the Subsidiary Guarantors
will agree to contribute to any other Subsidiary Guarantor which makes payments
pursuant to its Subsidiary Guaranty an amount equal to the Company's or such
Subsidiary Guarantor's proportionate share of such payment, based on the net
worth of the Company or such Subsidiary Guarantor relative to the aggregate net
worth of the Company and the Subsidiary Guarantors. After the Issue Date, the
Company will cause each new Domestic Restricted Subsidiary to execute and
deliver to the Trustee a supplemental indenture pursuant to which such new
Domestic Restricted Subsidiary will Guarantee payment of the Notes. See "Certain
Covenants--Future Subsidiary Guarantors" below.
Each Subsidiary Guaranty is a continuing guarantee and shall (a) remain in
full force and effect until payment in full of all the Guaranteed Obligations,
(b) be binding upon each Subsidiary Guarantor and (c) inure to the benefit of
and be enforceable by the Trustee, the Holders and their successors, transferees
and assigns.
Upon the sale or other disposition of a Subsidiary Guarantor or the sale or
disposition of all or substantially all the assets of a Subsidiary Guarantor
permitted by the Indenture, such Subsidiary Guarantor will be released from all
its obligations under its Subsidiary Guaranty. Any Subsidiary Guarantor that is
designated an Unrestricted Subsidiary in accordance with the terms of the
Indenture will be released from all its obligations under its Subsidiary
Guaranty upon execution and delivery of a supplemental indenture in form
satisfactory to the Trustee.
Ranking
The indebtedness evidenced by the Notes and the Subsidiary Guaranties will
be unsecured senior obligations of the Company and the Subsidiary Guarantors, as
the case may be. The Notes and each Subsidiary Guaranty will in all respects
rank pari passu with all other Senior Indebtedness of the Company and the
relevant Subsidiary Guarantor, respectively, and will rank senior in right of
payment to all existing and future Subordinated Obligations of the Company and
the relevant Subsidiary Guarantor, respectively. The Notes and the Subsidiary
Guaranties will be effectively subordinated to any Secured Indebtedness of the
Company and the Subsidiary Guarantors to the extent of the value of the assets
securing such Indebtedness and to any liabilities of Subsidiaries other than the
Subsidiary Guarantors. Under certain circumstances, the Subsidiary Guaranties
could be effectively subordinated to all the obligations of the Subsidiary
Guarantors.
As of July 31, 1997, after giving pro forma effect to the Offerings and the
other Transactions, (i) Senior Indebtedness of the Company and the Subsidiary
Guarantors would have been approximately $51.9 million (excluding the Notes, the
Subsidiary Guaranties and unused commitments under the Senior Credit Facility),
(ii) Subordinated Obligations of the Company and the Subsidiary Guarantors would
have been approximately $157.9 million (including the Senior Subordinated Notes
and the related Guarantees by the Company's Domestic Restricted Subsidiaries),
(iii) Secured Indebtedness of the Company and the Subsidiary Guarantors would
have been approximately $51.9 million and (iv) all liabilities and preferred
stock of the Subsidiaries (excluding the
69
Subsidiary Guarantors) would have been approximately $13.5 million. Although the
Indenture contains limitations on the amount of additional Indebtedness that the
Company and its Restricted Subsidiaries may Incur, under certain circumstances
the amount of such Indebtedness could be substantial and, in any case, such
Indebtedness may be Secured Indebtedness or Indebtedness of Subsidiaries other
than Subsidiary Guarantors. See "Certain Covenants--Limitation on Indebtedness."
Change of Control
Upon the occurrence of a Change of Control, each Holder shall have the
right to require that the Company repurchase all or a portion of such Holder's
Notes at a purchase price in cash equal to 101% of the principal amount thereof
plus accrued and unpaid interest, if any, to the date of repurchase (subject to
the right of holders of record on the relevant record date to receive interest
due on the relevant interest payment date), in accordance with the provisions of
the next paragraph.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating: (i) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of repurchase (subject to the right of holders of record on the relevant record
date to receive interest on the relevant interest payment date); (ii) the
circumstances and relevant facts and relevant financial information regarding
such Change of Control; (iii) the repurchase date (which shall be no earlier
than 30 days nor later than 60 days from the date such notice is mailed); and
(iv) the instructions determined by the Company, consistent with the covenant
described hereunder, that a Holder must follow in order to have its Notes
repurchased.
The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to the covenant
described hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Underwriters. Management has no present intention to engage
in a transaction involving a Change of Control, although it is possible that the
Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings.
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the Senior Credit Facility and would
require the repurchase of the Senior Subordinated Notes. Future indebtedness of
the Company may contain prohibitions of certain events which would constitute a
Change of Control or require such indebtedness to be repurchased upon a Change
of Control. Moreover, the exercise by the Holders of their right to require the
Company to repurchase the Notes could cause a default under such existing or
future indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase on the Company. Finally, the Company's
ability to pay cash to the Holders upon a repurchase may be limited by the
Company's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any repurchases
required in connection with a Change of Control. The Company's failure to
purchase the Notes in connection with a Change in Control would result in a
default under the Indenture which would, in turn, constitute a default under the
Senior Credit Facility. The provisions under the Indenture relative to the
Company's obligation to make an offer to repurchase the Notes as a result of a
Change of Control may be waived or modified (at any time prior to the occurrence
of such Change of Control) with the written consent of the Holders of a majority
in principal amount of the Notes.
Book-Entry, Delivery and Form
The Notes will be initially issued in the form of a Global Note. The Global
Note will be deposited with, or on behalf of, the Depository and registered in
the name of the Depository or its nominee. Except as set forth below, the
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Global Note may be transferred, in whole and not in part, only to the Depository
or another nominee of the Depository. Investors may hold their beneficial
interests in the Global Note directly through the Depository if they have an
account with the Depository or indirectly through organizations which have
accounts with the Depository.
The Depository has advised the Company as follows: The Depository is a
limited-purpose trust company and organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depository was created to hold securities of institutions that have accounts
with the Depository ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need to physical movement of securities certificates. The
Depository's participants include securities brokers and dealers (which may
include the Underwriters), banks, trust companies, clearing corporations and
certain other organizations. Access to the Depository's book-entry system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
whether directly or indirectly.
Upon the issuance of the Global Note, the Depository will credit, on its
book-entry registration and transfer system, the principal amount of the Notes
represented by such Global Note to the accounts of participants. The accounts to
be credited shall be designated by the Underwriters with respect to Notes placed
by the Underwriters for the Company. Ownership of beneficial interests in the
Global Note will be limited to participants or persons that may hold interests
through participants. Ownership of beneficial interests in the Global Note will
be shown on, and the transfer of those ownership interests will be effected only
through, records maintained by the Depository (with respect to participants'
interest) and such participants (with respect to the owners of beneficial
interests in the Global Note other than participants). The laws of some
jurisdictions may require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and laws may impair
the ability to transfer or pledge beneficial interests in the Global Note.
So long as the depository, or its nominee, is the registered holder and
owner of the Global Note, the Depository or such nominee, as the case may be,
will be considered the sole legal owner and holder of the related Notes for all
purposes of such Notes and the Indenture. Except as set forth below, owners of
beneficial interests in the Global Note will not be entitled to have the Notes
represented by the Global Note registered in their names, will not receive or be
entitled to receive physical delivery of certificated Notes in definitive form
and will not be considered to be the owners or holders of any Notes under the
Global Note. The Company understands that under existing industry practice, in
the event an owner of a beneficial interest in the Global Note desires to take
any action that the Depository, as the holder of the Global Note, is entitled to
take, the Depository would authorize the participants to take such action, and
that the participants would authorize beneficial owners owning through such
participants to take such action or would otherwise act upon the instructions of
beneficial owners owning through them.
Payment of principal of and interest on Notes represented by the Global
Note registered in the name of and held by the Depository or its nominee will be
made to the Depository or its nominee, as the case may be, as the registered
owner and holder of the Global Note.
The Company expects that the Depository or its nominee, upon receipt of any
payment of principal of or interest on the Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of the Depository or its nominee. The Company also expects
that payments by participants to owners of beneficial interests in the Global
Note held through such participants will be governed by standing instructions
and customary practices and will be the responsibility of such participants. The
Company will not have any responsibility or liability for any aspect of the
records relating to, or payments made on account of, beneficial ownership
interests in the Global Note for any Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests or for any
other aspect of the relationship between the Depository and its participants or
the relationship between such participants and the owners of beneficial
interests in the Global Note owning through such participants.
Unless and until it is exchanged in whole or in part for certificated Notes
in definitive form, the Global Note may not be transferred except as a whole by
the Depository to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository.
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Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of the
Depository, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company will have any responsibility for the performance by the
Depository or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
Certificated Notes
The Notes represented by the Global Note are exchangeable for certificated
Notes in definitive form of like tenor as such Notes in denominations of
U.S.$1,000 and integral multiples thereof if (i) the Depository notifies the
Company that is unwilling or unable to continue as Depository for the Global
Note or if at any time the Depository ceases to be a clearing agency registered
under the Exchange Act, (ii) the Company in its discretion at any time
determines not to have all of the Notes represented by the Global Note or (iii)
a default entitling the holders of the Notes to accelerate the maturity thereof
has occurred and is continuing. Any Note that is exchangeable pursuant to the
preceding sentence is exchangeable for certificated Notes issuable in authorized
denominations and registered in such names as the Depository shall direct.
Subject to the foregoing, the Global Note is not exchangeable, except for a
Global Note of the same aggregate denomination to be registered in the name of
the Depository or its nominee.
Certain Covenants
The Indenture contains covenants including, among other things, the
following:
Limitation on Indebtedness. (a) The Company shall not, and shall not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness
unless, on the date of such Incurrence, the Consolidated Coverage Ratio exceeds
2.00 to 1.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur any or all of the following Indebtedness: (1)
Indebtedness Incurred pursuant to the Senior Credit Facility or any Permitted
Receivables Financing; provided, however, that, after giving effect to any such
Incurrence, the aggregate principal amount of such Indebtedness then outstanding
does not exceed the greater of (i) $180 million (less any permanent reductions
in the amount of available borrowings thereunder) and (ii) the sum of (x) 75% of
the book value of the inventory of the Company and its Restricted Subsidiaries
and (y) 85% of the book value of the accounts receivable of the Company and its
Restricted Subsidiaries, in each case determined in accordance with GAAP; (2)
Indebtedness of the Company owed to and held by any Wholly Owned Subsidiary or
Indebtedness of a Restricted Subsidiary owed to and held by the Company or a
Wholly Owned Subsidiary; provided, however, that any subsequent issuance or
transfer of any Capital Stock which results in any such Wholly Owned Subsidiary
ceasing to be a Wholly Owned Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or a Wholly Owned Subsidiary) shall be
deemed, in each case, to constitute the Incurrence of such Indebtedness of the
issuer thereof; (3) Indebtedness of the Company or a Restricted Subsidiary owed
to and held by any Non-Wholly Owned Subsidiary; provided, however, that (i) any
such Indebtedness shall be unsecured Subordinated Obligations of the Company or
such Restricted Subsidiary, as applicable, and (ii) any subsequent issuance or
transfer of any Capital Stock of such Non-Wholly Owned Subsidiary or any
subsequent transfer of such Indebtedness (other than to the Company, a Wholly
Owned Subsidiary or another Non-Wholly Owned Subsidiary) shall be deemed to
constitute the Incurrence of such Indebtedness by the issuer thereof; (4)
Indebtedness represented by the Notes; (5) Indebtedness outstanding on the Issue
Date (other than Indebtedness described in clause (1), (2) or (3) of this
covenant); (6) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (4), (5), (9), (12) or this
clause (6); (7) Indebtedness in respect of performance bonds, bankers'
acceptances, letters of credit and surety or appeal bonds entered into by the
Company and the Restricted Subsidiaries in the ordinary course of their
business; (8) Hedging Obligations consisting of Interest Rate Agreements and
Currency Agreements entered into in the ordinary course of business and not for
the purpose of speculation; provided, however, that, in the case of Currency
Agreements and Interest Rate Agreements, such Currency Agreements and Interest
Rate Agreements do not increase the Indebtedness of the Company outstanding at
any time other than as a result of fluctuations in foreign currency exchange
rates or interest rates or by reason of fees, indemnities and compensation
payable thereunder; (9) Purchase Money Indebtedness and Capital Lease
Obligations Incurred to finance the acquisition by the Company or a Restricted
Subsidiary of any assets in the ordinary course of business and which, together
with all Refinancing Indebtedness Incurred in respect of
72
Indebtedness previously Incurred pursuant to this clause (9), do not exceed $35
million in the aggregate at any time outstanding; (10) Indebtedness represented
by the Subsidiary Guaranties; (11) Indebtedness arising from the honoring by a
bank or other financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn against
insufficient funds in the ordinary course of business, provided that such
Indebtedness is extinguished within five business days of Incurrence; (12)
Indebtedness of the Company and its Restricted Subsidiaries, to the extent the
proceeds thereof are immediately used after the Incurrence thereof to purchase
Notes tendered in an offer to purchase made as a result of a Change of Control;
(13) Indebtedness of the Company and its Restricted Subsidiaries arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, in any case Incurred in connection with the disposition of
any assets of the Company or any Restricted Subsidiary (other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such assets
for the purpose of financing such acquisition), in a principal amount not to
exceed the gross proceeds actually received by the Company or any Restricted
Subsidiary in connection with such disposition; and (14) Indebtedness in an
aggregate principal amount which, together with all other Indebtedness of the
Company outstanding on the date of such Incurrence (other than Indebtedness
permitted by clauses (1) through (13) above or paragraph (a)), does not exceed
$75 million.
(c) Notwithstanding the foregoing, the Company shall not, and shall not
permit any Restricted Subsidiary to, Incur any Indebtedness pursuant to the
foregoing paragraph (b) if the proceeds thereof are used, directly or
indirectly, to Refinance any Subordinated Obligations unless such Indebtedness
shall be subordinated to the Notes and the Subsidiary Guaranties, as applicable,
to at least the same extent as such Subordinated Obligations; provided, however,
that the foregoing shall not prohibit the Refinancing of all or any part of the
GM Contingent Note or the GM Exchange Debentures with Refinancing Indebtedness
if, at the time of such Incurrence, no Default shall have occurred and be
continuing (or would result therefrom).
(d) For purposes of determining compliance with the foregoing covenant, (i)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described above, the Company, in its sole discretion,
will classify such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of the above clauses and (ii) an
item of Indebtedness may be divided and classified in more than one of the types
of Indebtedness described above.
(e) Notwithstanding paragraphs (a) and (b) above, the Company shall not,
and shall not permit any Subsidiary Guarantor to, Incur any Secured Indebtedness
that is not Senior Indebtedness of the Company or such Subsidiary Guarantor, as
applicable, unless contemporaneously therewith effective provision is made to
secure the Notes or the Subsidiary Guaranty, as applicable, equally and ratably
with such Secured Indebtedness for so long as such Secured Indebtedness.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to, make a Restricted
Payment if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) the Company is not able to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under
"--Limitation on Indebtedness"; or (3) the aggregate amount of such Restricted
Payment together with all other Restricted Payments (the amount of any payments
made in property other than in cash to be valued at the fair market value of
such property, as determined in good faith by the Board of Directors) declared
or made since the Issue Date would exceed the sum of: (A) 50% of the
Consolidated Net Income accrued during the period (treated as one accounting
period) from the beginning of the fiscal quarter immediately following the
fiscal quarter during which the Notes are originally issued to the end of the
most recent fiscal quarter ending at least 45 days (or, if less, the number of
days after the end of such fiscal quarter as the consolidated financial
statements of the Company shall be provided to the Noteholders pursuant to the
Indenture) prior to the date of such Restricted Payment (or, in case such
Consolidated Net Income accrued during such period (treated as one accounting
period) shall be a deficit, minus 100% of such deficit); (B) the aggregate Net
Cash Proceeds received by the Company from the issuance or sale of its Capital
Stock (other than Disqualified Stock) subsequent to the Issue Date (other than
an issuance or sale to a Subsidiary of the Company and other than an issuance or
sale to an employee stock ownership plan or to a trust established by the
Company or any of its Subsidiaries for the benefit of their employees to the
extent that the purchase by such plan or trust is financed by Indebtedness of
such plan or trust to the Company or any Subsidiary or for which the Company or
any Subsidiary is liable, directly or indirectly, as a guarantor or otherwise
(including by the making of cash contributions to such plan or trust which are
used to
73
pay interest or principal on such Indebtedness)); (C) the amount by which
Indebtedness of the Company or its Restricted Subsidiaries is reduced on the
Company's balance sheet upon the conversion or exchange (other than by the
Company or a Subsidiary of the Company) subsequent to the Issue Date, of any
Indebtedness of the Company or its Restricted Subsidiaries convertible or
exchangeable for Capital Stock (other than Disqualified Stock) of the Company
(less the amount of any cash, or the fair value of any other property,
distributed by the Company or any Restricted Subsidiary upon such conversion or
exchange); and (D) an amount equal to the sum of (i) the net reduction in
Investments in any Person other than the Company or a Restricted Subsidiary
resulting from dividends, repayments of loans or advances or other transfers of
assets subsequent to the Issue Date, in each case to the Company or any
Restricted Subsidiary from such Person, and (ii) the portion (proportionate to
the Company's equity interest in such Subsidiary) of the fair market value of
the net assets of an Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary; provided, however, that the
foregoing sum shall not exceed, in the case of any Person, the amount of
Investments previously made (and treated as a Restricted Payment) by the Company
or any Restricted Subsidiary in such Person.
(b) The provisions of the foregoing paragraph (a) shall not prohibit: (i)
any purchase or redemption of Capital Stock or Subordinated Obligations of the
Company or any Restricted Subsidiary made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Capital Stock of the Company
(other than Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary of the Company or an employee stock ownership plan or to a trust
established by the Company or any of its Subsidiaries for the benefit of their
employees to the extent that the purchase by such plan or trust is financed by
Indebtedness of such plan or trust to the Company or any Subsidiary or for which
the Company or any Subsidiary is liable, directly or indirectly, as a guarantor
or otherwise (including by the making of cash contributions to such plan or
trust which are used to pay interest or principal on such Indebtedness));
provided, however, that (A) such purchase or redemption shall be excluded in the
calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds
from such sale shall be excluded from the calculation of amounts under clause
(3)(B) of paragraph (a) above; (ii) any purchase or redemption of (A)
Subordinated Obligations of the Company made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Indebtedness of the Company
which is permitted to be Incurred pursuant to paragraphs (b) and (c) of the
covenant described under "--Limitation on Indebtedness" or (B) Subordinated
Obligations of a Restricted Subsidiary made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Indebtedness of such
Restricted Subsidiary or the Company which is permitted to be Incurred pursuant
to paragraphs (b) and (c) of the covenant described under "--Limitation on
Indebtedness"; provided, however, that such purchase or redemption shall be
excluded in the calculation of the amount of Restricted Payments; (iii) any
purchase or redemption of (A) Disqualified Stock of the Company made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Disqualified Stock of the Company or (B) Disqualified Stock of a Restricted
Subsidiary made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Disqualified Stock of such Restricted Subsidiary or the
Company; provided, however, that (1) at the time of such exchange, no Default
shall have occurred and be continuing (or would result therefrom) and (2) such
purchase or redemption will be excluded in the calculation of the amount of
Restricted Payments; (iv) any purchase or redemption of Subordinated Obligations
from Net Available Cash to the extent permitted by the covenant described under
"--Limitation on Sales of Assets and Subsidiary Stock"; provided, however, that
such purchase or redemption will be excluded in the calculation of the amount of
Restricted Payments; (v) upon the occurrence of a Change of Control and within
60 days after the completion of the offer to repurchase the Notes pursuant to
the covenant described under "--Change of Control" above (including the purchase
of all Notes tendered), any purchase or redemption of Subordinated Obligations
required pursuant to the terms thereof as a result of such Change of Control at
a purchase or redemption price not to exceed the outstanding principal amount
thereof, plus accrued and unpaid interest thereon, if any; provided, however,
that (A) at the time of such purchase or redemption, no Default shall have
occurred and be continuing (or would result therefrom), (B) the Company would be
able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of
the covenant described under "--Limitation on Indebtedness" after giving pro
forma effect to such Restricted Payment, (C) such purchase or redemption is not
made, directly or indirectly, from the proceeds of (or made in anticipation of)
any issuance of Indebtedness by the Company or any Subsidiary of the Company and
(D) such purchase or redemption will be included in the calculation of the
amount of Restricted Payments; (vi) dividends paid within 60 days after the date
of declaration thereof if at such date of declaration such dividend would have
complied with this covenant; provided, however, that at the time of payment of
such dividend, no other Default shall have occurred and be continuing (or would
74
result therefrom); provided further, however, that such dividend shall be
included in the calculation of the amount of Restricted Payments; (vii) the
repurchase of shares of, or options to purchase shares of, common stock of the
Company or any of its Subsidiaries from employees, former employees, directors
or former directors of the Company or any of its Subsidiaries (or permitted
transferees of such employees, former employees, directors or former directors),
pursuant to the terms of the agreements (including employment agreements) or
plans (or amendments thereto) approved by the Board of Directors under which
such individuals purchase or sell or are granted the option to purchase or sell,
shares of such common stock; provided, however, that the aggregate amount of
such repurchases shall not exceed the sum of (1) $5 million and (2) the
aggregate amount of cash received by the Company after the Issue Date from the
sale of such shares to, or the exercise of options to purchase such shares by,
employees or directors of the Company or any of its Subsidiaries; provided
further, however, that such repurchases shall be included in the calculation of
the amount of Restricted Payments; or (viii) Investments in Joint Ventures
primarily engaged in a Related Business; provided, however, that the aggregate
amount of all such Investments shall not exceed $100 million at the time any
such Investment is made; provided further, however, that such Investments shall
be included in the calculation of the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary to, create
or otherwise permit to exist or become effective any consensual encumbrance or
consensual restriction on the ability of any Restricted Subsidiary (a) to pay
dividends or make any other distributions on its Capital Stock to the Company or
a Restricted Subsidiary or pay any Indebtedness owed to the Company, (b) to make
any loans or advances to the Company or (c) transfer any of its property or
assets to the Company, except: (i) any encumbrance or restriction pursuant to an
agreement in effect at or entered into on the Issue Date; (ii) any encumbrance
or restriction with respect to a Restricted Subsidiary pursuant to an agreement
relating to any Indebtedness Incurred by such Restricted Subsidiary which was
entered into on or prior to the date on which such Restricted Subsidiary was
acquired by the Company (other than as consideration in, or to provide all or
any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary or was acquired by the Company) and
outstanding on such date; (iii) any encumbrance or restriction pursuant to an
agreement effecting a Refinancing of Indebtedness Incurred pursuant to an
agreement referred to in clause (i) or (ii) of this covenant (or effecting a
Refinancing of such Refinancing Indebtedness pursuant to this clause (iii)) or
contained in any amendment to an agreement referred to in clause (i) or (ii) of
this covenant or this clause (iii); provided, however, that the encumbrances and
restrictions with respect to such Restricted Subsidiary contained in any such
refinancing agreement or amendment are no more restrictive in any material
respect than the encumbrances and restrictions with respect to such Restricted
Subsidiary contained in such agreements; (iv) any such encumbrance or
restriction consisting of customary non-assignment provisions in leases
governing leasehold interests to the extent such provisions restrict the
transfer of the lease or the property leased thereunder; (v) in the case of
clause (c) above, restrictions contained in security agreements or mortgages
securing Indebtedness of a Restricted Subsidiary to the extent such restrictions
restrict the transfer of the property subject to such security agreements or
mortgages; (vi) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; and (vii) any encumbrance or
restriction with respect to any Receivables Subsidiary pursuant to an agreement
related to Indebtedness of the Receivables Subsidiary which is permitted under
the covenant described under "--Limitation on Indebtedness" or pursuant to any
agreement relating to a Financing Disposition to or by the Receivables
Subsidiary.
Limitation on Sales of Assets and Subsidiary Stock. The Company shall not,
and shall not permit any Restricted Subsidiary to, consummate any Asset
Disposition unless the Company or such Restricted Subsidiary receives
consideration at the time of such Asset Disposition at least equal to the fair
market value (including as to the value of all noncash consideration), as
determined in good faith by the Board of Directors, of the shares and assets
subject to such Asset Disposition and at least 75% (or 100% in the case of lease
payments) of the consideration thereof received by the Company or such
Restricted Subsidiary is in the form of cash or cash equivalents. In the event
and to the extent that the Net Available Cash received by the Company or any
Restricted Subsidiary from one or more Asset Dispositions occurring on or after
the Issue Date exceeds $10 million, then the Company or such Restricted
Subsidiary shall (i) within 360 days after the date such Net Available Cash so
received exceeds $10 million and to the extent the Company or such Restricted
Subsidiary elects (or is required by the terms of any Senior Indebtedness) to
(A) apply an amount equal to such excess Net Available Cash to prepay, repay or
75
purchase Senior Indebtedness of the Company or such Restricted Subsidiary, in
each case owing to a Person other than the Company or any Affiliate of the
Company, or (B) invest (or enter into a binding commitment to invest, provided
that such commitment shall be subject only to customary conditions (other than
financing) and such investment shall be consummated within 360 days after the
end of such 360-day period) an equal amount, or the amount not so applied
pursuant to clause (A), in Additional Assets (including by means of an
Investment in Additional Assets by a Restricted Subsidiary with Net Available
Cash received by the Company or another Restricted Subsidiary) and (ii) apply
such excess Net Available Cash (to the extent not applied pursuant to clause
(i)) as provided in the following paragraphs of the covenant described
hereunder; provided, however, that in connection with any prepayment, repayment
or purchase of Senior Indebtedness pursuant to clause (A) above, the Company or
such Restricted Subsidiary shall retire such Senior Indebtedness and shall cause
the related loan commitment (if any) to be permanently reduced in an amount
equal to the principal amount so prepaid, repaid or purchased; provided further,
however, that the Company or such Restricted Subsidiary shall not be required to
permanently reduce the related loan commitment in the case of any such
prepayment, repayment or purchase with Net Available Cash from any Asset
Disposition of Non-Core Assets, so long as an amount equal to 100% of such Net
Available Cash is invested in Additional Assets within the period required
pursuant to clause (B) above. The amount of such excess Net Available Cash
required to be applied pursuant to clause (ii) above and not theretofore so
applied shall constitute "Excess Proceeds." Pending application of Net Available
Cash pursuant to this provision, such Net Available Cash shall be invested in
Temporary Cash Investments.
If at any time the aggregate amount of Excess Proceeds not theretofore
subject to an Excess Proceeds Offer (as defined below) totals at least $10
million, the Company shall, not later than 30 days after the end of the period
during which the Company is required to apply such Excess Proceeds pursuant to
clause (i) of the immediately preceding paragraph (or, if the Company so elects,
at any time within such period), make an offer (an "Excess Proceeds Offer") to
purchase from the Holders on a pro rata basis an aggregate principal amount of
Notes equal to the Excess Proceeds (rounded down to the nearest multiple of
$1,000) on such date, at a purchase price equal to 100% of the principal amount
of such Notes, plus, in each case, accrued interest (if any) to the date of
purchase, subject to the right of Holders of record on the relevant record date
to receive interest due on the relevant interest payment date (the "Excess
Proceeds Payment"). Upon completion of an Excess Proceeds Offer, the amount of
Excess Proceeds remaining after application pursuant to such Excess Proceeds
Offer (including payment of the purchase price for Notes duly tendered) may be
used by the Company for any corporate purpose (to the extent not otherwise
prohibited by the Indenture).
For the purposes of this covenant, the following are deemed to be cash: (x)
the assumption of Indebtedness of the Company or any Restricted Subsidiary
(other than Indebtedness that by its terms is subordinated to the Notes or the
applicable Subsidiary Guaranty) and the release of the Company and the
Restricted Subsidiaries from all liability on such Indebtedness in connection
with such Asset Disposition and (y) securities received by the Company or any
Restricted Subsidiary from the transferee that are promptly converted by the
Company or such Restricted Subsidiary into cash.
The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations thereunder in the event that such Excess Proceeds are received by
the Company under the covenant described hereunder and the Company is required
to repurchase Notes as described above. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the covenant
described hereunder, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
under the covenant described hereunder by virtue thereof.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of the Company (an "Affiliate Transaction") unless the terms thereof
(1) are no less favorable to the Company or such Restricted Subsidiary than
those that could be obtained at the time of such transaction in arm's-length
dealings with a Person who is not such an Affiliate, (2) if such Affiliate
Transaction involves an amount in excess of $5 million, (i) are set forth in
writing, (ii) comply with clause (1) and (iii) have been approved by a majority
of the disinterested members of the Board of Directors and (3) if such Affiliate
Transaction involves an amount in excess of $10 million, (i) comply with clause
(2) and (ii) have been determined by a nationally recognized investment banking
firm to be
76
fair, from a financial standpoint, to the Company and its Restricted
Subsidiaries; provided, however, that no such opinion shall be required with
respect to any Financing Disposition.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i)
any Restricted Payment permitted to be paid pursuant to the covenant described
under "--Limitation on Restricted Payments," (ii) any issuance of securities, or
other payments, awards or grants in cash, securities or otherwise pursuant to,
or the funding of, employment arrangements, stock options and stock ownership
plans in the ordinary course of business and approved by the Board of Directors,
(iii) the grant of stock options or similar rights to employees and directors of
the Company in the ordinary course of business and pursuant to plans approved by
the Board of Directors, (iv) loans or advances to employees in the ordinary
course of business of the Company or its Restricted Subsidiaries, (v) fees,
compensation or employee benefit arrangements paid to and indemnity provided for
the benefit of directors, officers or employees of the Company or any Subsidiary
in the ordinary course of business or (vi) any Affiliate Transaction between the
Company and a Restricted Subsidiary or between Restricted Subsidiaries in the
ordinary course of business (so long as the other stockholders of any
participating Restricted Subsidiaries which are not Wholly Owned Subsidiaries
are not themselves Affiliates of the Company).
Limitation on the Issuance or Sale of Capital Stock of Restricted
Subsidiaries. The Company shall not (i) sell, pledge, hypothecate or otherwise
dispose of any shares of Capital Stock of a Restricted Subsidiary (other than
pledges of Capital Stock securing Senior Indebtedness as in effect on the Issue
Date) or (ii) permit any Restricted Subsidiary, directly or indirectly, to issue
or sell or otherwise dispose of any shares of its Capital Stock other than (A)
to the Company or a Wholly Owned Subsidiary, (B) directors' qualifying shares,
(C) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary or (D)
with respect to the common stock of any Restricted Subsidiary, in a Public
Equity Offering as a result of or after which a Public Market exists; provided,
however, that, in the case of clauses (C) and (D), such issuance, sale or
disposition or Public Equity Offering complies with the covenant described under
"--Limitation on Sales of Assets and Subsidiary Stock." Upon any issuance or
sale of Capital Stock pursuant to clause (C) above and delivery of a
supplemental indenture in form satisfactory to the Trustee, any such Restricted
Subsidiary that is a Subsidiary Guarantor shall be released from all its
obligations under its Subsidiary Guaranty.
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any
Lien (other than Permitted Liens) of any nature whatsoever on any property of
the Company or any Restricted Subsidiary (including Capital Stock of a
Restricted Subsidiary), whether owned at the Issue Date or thereafter acquired,
unless (i) if such Lien secures Indebtedness that ranks pari passu with the
Notes or the applicable Subsidiary Guaranty, the Notes or such Subsidiary
Guaranty are secured on an equal and ratable basis with the obligations so
secured or (ii) if such Lien secures Indebtedness that is subordinated to the
Notes or such Subsidiary Guaranty, such Lien shall be subordinated to a Lien
granted to the Holders in the same collateral as that securing such Lien to the
same extent as such subordinated Indebtedness is subordinated to the Notes or
such Subsidiary Guaranty.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless: (i)
the resulting, surviving or transferee Person (the "Successor Company") shall be
a Person organized and existing under the laws of the United States of America,
any State thereof or the District of Columbia and the Successor Company (if not
the Company) shall expressly assume, by an indenture supplemental thereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of the Company under the Notes and the Indenture; (ii)
immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Subsidiary of the Company as a result of such transaction as having been
Incurred by such Successor Company or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing; (iii) except in
the case of a merger the sole purpose of which is to change the Company's
jurisdiction of incorporation, immediately after giving effect to such
transaction, the Successor Company would be able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under
"--Limitation on Indebtedness"; (iv) immediately after giving effect to such
transaction, the Successor Company shall have Consolidated Net Worth in an
amount that is not less than the Consolidated Net Worth of the Company
immediately prior to such transaction; (v) in the case of a conveyance, transfer
or lease of all or substantially all the assets of the Company, such assets
shall have been transferred as an entirety to one Person; and (vi) the Company
shall have delivered to the Trustee an Officers' Certificate and an Opinion of
77
Counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with the Indenture. Notwithstanding the
foregoing clauses (ii), (iii), (iv) and (v), any Restricted Subsidiary may
consolidate with, merge into or transfer all or part of its properties and
assets to the Company.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Notes.
The Company shall not permit any Subsidiary Guarantor to consolidate with
or merge with or into, or convey, transfer or lease, in one transaction or a
series of transactions, all or substantially all its assets to, any Person,
unless: (i) the resulting, surviving or transferee Person (if not such
Subsidiary) shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and the
Successor Company (if not such Subsidiary) shall expressly assume, by a
supplemental indenture, in form satisfactory to the Trustee, all the obligations
of such Subsidiary under its Subsidiary Guaranty, if any; (ii) immediately after
giving effect to such transaction (and treating any Indebtedness which becomes
an obligation of the Company, any Subsidiary of the Company or the Successor
Company as a result of such transaction as having been Incurred by such Person
at the time of such transaction), no Default shall have occurred and be
continuing; (iii) in the case of a conveyance, transfer or lease of all or
substantially all the assets of such Subsidiary, such assets shall have been
transferred as an entirety to one Person; and (iv) the Company shall have
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that such consolidation, merger or transfer and such supplemental
indenture (if any) comply with the Indenture. The provisions of clauses (i),
(iii) and (iv) above shall not apply to any transactions which constitute an
Asset Disposition if the Company has complied with the applicable provisions of
the covenant described under "--Limitation on Sales of Assets and Subsidiary
Stock" above.
Future Guarantors. The Company shall cause each Domestic Restricted
Subsidiary to execute and deliver to the Trustee a supplemental indenture
pursuant to which such Restricted Subsidiary will Guarantee payment of the Notes
on the same terms and conditions as those set forth in the Indenture.
SEC Reports. Notwithstanding that the Company may not be required to remain
subject to the report requirements of Section 13 or 15(d) of the Exchange Act,
the Company shall file with the SEC and provide the Trustee and Noteholders and
prospective Noteholders (upon request) with such annual reports and such
information, documents and other reports as are specified in such Sections and
applicable to a U.S. corporation subject to such Sections, such information,
documents and other reports to be so filed and provided at the times specified
for the filing of such information, documents and reports under such Sections;
provided, however, that the Company shall not be required to file any report,
document or other information with the SEC if the SEC does not permit such
filing.
Defaults
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days, (ii) a default
in the payment of principal of any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise,
(iii) the failure by the Company or any Subsidiary Guarantor to comply with its
obligations under "Certain Covenants--Merger and Consolidation" above, (iv) the
failure by the Company to comply for 30 days after notice with any of its
obligations under the covenants described above under "--Change of Control" or
"--Certain Covenants" (other than a failure to purchase Notes), (v) the failure
by the Company to comply for 30 days after notice with its other agreements
contained in the Indenture, (vi) Indebtedness of the Company or any Significant
Subsidiary is not paid within any applicable grace period after final maturity
or is accelerated by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $10 million and such
failure continues for 10 days after notice (the "cross acceleration provision"),
(vii) certain events of bankruptcy, insolvency or reorganization of the Company
or a Significant Subsidiary (the "bankruptcy provisions"), (viii) any judgment
or decree for the payment of money in excess of $10 million is rendered against
the Company or a Significant Subsidiary, remains outstanding for a period of 60
days following such judgment and is not discharged, waived or stayed within 10
days after notice (the "judgment default provision") or (ix) a Subsidiary
Guaranty ceases to be in full force and effect (other than in accordance with
the terms of such Subsidiary Guaranty) or a Subsidiary Guarantor denies or
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disaffirms its obligations under its Subsidiary Guaranty and such Default
continues for 10 days. However, a default under clause (iv) or (v) will not
constitute an Event of Default until the Trustee or the Holders of 25% in
principal amount of the outstanding Notes notify the Company of the default and
the Company does not cure such default within the time specified in clauses (iv)
and (v) hereof after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the Notes will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holders of the Notes. Under certain
circumstances, the Holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such Holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
Holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such Holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt thereof and the offer of security or indemnity and (v) the Holders of a
majority in principal amount of the outstanding Notes have not given the Trustee
a direction inconsistent with such request within such 60-day period. Subject to
certain restrictions, the Holders of a majority in principal amount of the
outstanding Notes are given the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
Holder or that would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of or interest on any Note, the Trustee may withhold notice if and
so long as a committee of its trust officers determines that withholding notice
is not opposed to the interest of the Holders. In addition, the Company is
required to deliver to the Trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default
that occurred during the previous year. The Company also is required to deliver
to the Trustee, within 30 days after the occurrence thereof, written notice of
any event which would constitute certain Defaults, their status and what action
the Company is taking or proposes to take in respect thereof.
Amendments and Waivers
Subject to certain exceptions, the Indenture may be amended with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the Holders of a majority in principal
amount of the Notes then outstanding. However, without the consent of each
Holder of an outstanding Note affected thereby, no amendment may, among other
things, (i) reduce the amount of Notes whose Holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) reduce the amount payable upon the redemption or repurchase of any
Note, or change the time at which any Note may be redeemed as described under
"--Optional Redemption" above, (v) make any Note payable in money other than
that stated in the Note, (vi) impair the right of any Holder to institute suit
for the enforcement of any payment on or with respect to such Holder's Notes or
any Subsidiary Guaranty, (vii) make any change in the amendment provisions which
require each Holder's consent or in the waiver provisions, (viii) at any time
after a Change of Control or Asset Disposition has occurred, change the time at
which the related offer to purchase the Notes must be
79
made or at which the Notes must be repurchased pursuant to such offer, (ix)
subordinate the Notes to any other obligation of the Company of (x) make any
change in any Subsidiary Guaranty that would adversely affect the Holders.
Without the consent of any Holder, the Company, the Subsidiary Guarantors
and Trustee may amend the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of the Company under the Indenture, to provide for uncertificated
Notes in addition to or in place of certificated Notes (provided that the
uncertificated Notes are issued in registered form for purposes of Section
163(f) of the Code, or in a manner such that the uncertificated Notes are
described in Section 163(f)(2)(B) of the Code), to add guarantees with respect
to the Notes, to release Subsidiary Guarantors when permitted by the Indenture,
to secure the Notes, to add to the covenants of the Company for the benefit of
the Holders or to surrender any right or power conferred upon the Company, to
make any change that does not adversely affect the rights of any Holder or to
comply with any requirement of the SEC in connection with the qualification of
the Indenture under the Trust Indenture Act.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Holders a notice briefly describing such amendment. However,
the failure to give such notice to all Holders, or any defect therein, will not
impair or affect the validity of the amendment.
Transfer
Certificated Notes will be issued in registered form and will be
transferable only upon the surrender of the Notes being transferred for
registration of transfer. The Company may require payment of a sum sufficient to
cover any tax, assessment or other governmental charge payable in connection
with certain transfers and exchanges.
Defeasance
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under "--Change of
Control" and under the covenants described under "--Certain Covenants" (other
than the covenant described under "--Merger and Consolidation"), the operation
of the cross acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment default provision described under
"--Defaults" above and the limitations contained in clauses (iii) and (iv) of
the first paragraph under "Certain Covenants--Merger and Consolidation" above
("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries) or (viii) under "--Defaults" above or because of the
failure of the Company to comply with clause (iii) or (iv) of the first
paragraph under "Certain Covenants--Merger and Consolidation" above. If the
Company exercises its legal defeasance option or its covenant defeasance option,
each Subsidiary Guarantor will be released from all of its obligations with
respect to its Subsidiary Guaranty.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
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Concerning the Trustee
United States Trust Company of New York is to be the Trustee under the
Indenture and has been appointed by the Company as Registrar and Paying Agent
with respect to the Notes.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an Event of Default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own affairs. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture.
Governing Law
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby.
Certain Definitions
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary; or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; provided, however, that any such Restricted
Subsidiary described in clause (ii) or (iii) above is primarily engaged in
Related Business.
"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 the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "Certain Covenants--Limitation on
Restricted Payments," "Certain Covenants--Limitation on Affiliate Transactions"
and "Certain Covenants--Limitations on Sales of Assets and Subsidiary Stock"
only, "Affiliate" shall also mean any beneficial owner of Capital Stock
representing 10% or more of the total voting power of the Voting Stock (on a
fully diluted basis) of the Company or of rights or warrants to purchase such
Capital Stock (whether or not currently exercisable) and any Person who would be
an Affiliate of any such beneficial owner pursuant to the first sentence hereof.
"Asset Disposition" (x) means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions) by
the Company or any Restricted Subsidiary, including any disposition by means of
a merger, consolidation or similar transaction (each referred to for the
purposes of this definition as a "disposition"), of (i) any shares of Capital
Stock of a Restricted Subsidiary (other than directors' qualifying shares and,
to the extent required by local ownership laws in foreign countries, shares
owned by foreign shareholders), (ii) all or substantially all the assets of any
division, business segment or comparable line of business of the Company or any
Restricted Subsidiary or (iii) any other assets of the Company or any Restricted
Subsidiary outside of the ordinary course of business of the Company or such
Restricted Subsidiary (other than, in the case of (i), (ii) and (iii) above, (y)
a disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Wholly Owned Subsidiary and (z) for purposes of the
covenant described under "Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" only, a disposition that constitutes a Permitted Investment or
a Restricted Payment permitted by the covenant described under "Certain
Covenants--Limitation on Restricted Payments").
"Asset Purchase Agreement" means the Asset Purchase Agreement dated July
13, 1994, by and among the Company, DRA and General Motors Corporation.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, (i) if such Sale and Leaseback Transaction is a
Capital Lease Obligation, the amount of Indebtedness represented thereby
according to the definition of "Capital Lease Obligations" and (ii) in all other
instances, the present value
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(discounted at the interest rate borne by the Notes, compounded annually) of the
total obligations of the lessee for rental payments during the remaining term of
the lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect
of the Senior Credit Facility including principal, premium (if any), interest,
fees, charges, expenses, reimbursement obligations, Guarantees and all other
amounts payable thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Change of Control" means the occurrence of any of the following events:
(i) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that for purposes of this clause (i), such 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), directly or indirectly, of
more than 35% of the total voting power of the Voting Stock of the Company;
provided, however, that the Permitted Holders beneficially own (as defined
in this clause (i), provided that the Permitted Holders shall be deemed to
beneficially own any Voting Stock of any entity (the "specified entity")
held by any other entity (the "parent entity") so long as the Permitted
Holders beneficially own (as so defined), directly or indirectly, in the
aggregate a majority of the voting power of the Voting Stock of the parent
entity), directly or indirectly, in the aggregate a lesser percentage of
the total voting power of the Voting Stock of the Company than such other
person and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the Board of
Directors (for purposes of this clause (i), such other person shall be
deemed to beneficially own any Voting Stock of a specified entity held by a
parent entity, if such other person is the beneficial owner (as defined in
this clause (i)), directly or indirectly, of more than 35% of the voting
power of the Voting Stock of such parent entity and the Permitted Holders
beneficially own (as defined in this clause (i)), directly or indirectly,
in the aggregate a lesser percentage of the voting power of the Voting
Stock of such parent entity and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority
of the board of directors of such parent entity);
(ii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors (together
with any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders 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 Directors then in office;
(iii) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the
sale of all or substantially all the assets of the Company to another
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Person (other than a Person that is controlled by the Permitted Holders),
and, in the case of any such merger or consolidation, the securities of the
Company that are outstanding immediately prior to such transaction and
which represent 100% of the aggregate voting power of the Voting Stock of
the Company are changed into or exchanged for cash, securities or property,
unless pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of the
surviving corporation that represent immediately after such transaction, at
least a majority of the aggregate voting power of the Voting Stock of the
surviving corporation; or
(iv) the shareholders of the Company shall have approved any plan of
liquidation or dissolution of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days (or, if less, the
number of days after the end of such fiscal quarter as the consolidated
financial statements of the Company shall be provided to the Noteholders
pursuant to the Indenture) prior to the date of such determination (determined,
for the four fiscal quarters ending prior to the Issue Date, or any of such
fiscal quarters, on a pro forma basis to give effect to the Subsequent
Acquisitions as if they occurred on the first day of such period) to (ii)
Consolidated Interest Expense for such four fiscal quarters; provided, however,
that (1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such 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, or both,
EBITDA and Consolidated Interest Expense for such 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 period and the discharge
of any other Indebtedness repaid, repurchased, legally defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such period (except that, in the case of
Indebtedness used to finance working capital needs Incurred under a revolving
credit or similar arrangement, the amount thereof shall be deemed to be the
average daily balance of such Indebtedness during such four-fiscal-quarter
period), (2) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Disposition, the EBITDA for such period
shall be reduced by an amount equal to the EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset Disposition for
such period, or increased by an amount equal to the EBITDA (if negative)
directly attributable thereto for such period and Consolidated Interest Expense
for such period shall be reduced by an amount equal to the Consolidated Interest
Expense directly attributable to any Indebtedness of the Company or any
Restricted Subsidiary repaid, repurchased, legally defeased, assumed by a third
person (to the extent the Company and its Restricted Subsidiaries are no longer
liable for such Indebtedness) or otherwise discharged with respect to the
Company and its continuing Restricted Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for such 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 period the
Company shall have consummated a Public Equity Offering, Consolidated Interest
Expense for such period shall be reduced by an amount equal to the Consolidated
Interest Expense directly attributable to any Indebtedness of the Company or any
Restricted Subsidiary repaid, repurchased, legally defeased or otherwise
discharged with respect to the Company and its Restricted Subsidiaries in
connection with such Public Equity Offering for such period, (4) if since the
beginning of such period the Company or any Restricted Subsidiary (by merger or
otherwise) shall have made an Investment in any Restricted Subsidiary (or any
Person which becomes a Restricted Subsidiary) or an acquisition of assets, which
acquisition constitutes all or substantially all of an operating unit of a
business, including any such Investment or acquisition occurring in connection
with a transaction requiring a calculation to be made hereunder, EBITDA and
Consolidated Interest Expense for such 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 period and (5)
if since the beginning of such 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 period) shall have made any Asset
Disposition, any Investment or acquisition of assets that would have required an
adjustment pursuant to clause (3) or (4) above if made by the Company or a
Restricted Subsidiary during such period, EBITDA and Consolidated Interest
Expense for such
83
period shall be calculated after giving pro forma effect thereto as if such
Asset Disposition, Investment or acquisition occurred on the first day of such
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 Interest Expense 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. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest of 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 Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, (a)
to the extent not included in such total interest expense, and to the extent
Incurred by the Company or its Restricted Subsidiaries, (i) interest expense
attributable to Capital Lease Obligations, (ii) amortization of debt discount,
(iii) capitalized interest, (iv) noncash interest expenses, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) net costs associated with Hedging
Obligations (including amortization of fees), (vii) Preferred Stock dividends in
respect of all Preferred Stock of Restricted Subsidiaries held by Persons other
than the Company or a Wholly Owned Subsidiary, (viii) interest incurred in
connection with Investments in discontinued operations, (ix) interest actually
paid on any Indebtedness of any other Person that is Guaranteed by the Company
or any Restricted Subsidiary and (x) the cash contributions to any employee
stock ownership plan or similar trust to the extent such contributions are used
by such plan or trust to pay interest or fees to any Person (other than the
Company or any Wholly Owned Subsidiary) in connection with Indebtedness Incurred
by such plan or trust, minus, (b) to the extent included in such total interest
expense, amortization of deferred financing costs, fees and expenses.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income: (i) any net income (or loss) of
any Person if such Person is not a Restricted Subsidiary, except that subject to
the exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Person for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash actually distributed by such
Person during such period to the Company or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution paid to a Restricted Subsidiary, to the limitations contained in
clause (iii) below); (ii) for purposes of subclause (a)(3)(A) of the covenant
described under "Certain Covenants--Limitation on Restricted Payments" only, any
net income (or loss) of any Person acquired by the Company or a Subsidiary in a
pooling of interests transaction for any period prior to the date of such
acquisition; (iii) any net income 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, except that (A) subject to
the exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash that could have
been distributed by such Restricted Subsidiary consistent with such restriction
during such period to the Company or another Restricted Subsidiary as a dividend
or other distribution (subject, in the case of a dividend or other distribution
paid to another Restricted Subsidiary, to the limitation contained in this
clause) and (B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such Consolidated
Net Income; (iv) any gain (or loss) realized upon the sale or other disposition
of any assets of the Company or its consolidated Subsidiaries (including
pursuant to any sale-and-leaseback arrangement) which is not sold or otherwise
disposed of in the ordinary course of business and any gain (or loss) realized
upon the sale or other disposition of any Capital Stock of any Person; (v)
extraordinary gains or losses; (vi) the cumulative effect of a change in
accounting principles; and (vii) any noncash compensation expense realized for
grants of performance shares, stock options or other stock awards to officers,
directors and employees of the Company or any Restricted Subsidiary.
Notwithstanding the foregoing, for the purposes of the covenant described under
"Certain Covenants--Limitation on Restricted Payments" only, there shall be
excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from any Person to the Company or a
Restricted Subsidiary to the extent such dividends, repayments or transfers
increase the amount of Restricted Payments permitted under such covenants
pursuant to clause (a)(3)(D) thereof.
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"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as (i) the par
or stated value of all outstanding Capital Stock of the Company plus (ii)
paid-in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.
"Currency Agreement" means, with respect to any Person, any foreign
exchange contract, currency swap agreement or other similar agreement to which
such Person is a party or a beneficiary.
"CVC Investor" means (i) CVC, (ii) Citicorp, N.A. and (iii) any officer,
employee or director of CVC so long as such person shall be an employee, officer
or director of CVC.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable, at the option of the holder thereof, for
Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the
holder thereof, in whole or in part, in each case on or prior to the first
anniversary of the Stated Maturity of the Notes.
"Domestic Restricted Subsidiary" means any Restricted Subsidiary of the
Company other than a Foreign Restricted Subsidiary.
"DRA" means Delco Remy America, Inc., a Delaware corporation and a Wholly
Owned Subsidiary.
"EBITDA" for any period means the sum of Consolidated Net Income plus,
without duplication, the following to the extent deducted in calculating such
Consolidated Net Income: (i) Consolidated Interest Expense, (ii) income tax
expense, (iii) depreciation expense, (iv) amortization expense and (v) all other
noncash items reducing Consolidated Net Income (other than items that will
require cash payments and for which an accrual or reserve is, or is required by
GAAP to be, made, other than accruals for post-retirement benefits other than
pensions), less all noncash items increasing Consolidated Net Income, in each
case for such period. Notwithstanding the foregoing, the provision for taxes
based on the income or profits of, and the depreciation and amortization of, a
Subsidiary of the Company shall be added to Consolidated Net Income to compute
EBITDA only to the extent (and in the same proportion) that the net income of
such Subsidiary was included in calculating Consolidated Net Income.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Financing Disposition" means any sale of any accounts receivable, or
interest therein, by the Company or any Subsidiary to any Receivables
Subsidiary, or by the Receivables Subsidiary, pursuant to a Permitted
Receivables Financing.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary of the
Company which is not organized under the laws of the United States of America or
any State thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board and (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession.
"GM Contingent Note" means the Contingent Purchase Price Note issued by DRA
pursuant to the Asset Purchase Agreement.
"GM Exchange Debentures" means the 8% Subordinated Debentures issued by DRA
on or prior to the Issue Date in exchange for the Series A 8% Preferred Stock of
DRA issued pursuant to the Asset Purchase Agreement.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
Person and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such
85
Indebtedness or other obligation of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in any
other manner the obligee of such Indebtedness or other obligation of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided, however, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning. The term
"Guarantor" shall mean any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary; provided further, however, that
in the case of a discount security, neither the accrual of interest nor the
accretion of original issue discount shall be considered an Incurrence of
Indebtedness, but the entire face amount of such security shall be deemed
Incurred upon the issuance of such security. The term "Incurrence" when used as
a noun shall have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable; (ii) all Capital
Lease Obligations of such Person and all Attributable Debt in respect of
Sale/Leaseback Transactions entered into by such Person; (iii) all obligations
of such Person issued or assumed as the deferred purchase price of property or
services, all conditional obligations of such Person and all obligations of such
Person under any title retention agreement (but excluding trade accounts
payables arising in the ordinary course of business), which purchase price or
obligation is due more than six months after the date of placing such property
in service or taking delivery and title thereto or the completion of such
services (provided that, in the case of obligations of an acquired Person
assumed in connection with an acquisition of such Person, such obligations would
constitute Indebtedness of such Person); (iv) all obligations of such Person for
the reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in (i) through
(iii) above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the tenth Business Day
following receipt by such Person of a demand for reimbursement following payment
on the letter of credit; (v) the amount of all obligations of such Person with
respect to the redemption, repayment or other repurchase of any Disqualified
Stock or, with respect to any Subsidiary of such Person, any Preferred Stock
(but excluding, in each case, any accrued dividends); (vi) all obligations of
the type referred to in clauses (i) through (v) of other Persons and all
dividends of other Persons for the payment of which, in either case, such Person
is responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any Guarantee; (vii) all obligations of the
type referred to in clauses (i) through (vi) of other Persons secured by any
Lien on any property or asset of such Person (whether or not such obligation is
assumed by such Person), the amount of such obligation being deemed to be the
lesser of the value of such property or assets or the amount of the obligation
so secured; and (viii) to the extent not otherwise included in this definition,
Hedging Obligations of such Person. The amount of Indebtedness of any Person at
any date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, upon the occurrence of
the contingency giving rise to the obligation, of any contingent obligations as
described above at such date; provided, however, that the amount outstanding at
any time of any Indebtedness issued with original issue discount shall be deemed
to be the face amount of such Indebtedness less the remaining unamortized
portion of the original issue discount of such Indebtedness at such time as
determined in conformity with GAAP; provided further, however, that the
outstanding principal amount of the GM Contingent Note shall be deemed to be
zero until the last day of the fiscal year or other period with respect to which
the amount due thereunder shall be determined.
86
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed to
protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer or cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary," the definition of "Restricted Payment" and the
covenant described under "Certain Covenants--Limitation on Restricted Payments,"
(i) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net assets
of any Subsidiary of the Company at the time that such Subsidiary is designated
an Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary equal to an
amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary
at the time of such redesignation less (y) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of such Subsidiary at the time of such redesignation; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Board of Directors.
"Issue Date" means the date on which the Notes are originally issued.
"Joint Venture" means, in respect of any Person, any corporation,
association, partnership or other business entity of which not less than 20% and
not more than 80% of the total voting power of shares of Capital Stock or other
interests (including partnership interests) entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
(i) such Person, (ii) such Person and one or more Subsidiaries of such Person or
(iii) one or more Subsidiaries of such Person.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Investors" means each of the officers, employees and directors
of the Company who own Voting Stock of the Company on the Issue Date, in each
case so long as such person shall remain an officer, employee or director of the
Company.
"MascoTech" means MascoTech Automotive Systems Group, Inc., a Delaware
corporation.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to such properties or assets or received in any other noncash form) in each case
net of (i) all legal, title and recording tax expenses, commissions and other
fees and expenses Incurred, and all Federal, state, provincial, foreign and
local taxes required to be paid or accrued as a liability under GAAP, as a
consequence of such Asset Disposition, (ii) all payments made on any
Indebtedness which is secured by any assets subject to such Asset Disposition,
in accordance with the terms of any Lien upon or other security agreement of any
kind with respect to such assets, or which must by its terms, or in order to
obtain a necessary consent to such Asset Disposition, or by applicable law be,
repaid out of the proceeds from such Asset Disposition, (iii) all distributions
and other payments required to be made to minority interest holders in
Subsidiaries or Joint Ventures as a result of such Asset Disposition and (iv)
the deduction of appropriate amounts provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the property or
other assets disposed in such Asset Disposition and retained by the Company or
any Restricted Subsidiary after such Asset Disposition.
87
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Non-Core Assets" means any assets of the Company used primarily in the
powder metal forge business of the Company on the Issue Date.
"Non-Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock (other than, to the extent required by local ownership laws in foreign
countries, shares owned by foreign shareholders) of which is owned by (i) the
Company or one or more Wholly Owned Subsidiaries and/or (ii) any of the
directors, officers, employees or former owners of such Restricted Subsidiary.
"Permitted Holders" means the CVC Investors, MascoTech, World Equity
Partners, the Management Investors and their respective Permitted Transferees;
provided, however, that in no event shall the Management Investors and the CVC
Investors (other than CVC or Citicorp, N.A.), collectively, be deemed "Permitted
Holders" with respect to more than 30% of the total voting power of all classes
of Voting Stock of the Company.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) the Company; (ii) a Restricted Subsidiary or a Person that
will, upon the making of such Investment, become a Restricted Subsidiary;
provided, however, that the primary business of such Restricted Subsidiary is a
Related Business; (iii) another Person if as a result of such Investment such
other Person is merged or consolidated with or into, or transfers or conveys all
or substantially all its assets to, the Company or a Domestic Restricted
Subsidiary; provided, however, that such Person's primary business is a Related
Business; (iv) Temporary Cash Investments; (v) receivables owing to the Company
or any Restricted Subsidiary if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary trade terms;
provided, however, that such trade terms may include such concessionary trade as
the Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (vi) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(vii) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted Subsidiary and
not exceeding $2 million in the aggregate outstanding at any time; (viii) stock,
obligations or securities received in settlement of debts created in the
ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; and (ix) any Person to the extent
such Investment represents the noncash portion of the consideration received for
an Asset Disposition as permitted pursuant to the covenant described under
"Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock".
"Permitted Liens" means: (i) Liens to secure Indebtedness permitted to be
Incurred under clause (b)(1) of the covenant described under "Certain
Covenants--Limitation on Indebtedness;" (ii) Liens to secure Indebtedness
permitted to be Incurred under clause (b)(10) of the covenant described under
"Certain Covenants--Limitation on Indebtedness," provided that any such Lien may
not extend to any property of the Company or any Restricted Subsidiary, other
than the property acquired, constructed or leased with the proceeds of such
Indebtedness and any improvements or accessions to such property; (iii) Liens
for taxes, assessments or governmental charges or levies on the property of the
Company or any Restricted Subsidiary if the same shall not at the time be
delinquent or thereafter can be paid without penalty, or are being contested in
good faith and by appropriate proceedings promptly instituted and diligently
concluded, provided that any reserve or other appropriate provision that shall
be required in conformity with GAAP shall have been made therefor; (iv) Liens
imposed by law, such as carriers', warehousemen's and mechanics' Liens and other
similar Liens on the property of the Company or any Restricted Subsidiary
arising in the ordinary course of business and securing payment of obligations
which are not more than 60 days past due or are being contested in good faith
and by appropriate proceedings; (v) Liens on the property of the Company or any
Restricted Subsidiary Incurred in the ordinary course of business to secure
performance of obligations with respect to statutory or regulatory requirements,
performance or return-of-money bonds, surety bonds or other obligations of a
like nature and Incurred in a manner consistent with industry practice, in each
case which are not Incurred in connection with the borrowing of money, the
obtaining of advances or credit or the payment of the deferred purchase price of
property and which do not in the aggregate impair in any material respect the
use of property in the operation of the business of the Company and its
Restricted Subsidiaries taken as
88
a whole; (vi) Liens on property at the time the Company or any Restricted
Subsidiary acquired such property, including any acquisition by means of a
merger or consolidation with or into the Company or any Restricted Subsidiary;
provided, however, that any such Lien may not extend to any other property of
the Company or any Restricted Subsidiary; provided further, however, that such
Liens shall not have been Incurred in anticipation of or in connection with the
transaction or series of transactions pursuant to which such property was
acquired by the Company or any Restricted Subsidiary; (vii) Liens on the
property of a Person at the time such Person becomes a Restricted Subsidiary;
provided, however, that any such Lien may not extend to any other property of
the Company or any other Restricted Subsidiary which is not a direct Subsidiary
of such Person; provided further, however, that any such Lien was not Incurred
in anticipation of or in connection with the transaction or series of
transactions pursuant to which such Person became a Restricted Subsidiary;
(viii) pledges or deposits by the Company or any Restricted Subsidiary under
workmen's compensation laws, unemployment insurance laws or similar legislation,
or good faith deposits in connection with bids, tenders, contracts (other than
for the payment of Indebtedness) or leases to which the Company or any
Restricted Subsidiary is party, or deposits to secure public or statutory
obligations of the Company, or deposits for the payment of rent, in each case
Incurred in the ordinary course of business; (ix) utility easements, building
restrictions and such other encumbrances or charges against real property as are
of a nature generally existing with respect to properties of a similar
character; (x) Liens existing on the Issue Date not otherwise described in
clauses (i) through (ix) above; (xi) Liens not otherwise described in clauses
(i) through (x) above on the property of any Restricted Subsidiary that is not a
Subsidiary Guarantor to secure any Indebtedness permitted to be Incurred by such
Restricted Subsidiary pursuant to the covenant described under "Certain
Covenants--Limitation on Indebtedness;" and (xii) Liens on the property of the
Company or any Restricted Subsidiary to secure any Refinancing, in whole or in
part, of any Indebtedness secured by Liens referred to in clause (i), (ii),
(vi), (vii), (x) or (xi) above; provided, however, that any such Lien shall be
limited to all or part of the same property that secured the original Lien
(together with improvements and accessions to such property) and the aggregate
principal amount of Indebtedness that is secured by such Lien shall not be
increased to an amount greater than the sum of (a) the outstanding principal
amount, or, if greater, the committed amount, of the Indebtedness secured by
Liens described under clause (i), (ii), (vi), (vii), (x) or (xi) above, as the
case may be, at the time the original Lien became a Permitted Lien under the
Indenture and (b) an amount necessary to pay any premiums, fees and other
expenses Incurred by the Company or any Restricted Subsidiary in connection with
such Refinancing.
"Permitted Receivables Financing" means any financing pursuant to which the
Company or any Restricted Subsidiary may sell, convey or otherwise transfer to a
Receivables Subsidiary or any other Person (in the case of a transfer by a
Receivables Subsidiary), or grant a security interest in, any accounts
receivable (and related assets) of the Company or any Restricted Subsidiary;
provided, however, that (i) the covenants, events of default and other
provisions applicable to such financing shall be customary for such transactions
and shall be on market terms (as determined in good faith by the Board of
Directors) at the time such financing is entered into, (ii) the interest rate
applicable to such financing shall be a market interest rate (as determined in
good faith by the Board of Directors) at the time such financing is entered into
and (iii) such financing shall be nonrecourse to the Company and its
Subsidiaries (other than a Receivables Subsidiary) except to a limited extent
customary for such transactions.
"Permitted Transferee" means, (a) with respect to any CVC Investor who is
an employee, officer or director of CVC, any spouse or lineal descendant
(including by adoption) of such CVC Investor so long as such CVC Investor shall
be an employee, officer or director of CVC; (b) with respect to MascoTech,
MascoTech Inc.; and (c) with respect to any Management Investor, any spouse or
lineal descendant (including by adoption) of such Management Investor so long as
such Management Investor shall be an employee, officer or director of the
Company.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
89
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company (or, for purposes of the covenant described under
"--Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries," any Restricted Subsidiary) pursuant to an effective registration
statement under the Securities Act.
"Public Market" means any time after (i) a Public Equity Offering with
respect to any Restricted Subsidiary has been consummated and (ii) at least 10%
of the total issued and outstanding common stock of such Restricted Subsidiary
has been distributed by means of an effective registration statement under the
Securities Act or sales pursuant to Rule 144 under the Securities Act.
"Purchase Money Indebtedness" mean Indebtedness (i) consisting of the
deferred purchase price of property, conditional sale obligations under any
title retention agreement, other purchase money obligations and obligations in
respect of industrial revenue bonds or similar Indebtedness, in each case where
the maturity of such Indebtedness does not exceed the anticipated useful life of
the asset being financed, and (ii) Incurred to finance the acquisition by the
Company or a Restricted Subsidiary of such asset, including additions and
improvements; provided, however, that any Lien arising in connection with any
such Indebtedness shall be limited to the specified asset being financed or, in
the case of real property or fixtures, including additions and improvements, the
real property on which such asset is attached; and provided further, however,
that such Indebtedness is Incurred within 90 days after such acquisition of such
asset by the Company or Restricted Subsidiary.
"Receivables Subsidiary" means a bankruptcy-remote, special-purpose Wholly
Owned Subsidiary formed in connection with a Permitted Receivables Financing.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture; provided, however, that (i)
such Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; provided further,
however, that Refinancing Indebtedness shall not include (x) Indebtedness of a
Subsidiary that Refinances Indebtedness of the Company or (y) Indebtedness of
the Company or a Restricted Subsidiary that Refinances Indebtedness of an
Unrestricted Subsidiary. For purposes of this definition, the Average Life and
the aggregate principal amount of the GM Contingent Note at the time of any
Refinancing thereof shall be determined by a responsible financial or accounting
Officer of the Company based on a good faith estimate of the amount of the
contingent payment that will become due and payable under such note and the
timing of the scheduled installments thereof in accordance with the terms of
such note.
"Related Business" means any business related, ancillary or complementary
(as determined in good faith by the Board of Directors) to the businesses of the
Company and the Restricted Subsidiaries on the Issue Date.
"Restricted Payment" means, with respect to any Person, (i) the declaration
or payment of any dividends or any other distributions on or in respect of its
Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the holders of its
Capital Stock, except dividends or distributions payable solely in the Capital
Stock (other than Disqualified Stock) and except dividends or distributions
payable solely to the Company or a Restricted Subsidiary (and, if such
Restricted Subsidiary is not wholly owned, to its other shareholders on a pro
rata basis or on a basis that results in the receipt by the Company or a
Restricted Subsidiary of dividends or distributions of greater value than it
would receive on a pro rata basis), (ii) the purchase, redemption or other
acquisition or retirement for value of any Capital Stock of the Company held by
any Person or of any Capital Stock of a Restricted Subsidiary held by any
Affiliate of the Company (other than a
90
Restricted Subsidiary, including an Affiliate of a Restricted Subsidiary),
including the exercise of any option to exchange any Capital Stock (other than
into Capital Stock of the Company that is not Disqualified Stock), (iii) the
purchase, repurchase, redemption, defeasance or other acquisition or retirement
for value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment, of any Subordinated Obligations (other than the purchase,
repurchase or other acquisition of Subordinated Obligations purchased in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of acquisition),
(iv) the making of any Investment in any Person (other than a Permitted
Investment) or (v) the sale or issuance of Capital Stock of a Restricted
Subsidiary to a Person other than the Company or another Restricted Subsidiary
if the result thereof is that such Restricted Subsidiary shall cease to be a
Restricted Subsidiary, in which event the amount of such "Restricted Payment"
shall be the fair market value of the remaining interest, if any, in such former
Restricted Subsidiary held by the Company and its other Restricted Subsidiaries.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien. "Secured Indebtedness" of any Subsidiary Guarantor has a correlative
meaning.
"Senior Credit Facility" means the revolving credit facility made available
pursuant to the Fourth Amended and Restated Financing Agreement dated as of ,
1997, among the Subsidiary Guarantors, as borrowers, the Company, as guarantor,
the lenders from time to time party thereto and Bank One, Indianapolis, National
Association, as Agent, as the same may be amended, waived, modified, Refinanced
or replaced from time to time (except to the extent that any such amendment,
waiver, modification, replacement or Refinancing would be prohibited by the
terms of the Indenture).
"Senior Indebtedness" of the Company means (i) Indebtedness of the Company,
whether outstanding on the Issue Date or thereafter Incurred, including the
Guarantee by the Company of all Bank Indebtedness, and (ii) accrued and unpaid
interest thereon, in respect of (a) Indebtedness of the Company for money
borrowed and (b) Indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which the Company is responsible or
liable unless, in the instrument creating or evidencing the same or pursuant to
which the same is outstanding, it is provided that such obligations are
subordinate in right of payment to the Notes; provided, however, that Senior
Indebtedness shall not include (1) any obligation of the Company to any
Subsidiary, (2) any liability for Federal, state, local or other taxes owed or
owing by the Company, (3) any accounts payable or other liability to trade
creditors arising in the ordinary course of business (including Guarantees
thereof or instruments evidencing such liabilities), (4) any Indebtedness of the
Company (and any accrued and unpaid interest in respect thereof) which is
subordinate or junior in any respect (other than as a result of the Indebtedness
being unsecured) to any other Indebtedness or other obligation of the Company,
including any Subordinated Obligations, (5) any obligations with respect to any
Capital Stock or (6) that portion of any Indebtedness which at the time of
Incurrence is Incurred in violation of the Indenture. "Senior Indebtedness" of
any Subsidiary Guarantor has a correlative meaning.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to that
effect. "Subordinated Obligation" of any Subsidiary Guarantor has a correlative
meaning.
91
"Subsequent Acquisitions" means the acquisition by the Company prior to the
Issue Date of substantially all the Capital Stock of World Wide and the merger
between a subsidiary of the Company and Ballantrae on or prior to the Issue
Date.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by (i) such Person, (ii) such
Person and one or more Subsidiaries of such Person or (iii) one or more
Subsidiaries of such Person.
"Subsidiary Guarantor" means each Subsidiary designated as such on the
signature pages of the Indenture and any other Subsidiary that has issued a
Subsidiary Guaranty.
"Subsidiary Guaranty" means any Guarantee of the Securities which may from
time to time be executed and delivered pursuant to the Indenture. Each such
Subsidiary Guaranty shall be in the form prescribed in the Indenture.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50 million (or the foreign currency
equivalent thereof) and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act) or any
money market fund sponsored by a registered broker dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above, (iv)
investments in commercial paper, maturing not more than 90 days after the date
of acquisition, issued by a corporation (other than an Affiliate of the
Company), organized and in existence under the laws of the United States of
America, any State thereof or the District of Columbia or any foreign country
recognized by the United States of America with a rating at the time as of which
any investment herein is made of "P-1" (or higher) according to Moody's
Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's
Ratings Group, and (v) investments in securities with maturities of six months
or less from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least "A" by Standard &
Poor's Ratings Group or "A" by Moody's Investors Services, Inc.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designed has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under the covenant described under "Certain Covenants--Limitation on Restricted
Payments." The Board of Directors may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; provided, however, that immediately after giving
effect to such designation (x) the Company could Incur $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under "Certain
Covenants--Limitation on Indebtedness" and (y) no Default shall have occurred
and be continuing. Any such designation by the Board of Directors shall be by
the Company to the Trustee by promptly filing with the Trustee a copy of the
board resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions. As of
the date of this Indenture, the only Unrestricted Subsidiaries are Autovill
Holdings, Inc., Remy Mexico Holdings, Inc., Remy South America Holdings, Inc.
and Remy Korea Holdings, Inc. (in each case as to which the Company represents
and warrants that such Subsidiary has total assets of $1,000 or less). Upon
designation of a Restricted Subsidiary as an Unrestricted
92
Subsidiary in compliance with this paragraph, such Restricted Subsidiary shall,
by delivery of a supplemental indenture in form satisfactory to the Trustee, be
released from any Subsidiary Guaranty previously made by such Subsidiary.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the Company
and/or one or more Wholly Owned Subsidiaries.
"World Equity Partners" means World Equity Partners, L.P., a Delaware
limited partnership.
DESCRIPTION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the principal U.S. federal income
tax consequences of the acquisition, ownership and disposition of the Notes to
initial beneficial owners of the Notes who are U.S. Holders (as defined below)
and the principal U.S. federal income and estate tax consequences of the
acquisition, ownership and disposition of the Notes to initial beneficial owners
of the Notes who are Non-U.S. Holders (as defined below). This discussion is
based on currently existing provisions of the Code, existing and proposed
Treasury regulations promulgated thereunder and administrative and judicial
interpretations thereof, all as in effect, or proposed on the date hereof and
all of which are subject to change, possibly with retroactive effect, or
different interpretations. It does not include any description of the tax laws
of any state, local or foreign government that may be applicable to the Notes or
beneficial owners thereof. This discussion does not address the tax consequences
to subsequent beneficial owners of the Notes, and is limited to beneficial
owners who hold the Notes as capital assets within the meaning of section 1221
of the Code. This discussion also does not address the tax consequences to
Non-U.S. Holders that are subject to U.S. federal income tax on a net basis on
income realized with respect to a Note because such income is effectively
connected with the conduct of a U.S. trade or business. Moreover, this
discussion does not address all of the U.S. federal income tax consequences that
may be relevant to particular initial beneficial owners in light of their
personal circumstances, or to certain types of initial beneficial owners (such
as certain financial institutions, insurance companies, tax-exempt entities,
dealers in securities or persons who have hedged the risk of owning a Note).
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP AND
DISPOSITION OF THE NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL TAX LAWS OR
ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND ANY CHANGES (OR PROPOSED CHANGES) IN
APPLICABLE TAX LAWS OR INTERPRETATIONS THEREOF.
U.S. Federal Income Taxation of U.S. Holders
Payments of Interest
In general, interest on a Note will be taxable to a beneficial owner who or
which is (i) a citizen or resident of the U.S. for U.S. federal income tax
purposes, (ii) a corporation or other entity taxable as a corporation created or
organized under the laws of the U.S. or any political subdivision thereof, (iii)
a person or entity whose worldwide income and gain are otherwise subject to U.S.
federal income tax on a net income basis in respect of income derived from
Notes, or (iv) an estate or trust the income of which is subject to U.S. federal
income tax regardless of its source (a "U.S. Holder") as ordinary income at the
time it is (actually or constructively) received or accrued, depending on the
beneficial owner's method of accounting for U.S. federal income tax purposes.
93
Sale, Exchange, Disposition and Retirement of Notes
A U.S. Holder's tax basis in a Note will generally be its cost. A U.S.
Holder will generally recognize gain or loss on the sale, exchange, retirement
or other disposition of a Note equal to the difference between the amount
realized on such sale, exchange, retirement or other disposition and the U.S.
Holder's tax basis in the Note. Gain or loss recognized on such sale, exchange,
retirement or other disposition of a Note (other than gain attributable to
accrued but unpaid interest) will be capital gain or loss and will be long-term
capital gain or loss if the Note was held for more than one year. Under recently
enacted changes, net capital gain from assets held more than 18 months will
generally be taxed at a maximum rate of 20%, while net capital gain from assets
held more than one year but not more than 18 months will generally be taxed at a
maximum rate of 28%.
U.S. Taxation of Non-U.S. Holders
Under present U.S. federal income and estate tax law and subject to the
discussion of backup withholding below:
(i) payments of principal and interest on the Notes by the Company or
any agent of the Company to any beneficial owner of a Note that is not a
U.S. Holder (a "Non-U.S. Holder") will not be subject to U.S. federal
withholding tax, provided that in the case of interest (a)(1) the Non-U.S.
Holder does not actually or constructively own 10 percent or more of the
total combined voting power of all classes of stock of the Company entitled
to vote, (2) the Non-U.S. Holder is not a controlled foreign corporation
that is related to the Company through stock ownership, (3) the Non-U.S.
Holder is not a bank described in Section 881(c)(3)(A) of the Code for
which the Notes are considered an extension of credit in the bank's
ordinary course of business, and (4) either (A) the beneficial owner of the
Notes certifies to the Company or its agents on Internal Revenue Service
("IRS") Form W-8 (or a suitable substitute form), under penalties of
perjury, that it is not a "U.S. person" (as defined in the Code) and
provides its name and address, or (B) a securities clearing organization,
bank or other financial institution that holds customers' securities in the
ordinary course of its trade or business (a "financial institution") and
holds the Notes on behalf of the beneficial owner certifies to the Company
or its agent under penalties of perjury that such statement has been
received from the beneficial owner by it or by a financial institution
between it and the beneficial owner and furnishes the payor with a copy
thereof or (b) the Non-U.S. Holder is entitled to the benefits of an income
tax treaty under which interest on the Notes is exempt from U.S.
withholding tax and provides a properly executed IRS Form 1001 claiming the
exemption;
(ii) a Non-U.S. Holder will not be subject to U.S. federal withholding
tax on gain realized on the sale, exchange or redemption of a Note, unless
the Non-U.S. Holder is an individual who is present in the U.S. for a
period or periods aggregating 183 or more days in the taxable year of the
disposition and certain other conditions are met; and
(iii) Notes held at the time of death (or theretofore transferred
subject to certain retained rights or powers) by an individual who at the
time of death is a Non-U.S. Holder will not be included in such holder's
gross estate for U.S. federal estate tax purposes provided that the
individual does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to
vote or hold the Notes in connection with a U.S. trade or business.
If a Non-U.S. Holder is engaged in a trade or business within the United
States and a payment on the Note or gain realized on a sale or other disposition
of the Note is effectively connected with such trade or businesses, the Non-U.S.
Holder, although exempt from United States federal withholding tax as described
above, will be subject to United States federal income tax on a net income basis
in the same manner as if it were a U.S. Holder. In addition, if such Holder is a
foreign corporation, it may be subject to a branch profits tax equal to 30% (or
lesser applicable treaty rate) of its U.S.
effectively connected earnings and profits.
Information Reporting and Backup Withholding
For each calendar year in which the Notes are outstanding, the Company is
required to provide the IRS with certain information, including the beneficial
owner's name, address and taxpayer identification number, the aggregate amount
of interest paid to the beneficial owner during the calendar year and the amount
of tax withheld, if any. This obligation, however, does not apply with respect
to payments to certain U.S. Holders, including
94
corporations, tax-exempt organizations, qualified pension and profit sharing
trusts and individual retirement accounts, provided that they establish
entitlement to an exemption.
In the event that a U.S. Holder subject to the reporting requirements
described above fails to supply its correct taxpayer identification number in
the manner required by applicable law or underreports its tax liability, the
Company, its agents or paying agents or a broker may be required to "backup"
withhold a tax equal to 31% of each payment of interest and principal (and
premium, if any) on the Notes. The backup withholding is not an additional tax
and may be credited against the U.S. Holder's U.S. federal income tax liability,
provided that the required information is furnished to the IRS.
Under current Treasury regulations, backup withholding and information
reporting will not apply to payments made by the Company or any agent thereof
(in its capacity as such) to a Non-U.S. Holder of a Note if such holder has
provided the required certification that it is not a U.S. person as set forth in
clause (4) in the first paragraph under "U.S. Taxation of Non-U.S. Holders," or
has otherwise established an exemption (provided that neither the Company nor
its agent has actual knowledge that the holder is a U.S. person or that the
conditions of any exemption are not in fact satisfied).
Payment of the proceeds from the sale of a Note to or through a foreign
office of a broker will not be subject to information reporting or backup
withholding, except that if the broker is a U.S. person, a controlled foreign
corporation for U.S. federal income tax purposes or a foreign person 50 percent
or more of whose gross income from all sources for the three-year period ending
with the close of its taxable year preceding the payment was effectively
connected with a U.S. trade or business, information reporting may apply to such
payments. Payment of the proceeds from a sale of a Note to or through the U.S.
office of a broker is subject to information reporting and backup withholding
unless the holder or beneficial owner certifies as to its taxpayer
identification number or otherwise establishes an exemption from information
reporting and backup withholding.
Proposed Regulations
The IRS recently issued proposed regulations relating to withholding,
backup withholding and information reporting that, if adopted in their current
form, would, among other things, unify current certification procedures and
forms and clarify certain reliance standards. The regulations are proposed to be
effective generally for payments made after December 31, 1997 but provide that
certificates issued on or before the date that is 60 days after the proposed
regulations are made final will continue to be valid until they expire. The
proposed regulations, however, may be subject to change prior to their adoption
in final form.
UNDERWRITING
The Underwriters named below have severally agreed, subject to the terms
and conditions of the Underwriting Agreement with the Company, to purchase from
the Company the aggregate principal amount of Notes set forth opposite their
respective names.
Principal
Amount of
Name Notes
- ---- ---------------
Salomon Brothers Inc........................................
Credit Suisse First Boston Corporation......................
Morgan Stanley & Co. Incorporated...........................
----------------
Total.............................................. $130,000,000
================
In the Underwriting Agreement, the several Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
Notes offered hereby if any such Notes are purchased. In the event of a default
by an Underwriter, the Underwriting Agreement provides that, in certain
circumstances the purchase commitments of the non-defaulting Underwriters may be
increased or the Underwriting Agreement may be terminated.
The Underwriters have advised the Company that the Underwriters propose
initially to offer the Notes to the public at the public offering price set
forth on the cover page of this Prospectus and to certain dealers at such
offering price less a concession not in excess of % of the principal amount of
the Notes. The Underwriters
95
may allow and such dealers may reallow a concession not in excess of % of
such principal amount to certain other dealers. After the initial public
offering, the public offering price and such concession may be changed.
The Company does not intend to apply for listing of the Notes on any
securities exchange or for quotation of the Notes through the National
Association of Securities Dealers Automated Quotation System. The Underwriters
have indicated that they intend to make a market in the Notes, subject to
applicable laws and regulations. However, the Underwriters are not obligated to
do so and any such market-making may be discontinued at any time at the
Underwriters' sole discretion. No assurance can be given as to the development
of liquidity in any trading market for the Notes. See "Risk Factors--Lack of
Public Market."
The Company has agreed with the Underwriters not to offer, sell, contract
to sell, grant an option to purchase or otherwise dispose of, directly or
indirectly, or announce the offering of, or file a registration statement for,
any debt securities issued or guaranteed by the Company or any Subsidiary
Guarantor, or enter into any agreement to do any of the foregoing, for a period
of 180 days from the date the Notes are issued without the prior written consent
of Salomon Brothers Inc, other than pursuant to the registration rights
agreement for the Company's outstanding Senior Subordinated Notes and are
providing certain financial advisory services to the Company in connection with
the acquisition of Ballantrae, in each case for which Salomon Brothers Inc has
received or will receive customary compensation.
The Underwriters may engage in stabilizing transactions, syndicate covering
transactions and penalty bids in accordance with Rule 104 under the Exchange
Act. Stabilizing transactions permit bids to purchase the underlying security so
long as the stabilizing bids do not exceed a specified maximum. Syndicate
covering transactions involve purchases of Notes in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Underwriter to reclaim a selling concession from a
syndicate member when the Notes originally sold by such syndicate member are
purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the Notes to be higher than it would
otherwise be in the absence of such transactions.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or contribute to payments the Underwriters may be required to
make in respect thereof.
The Underwriters are the representatives for the underwriters in connection
with the Equity Offering. Salomon Brothers Inc was the lead initial purchaser in
connection with the Company's offering in 1996 of its Senior Subordinated Notes
and is providing certain financial advisory services to the Company in
connection with the acquisition of Ballantrae, in each case for which Salomon
Brothers Inc has received or will receive customary compensation.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the
Company by Dechert Price & Rhoads, Philadelphia, Pennsylvania. Certain matters
in connection with this Offering will be passed upon for the Underwriters by
Cravath, Swaine & Moore, New York, New York.
EXPERTS
The consolidated financial statements of Delco Remy International, Inc. as
of July 31, 1997 and 1996, and for each of the three years in the period ended
July 31, 1997, appearing in this Prospectus have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
96
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors...................................................................................... F-2
Consolidated Statements of Operations for the years ended July 31, 1995, 1996 and 1997.............................. F-3
Consolidated Balance Sheets as of July 31, 1996 and 1997............................................................ F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended July 31, 1995, 1996 and 1997.......... F-6
Consolidated Statements of Cash Flows for the years ended July 31, 1995, 1996 and 1997.............................. F-7
Notes to Consolidated Financial Statements.......................................................................... F-8
F-1
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Delco Remy International, Inc.
We have audited the accompanying consolidated balance sheets of Delco Remy
International, Inc. as of July 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the three years in the period ended July 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Delco Remy International, Inc. at July 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended July 31, 1997, in conformity with generally accepted accounting
principles.
Indianapolis, Indiana
September 5, 1997, except for "Share and
Per Share Information" in Note 16, as
to which the date is October ___, 1997
The foregoing report is in the form that will be signed upon the determination
of the Stock Split as described in Note 16 to the consolidated financial
statements.
ERNST & YOUNG LLP
F-2
DELCO REMY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
For the Year Ended July 31
-----------------------------------------------
1995 1996 1997
------------- ------------- -------------
Net sales....................................................... $ 573,423 $ 636,852 $ 689,787
Cost of goods sold.............................................. 475,216 510,078 540,234
------------- ------------- -------------
Gross profit.................................................... 98,207 126,774 149,553
Selling, engineering, and administrative expenses............... 61,206 77,994 89,098
Restructuring charges........................................... -- 8,101 34,500
------------- ------------- -------------
Operating income................................................ 37,001 40,679 25,955
Other income (expense):
Gain on sale of building................................... -- -- 2,082
Interest expense........................................... (18,432) (27,367) (38,774)
------------- ------------- -------------
Income (loss) from continuing operations before income taxes
(benefit), preferred dividend requirement of subsidiary
and minority interest...................................... 18,569 13,312 (10,737)
Minority interest in income of subsidiaries..................... -- 259 892
Income taxes (benefit).......................................... 7,846 5,741 (3,014)
Preferred dividend requirement of subsidiary.................... 1,397 1,516 1,648
------------- ------------- -------------
Income (loss) from continuing operations........................ 9,326 5,796 (10,263)
Discontinued operations:
Loss from operations of discontinued businesses (less
applicable income tax benefit of $1,582, $1,042 and $395,
respectively)........................................... 2,363 1,573 808
Loss on disposal of businesses (less applicable income tax
benefit of $6,043 and $426)............................. -- 9,064 874
Extraordinary item:
Write-off of debt issuance costs (less applicable income
tax benefit of $1,147).................................. -- -- 2,351
------------- ------------- -------------
Net income (loss)............................................... $ 6,963 $ (4,841) $ (14,296)
============= ============= =============
1997 Pro Forma Loss Per Share
-----------------------------------------------
From Before
Continuing Extraordinary Net
Operations Item Loss
------------- ------------- -------------
Primary......................................................... $ $ $
Supplemental....................................................
See Accompanying Notes
F-3
DELCO REMY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
July 31
------------------------------------
1996 1997
---------------- ---------------
Assets:
Current assets:
Cash and cash equivalents................................... $ 3,406 $ 10,050
Trade accounts receivable (less allowance for doubtful
accounts of $1,209 and $2,935, respectively)............ 94,992 110,184
Other receivables........................................... 10,585 10,487
Recoverable income taxes.................................... 8,674 2,889
Inventories................................................. 123,583 164,417
Deferred income taxes....................................... 15,462 21,474
Other current assets........................................ 1,213 4,643
---------------- ---------------
Total current assets............................................. 257,915 324,144
Property and equipment........................................... 170,391 147,222
Less accumulated depreciation.................................... 29,235 26,858
---------------- ---------------
141,156 120,364
Deferred financing costs......................................... 6,497 8,803
Goodwill (less accumulated amortization of $4,758 and $7,289,
respectively)............................................... 66,570 86,612
Net assets held for disposal..................................... -- 25,279
Investment in affiliate.......................................... -- 3,119
Other assets..................................................... 2,944 2,248
---------------- ---------------
Total assets..................................................... $ 475,082 $ 570,569
================ ===============
See Accompanying Notes
F-4
DELCO REMY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
July 31
--------------- -- ---------------
1996 1997
--------------- ---------------
Liabilities and stockholders' equity (deficit):
Current liabilities:
Accounts payable................................................ $ 81,207 $ 88,578
Accrued interest payable........................................ 4,026 3,107
Accrued restructuring charges................................... 5,541 37,377
Liabilities related to discontinued operations.................. 11,005 3,324
Other liabilities and accrued expenses.......................... 32,683 35,949
Current portion of long-term debt............................... 9,652 507
--------------- ---------------
Total current liabilities............................................ 144,114 168,842
Deferred income taxes................................................ 6,795 1,556
Long-term debt, less current portion................................. 289,144 363,261
Post-retirement benefits other than pensions......................... 8,186 12,677
Accrued pension benefit.............................................. 950 4,542
Other non-current liabilities........................................ 5,427 4,124
Minority interest in subsidiary...................................... 4,457 8,032
Redeemable exchangeable preferred stock of subsidiary................ 14,420 16,071
Stockholders' equity (deficit):
Common stock:
Class A Shares (par value $.01; authorized 1,000,000;
issued 517,727 in 1996 and 525,477 in 1997).......... 5 5
Class B Shares (par value $.01; authorized 1,000,000;
issued 385,523 in 1996 and 1997)..................... 4 4
Paid-in capital................................................. 1,798 10,194
Retained earnings (deficit)..................................... 2,122 (12,174)
Cumulative translation adjustment............................... (2,161) (1,752)
Stock purchase plan............................................. (179) (4,813)
--------------- ---------------
Total stockholders' equity (deficit)................................. 1,589 (8,536)
--------------- ---------------
Total liabilities and stockholders' equity (deficit)................. $ 475,082 $ 570,569
=============== ===============
See Accompanying Notes
F-5
DELCO REMY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
Class A Class B Retained Cumulative Stock
Common Common Paid-In Earnings Translation Purchase
Stock Stock Capital (Deficit) Adjustment Plan Total
------------ ---------- --------- ----------- ----------- ------------ -----------
Initial capitalization at
August 1, 1994............... $ 5 $ 4 $ 1,572 $ -- $ -- $ (50) $ 1,531
Issuance of common stock..... -- -- 241 -- -- (124) 117
Net income................... -- -- -- 6,963 -- -- 6,963
Foreign currency translation
adjustment................... -- -- -- -- (181) -- (181)
------------ ---------- --------- ----------- ----------- ------------ -----------
Balance at July 31, 1995..... 5 4 1,813 6,963 (181) (174) 8,430
Repurchase of common stock... -- -- (15) -- -- (5) (20)
Net loss..................... -- -- -- (4,841) -- -- (4,841)
Foreign currency translation
adjustment................... -- -- -- -- (1,980) -- (1,980)
------------ ---------- --------- ----------- ----------- ------------ -----------
Balance at July 31, 1996..... 5 4 1,798 2,122 (2,161) (179) 1,589
Issuance of common stock..... -- -- 8,419 -- -- (4,653) 3,766
Repurchase of common stock... -- -- (23) -- -- 19 (4)
Net loss..................... -- -- -- (14,296) -- -- (14,296)
Foreign currency translation
adjustment................... -- -- -- -- 409 -- 409
----------------------------------------------------------------------------------------
Balance at July 31, 1997..... $ 5 $ 4 $10,194 $ (12,174) $ (1,752) $ (4,813) $ (8,536)
============ =========== ========== ============ =========== ============ ==========
See Accompanying Notes
F-6
DELCO REMY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Year Ended July 31
--------------------------------------------
1995 1996 1997
------------ ------------ ------------
Operating activities:
Net income (loss)............................................ $ 6,963 $ (4,841) $ (14,296)
Extraordinary item........................................... -- -- 3,498
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................... 14,533 19,555 22,323
Gain on sale of building................................ -- -- (2,082)
Deferred income taxes................................... (3,580) (2,947) (9,578)
Post-retirement benefits other than pensions............ 4,434 3,752 4,491
Accrued pension benefits................................ 4,459 (3,509) 3,592
Non-cash interest expense............................... 8,069 7,867 7,949
Preferred dividend requirement of subsidiary............ 1,397 1,516 1,648
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable................................. (49,320) (24,458) (3,341)
Inventories......................................... (8,035) (25,720) (10,245)
Accounts payable.................................... 49,613 8,634 (11,036)
Other current assets and liabilities................ (6,657) 18,229 (4,538)
Accrued restructuring............................... -- 5,541 31,836
Other non-current assets and liabilities, net....... 45 (4,303) 2,316
------------ ------------ ------------
Net cash provided by (used in) operating activities.......... 21,921 (684) 22,537
Investing activities:
Acquisitions, net of cash acquired........................... (62,010) (46,320) (42,442)
Purchase of property and equipment........................... (11,241) (32,741) (31,888)
Investment in affiliates..................................... -- -- (3,119)
Proceeds from sale of building............................... -- -- 3,362
------------ ------------ ------------
Net cash used in investing activities........................ (73,251) (79,061) (74,087)
Financing activities:
Proceeds from issuances of long-term debt.................... 31,918 89,652 180,000
Payments on long-term debt................................... (4,917) (8,842) (126,200)
Other financing activities................................... 118 (20) 3,986
------------ ------------ ------------
Net cash provided by financing activities.................... 27,119 80,790 57,786
------------ ------------ ------------
Effect of exchange rate changes on cash...................... -- 883 408
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents......... (24,211) 1,928 6,644
Cash and cash equivalents at beginning of year............... 25,689 1,478 3,406
------------ ------------ ------------
Cash and cash equivalents at end of year..................... $ 1,478 $ 3,406 $ 10,050
============ ============ ============
See Accompanying Notes
F-7
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1997
(dollars in thousands)
1. ORGANIZATION AND ACQUISITIONS
Delco Remy America Acquisition
On August 1, 1994, Delco Remy International, Inc. (the Company or DRI)
through a wholly-owned subsidiary, Delco Remy America, Inc. (DRA), purchased
substantially all of the assets, other than facilities, and assumed certain
liabilities of specific business activities of the Delco Remy Division of
General Motors Corporation (the GM Acquisition). The specific business
activities purchased are engaged in the design, manufacture, remanufacture and
sale of heavy duty starter motors and generators, automotive starter motors, and
related components.
The aggregate purchase price of the GM Acquisition of $155,665 (including
fees and expenses) was accounted for as a purchase. The Company issued (i)
common stock of $1,531, (ii) preferred stock of $11,507 and (iii) debt of
$158,200 to fund the purchase and provide capital for general corporate
purposes. The GM Acquisition resulted in the recording of approximately $17,600
of goodwill which is being amortized over 15 years. While the GM Acquisition was
recorded based on the best estimates available, certain purchase price
adjustments as of the August 1, 1994 purchase date have not been determined or
agreed to by General Motors Corporation (GM) and DRI. The resolution of these
items could result in a charge or credit to operations when finalized. The
accompanying consolidated financial statements reflect the consolidated results
of operations and cash flows for the Company subsequent to the GM Acquisition.
The Company had no operations prior to August 1, 1994.
GM is entitled to receive an additional contingent purchase payment which
will be paid beginning in 2004 and will be based upon a percentage of average
earnings of the Company in the three year period ending December 31, 2003 in
excess of certain imputed earnings. Since the additional contingent purchase
price, if any, is based upon future operations of the Company which cannot be
determined at this time, no provision for such payment has been made in the
accompanying consolidated financial statements.
Concurrent with the GM Acquisition, the Company entered into certain supply
agreements with GM whereby the Company will be the sole-source supplier to GM
for component parts manufactured by the Company at the date of the GM
Acquisition. The supply agreement for automotive starter motors has an initial
term of ten years, while the supply agreement for heavy duty starter motors and
generators has an initial term of six years.
1997 Acquisition
On May 8, 1997, the Company, through a wholly-owned subsidiary, acquired
82.5% of the outstanding common stock of World Wide Automotive, Inc. (World
Wide). World Wide is primarily an aftermarket supplier of light duty import
starters and alternators, although it also has a small amount of heavy duty
remanufacturing sales and domestic aftermarket sales. The remaining 17.5%
interest in World Wide is owned by current management of World Wide.
The aggregate purchase price was $40,842, including cash payments of
$38,692 and the issuance of Class A Common Stock valued at $2,150. The World
Wide acquisition was treated as a purchase for accounting purposes and is
included in the consolidated financial statements of the Company beginning with
the acquisition date. The World Wide acquisition resulted in goodwill of $21,301
which is being amortized over 35 years.
1996 Acquisition
On February 6, 1996 the Company, through a wholly-owned subsidiary,
acquired 82.5% of the outstanding common stock of Power Investments, Inc. and
related companies (Power), a remanufacturer of diesel and gasoline engines, fuel
systems, transmissions, alternators and starters for medium, heavy duty, and
automotive applications. Power also remanufactures and distributes brakes, water
pumps, power steering pumps and various other remanufactured truck parts and
assemblies. Power has fifteen facilities located in the United States and
Canada. The remaining 17.5% interest in Power is owned by current management of
Power.
F-8
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
July 31, 1997
The aggregate purchase price was $48,422 including cash payments of $23,385
and the issuance of $24,300 of 9.86% Power Investments Seller Notes. The Power
acquisition was treated as a purchase for accounting purposes and is included in
the consolidated financial statements of the Company beginning with the
acquisition date. The Power acquisition resulted in goodwill of $16,267 which is
being amortized over 35 years.
1995 Acquisitions
In 1995, the Company made the following three acquisitions which were
treated as purchases for accounting purposes and are included in the
consolidated financial statements beginning with the respective acquisition
date. Each respective purchase price was allocated to the assets acquired and
liabilities assumed at their estimated fair values. The three acquisitions
resulted in goodwill of $38,864 which is being amortized over 35 years.
On January 6, 1995, the Company purchased all the stock of two
related companies (collectively referred to as Nabco) for an aggregate
cash purchase price of $27,600 and the issuance of 28,750 shares of DRI
Class A Common Stock. Nabco remanufactures automotive starters and
alternators.
On March 31, 1995, the Company, through a newly formed subsidiary,
purchased the shares of six related corporations (collectively referred
to as A&B). The aggregate purchase price of $33,400 included cash
payments of $29,900 and the issuance of $3,500 in 10% subordinated
notes. The A&B acquisition was financed through additional borrowings
under the Company's revolving loan and a new acquisition term loan of
$15,000. A&B remanufactures heavy duty starters and alternators and
related sub-components and parts.
On April 13, 1995, the Company acquired, through a series of stock
purchase transactions, approximately 97% interest in a Hungarian
company (Autovill), a manufacturer of heavy duty starter motors and
generators. The total purchase price was approximately $7,500 which
included the assumption of certain Autovill liabilities of $4,100.
Unaudited Pro Forma Results of Operations
The unaudited pro forma consolidated results of operations, assuming the
1995, 1996 and 1997 acquisitions had been consummated as of the beginning of the
preceding year, are as follows:
For the Year Ended July 31
----------------------------------------------------------
1995 1996 1997
----------------- ----------------- ----------------
Revenues......................... $ 666,604 $ 733,257 $ 738,802
Operating income................. 49,464 47,644 28,115
Income (loss) from continuing
operations....................... 13,929 5,445 (10,632)
Net income (loss)................ 11,566 (5,192) (14,665)
The pro forma consolidated financial information does not purport to
present what the Company's consolidated results of operations would actually
have been if the operations were combined during the periods presented and is
not intended to project future results or trends of operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation and Business Segment
The consolidated financial statements include the accounts of DRI and its
subsidiaries. All intercompany accounts and transactions have been eliminated in
consolidation. The Company designs, manufactures, remanufactures and distributes
electrical, powertrain/drivetrain and engine-related components for automobiles,
light and heavy duty trucks and other heavy duty vehicles. The Company's
products include starter motors, alternators, engines, transmissions and fuel
systems for the aftermarket and the original equipment manufacturer market,
principally in North America but also in Europe, Latin America and Asia-Pacific.
F-9
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
July 31, 1997
Use of Estimates
Preparation of the consolidated financial statements requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates. Cash and Cash Equivalents
Cash and cash equivalents includes all cash balances and highly liquid
investments held primarily in repurchase agreements collateralized by U.S.
Government securities with a maturity of ninety days or less when purchased. The
carrying amount of cash equivalents approximates fair value.
Concentrations of Credit Risk and Other Risks
Substantially all of the Company's accounts receivable are due from
customers in the original equipment and aftermarket automotive industries, both
in the U.S. and internationally. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. Credit losses are provided for in the financial statements and have
been consistently within management's expectations. The Company invests its
temporary cash in high credit quality financial institutions and investment
grade short-term investments and limits the amount of credit exposure to any one
entity.
The percentage of the Company's labor force covered by a collective
bargaining agreement (CBA) and covered by a CBA that will expire within one year
is 48.0% and 2.4%, respectively.
Inventories
Inventories are carried at lower of cost or market determined on the
first-in, first-out (FIFO) method. Raw materials also include supplies and
repair parts which consist of material consumed in the manufacturing process but
not directly incorporated into the finished products. Inventories at July 31,
1996 and 1997 consisted of the following:
July 31
--------------------------------------
1996 1997
----------------- -----------------
Raw material........................ $ 57,481 $ 84,583
Work in-process..................... 32,790 20,168
Finished goods...................... 33,312 59,666
================= =================
$ 123,583 $ 164,417
================= =================
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated
primarily using the straight-line method over the estimated useful lives of the
related assets (15 years for buildings and 3 to 15 years for machinery and
equipment).
Foreign Currency Translation
Financial statements of foreign subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date for assets and
liabilities and at the average exchange rate for each year for revenue and
expenses. Translation adjustments are recorded as a separate component of
stockholders' equity.
Foreign Exchange Contracts
The Company enters into foreign exchange contracts to hedge certain foreign
transactions. These contracts reduce currency risk from exchange rate movements.
Gains and losses are deferred and accounted for as part of the underlying
transactions. The contractual amount and related deferred gains and losses from
these contracts are immaterial.
Goodwill
Goodwill represents the excess of purchase price over fair value of the net
assets acquired and is being amortized by the straight-line method over 15 to 35
years.
F-10
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
July 31, 1997
The carrying amount of goodwill is regularly reviewed for indicators of
impairment in value, which in the view of management are other than temporary,
including unexpected or adverse changes in the following: (i) the economic or
competitive environments in which the Company operates; (ii) profitability
analyses and (iii) cash flow analyses. If facts and circumstances suggest that a
subsidiary's net assets are impaired, the Company assesses the fair value of the
underlying business and reduces goodwill to an amount that results in the book
value of the subsidiary approximating fair value.
Investment in Affiliate
Investment in affiliate represents the Company's equity investment in its
Korean joint venture. This investment is accounted for using the equity method.
Recognition of Revenue
Substantially all of the Company's revenue is recognized at the time the
product is shipped. The Company's remanufacturing operations obtain used diesel
and gasoline engines, fuel systems, transmissions, starter motors and
generators, commonly known as cores, from its customers as trade-ins. Net sales
and cost of goods sold are reduced by $58,800, $70,000 and $113,100 for 1995,
1996 and 1997, respectively, to reflect the cost of cores returned for credit.
Fair Value of Financial Instruments
The Company's financial instruments generally consist of cash and cash
equivalents, trade and other receivables, accounts payable, long-term debt and
redeemable convertible preferred stock of subsidiary. The fair value of the
Company's fixed rate debt was estimated using discounted cash flow analyses
based upon the Company's current incremental borrowing rates. With the exception
of the Senior Subordinated Notes, the carrying amounts of these financial
instruments approximated their fair value at July 31, 1996 and 1997. At July 31,
1997, the Senior Subordinated Notes have a face value of $140.0 million and a
fair value of $148.4 million.
Reclassification
Certain amounts in the 1995 and 1996 financial statements have been
reclassified to conform to the 1997 presentation.
Impact of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of warrants to purchase common stock will be excluded. The
impact is expected to result in an increase in historical primary earnings
(loss) per share for the years ended July 31, 1995, 1996 and 1997, of $ , $
and $ per share, respectively. The impact of Statement No. 128 on the
calculation of fully diluted earnings per share for these years is not expected
to be material.
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income, which is effective for years beginning after December 15, 1997, and will
be adopted by the Company in 1998. The Statement establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The Statement will not have any impact
on the results of operations or the financial position of the Company.
In June 1997, the FASB issued Statement No. 131, Disclosures about Segments
of an Enterprise and Related Information. The Statement changes the way public
companies are required to report segment information in annual financial
statements and in interim financial reports to stockholders. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The Statement is effective for financial statements for
fiscal years beginning after December 15, 1997, and the Company anticipates
adopting the Statement in 1999. The Company is evaluating the impact that this
Statement will have on its financial reporting.
F-11
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
July 31, 1997
3. DISCONTINUED OPERATIONS
Marine Corporation of America, Marine Drive Systems, and Powrbilt Products
In July 1997, the Company adopted plans for the sale of the marine products
business segment consisting of three non-core businesses. The Company plans to
sell the net assets of Marine Corporation of America, Marine Drive Systems and
Powrbilt Products (the 1997 Discontinued Businesses). These non-core businesses
were acquired in February 1996 in conjunction with the acquisition of Power.
A charge of $874 net of a tax benefit of $426 for operating losses expected
during the disposal period was recorded. The Company does not anticipate a loss
on the disposal of the net assets of the discontinued businesses. It is expected
that the net assets of the businesses will be sold during fiscal 1998.
Summary operating results of the 1997 Discontinued Businesses since their
acquisition are as follows:
For the Year Ended July 31
------------------------------
1996 1997
------------- -------------
Net sales....................................... $ 5,624 $ 10,935
Net loss........................................ (328) (808)
The net assets of the 1997 Discontinued Businesses included in the
consolidated balance sheet are summarized as follows:
July 31,
1997
------------
Current assets............................................ $ 6,525
Property and equipment, net............................... 650
Current liabilities....................................... (1,848)
============
Net assets................................................ $ 5,327
============
Powder Metal Forge
In December 1995, the Company adopted plans for sale of its non-core powder
metal forge business segment (PMF) and recorded an initial loss on disposal. A
sale agreement was signed in December 1996 to transfer ownership of net assets
of PMF. Terms of the sale agreement require the Company to continue PMF
operations through a transition period in which the buyer will begin production
at its facility. The Company expects the transition period to be completed by
November 1997. The agreement requires the buyer to reimburse the Company for all
losses incurred from operating the business after December 1997 if the
transition has not been completed. PMF produces various engine components,
primarily for GM, through a forging process.
The Company recorded a charge of $9,064, net of tax benefit of $6,043, for
losses on disposal of the business, operating losses expected during the
transition period, and allocated interest expense. During the fiscal year ended
July 31, 1997, the Company utilized $8,981 of the reserves for discontinued
operations including a loss from operations of $2,171. At July 31, 1997, $2,024
of discontinued operations reserves remained on the balance sheet related to
PMF.
Summary operating results of the discontinued operation, excluding the loss
on disposal are as follows for the years ended:
For the Year Ended July 31
------------------------------
1995 1996
------------- -------------
Net sales..................................... $ 6,505 $ 4,228
Net loss...................................... (2,363) (1,245)
Interest expense of $1,014 and $496 in 1995 and 1996, respectively, was
allocated to discontinued operations of PMF based on the ratio of net assets
discontinued to total net assets and debt of the Company. In addition, interest
expense of $986 was allocated for the disposal period and is included in the
1996 loss on disposal of PMF. In 1997, $335 of interest expense was charged
against the reserve.
F-12
DELCO REMY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
July 31, 1997
The net assets of PMF included in the consolidated balance sheet are
summarized as follows:
July 31
1997
------------
Current assets.................................. $ 3,917
Current liabilities............................. (610)
------------
Net assets...................................... $ 3,307
============
4. RESTRUCTURING CHARGES
In May 1997, the Company decided to restructure the manufacturing
operations of DRA to utilize focus factory manufacturing concepts and to close
the Company's operations in the old vertically-integrated factories that were
leased from GM. These decisions resulted in the impairment of certain production
assets with a carrying amount of $30,321 ($25,279 of which is property and
equipment and $5,042 of which is related tooling and other supplies) which the
Company plans to sell or otherwise dispose. The Company has estimated the loss
on disposal including related costs at $26,260. In addition, the Company has
estimated a cost of $8,240 for reducing its workforce through several transition
programs. The results of operations for the products which will be discontinued
are not separately identifiable. The restructuring reserve is expected to be
utilized throughout 1998 and 1999.
In December 1995, the Company decided to eliminate the production of
certain parts and certain straight-drive starter motors for the original
equipment market. In addition, the Company purchased new, more efficient
equipment for use in the production of certain heavy duty alternators. These
decisions resulted in the impairment of certain production equipment with a
carrying amount of approximately $5,242, which the Company plans to sell or
otherwise dispose. The Company has estimated the loss on disposal, including
related costs, at $4,385. The results of operations for the parts and
straight-drive starter motors for which production will be discontinued are not
separately identifiable.
In October 1995, the Company offered to certain eligible salaried employees
a voluntary retirement transition program in conjunction with a similar plan
offered by GM to its employees which allowed such employees special additional
benefits not typically provided upon retirement. These additional benefits
include salaried payments for six months and future supplemental payments under
the salaried retirement plan. As a result, $3,716 was charged to operations in
1996.
The following table summarizes the provisions and reserves for
restructuring and non-recurring charges:
Termination Exit/Impairment
Benefits Costs Total
----------------- ------------------ ------------------
Provision in 1996...................................... $ 3,716 $ 4,385 $ 8,101
Payments and charges in 1996........................... (1,665) (895) (2,560)
----------------- ------------------ ------------------
Reserve at July 31, 1996............................... 2,051 3,490 5,541
Provision in 1997...................................... 8,240 26,260 34,500
Change in estimate..................................... (1,230) -- (1,230)
Payments and charges in 1997........................... (821) (613) (1,434)
----------------- ------------------ ------------------
Reserve at July 31, 1997............................... $ 8,240 $ 29,137 $ 37,377
================= ================== ==================
F-13
5. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The activity in the allowance for doubtful accounts is as follows:
For the Year Ended July 31
---------------------------------------------------------
1995 1996 1997
---------------- ----------------- ----------------
Balance at beginning of period.............................. $ -- $ 162 $ 1,209
Additions charged to costs and expenses..................... 119 1,091 3,774
Acquisition of certain businesses........................... 102 308 324
Uncollectible accounts written off, net of recoveries....... (59) (352) (2,372)
---------------- ----------------- ----------------
$ 162 $ 1,209 $ 2,935
================ ================= ================
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
July 31
--------------------------------
1996 1997
-------------- --------------
Land and buildings............................... $ 12,213 $ 5,895
Buildings under capital leases................... 13,931 21,434
Machinery and equipment.......................... 144,247 119,893
-------------- --------------
$ 170,391 $ 147,222
============== ==============
7. LONG-TERM DEBT
Borrowings under long-term debt arrangements consists of the following:
July 31
--------------------------------------
1996 1997
----------------- -----------------
Senior credit facility:
Revolving loans.............................. $ 48,530 $ --
Term loans................................... 54,235 --
Revolving acquisition loans.................. -- 34,963
Power seller notes............................... 24,300 8,300
World note....................................... 75,000 75,000
Senior subordinated notes........................ -- 140,000
GM acquisition note.............................. 55,224 59,155
A & B seller notes............................... 3,500 3,500
Junior subordinated notes........................ 22,619 25,211
Hungarian bank loans............................. 1,141 --
Other, including capital lease obligations....... 14,247 17,639
----------------- -----------------
298,796 363,768
Less current portion............................. 9,652 507
----------------- -----------------
$289,144 $ 363,261
================= =================
Senior Credit Facility
Pursuant to the senior credit facility, revolving credit loans of $150,000
are available for general purposes, of which up to $85,000 is available for
acquisitions. The senior credit facility provides for quarterly payments of
$9,400 beginning in the year 1999. The Company has the option of paying an
interest rate of one bank's prime or a LIBOR-based rate. The weighted average
interest on amounts outstanding at July 31, 1997 was 8.02%.
The senior credit facility contains various covenants which include, among
other things: (i) limitations on additional borrowings and encumbrances; (ii)
the maintenance of certain financial ratios and compliance with certain
financial tests and limitations; (iii) limitations on cash dividends paid; (iv)
limitations on investments and capital expenditures; and (v) limitations on
leases and sales of assets.
F-14
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
The senior credit facility is collateralized by a lien on substantially all
assets of the Company and its domestic subsidiaries and by all the capital stock
of such subsidiaries held by the Company or any such other subsidiary.
Power Seller Notes
The Power Seller Notes are due February 6, 2001. Interest, at a rate of
9.86% per annum, is payable monthly for the current month. The notes may be
prepaid without premium or penalty after August 6, 1997. The Power Seller Notes
are secured by letters of credit issued under the senior credit facility.
World Note
The World Note, due on July 31, 2003, is payable to an affiliate of a
stockholder and bears interest at a rate of 10.5% per annum, payable
semiannually.
On any three interest payment dates, the Company may elect to pay up to 50%
of the unpaid accrued interest by issuing additional notes to the holder of the
World Note. At the option of the Company, prepayment of the loan balance may be
made at repayment amounts ranging from 103% in 1997 to 100% of principal after
August 1, 2000. Upon a change in control, certain asset sales, casualty events
or a public offering (all as defined in the debt agreement), the holders have
the right, but not the obligation, to require mandatory redemption of the debt,
without premium or penalty.
The World Note agreement contains certain covenants which are similar to
the provisions of the senior credit facility. The World noteholder has agreed to
subordinate its right to receive payments to the senior credit facility lenders.
DRI and its domestic subsidiaries have guaranteed the payment of principal and
interest on the World Note.
Senior Subordinated Notes
On August 2, 1996, the Company issued $140 million of 10 5/8% Senior
Subordinated Notes due August 1, 2006 (the Senior Subordinated Notes). The
proceeds from the Senior Subordinated Notes were $135.8 million (net of issuance
costs). The proceeds were used as follows: (i) to repay all outstanding
indebtedness under the Senior Credit Facility, plus accrued and unpaid interest
thereon, (ii) $16,000 was used to prepay one of the Power Seller Notes, plus
accrued and unpaid interest thereon, and (iii) the remaining net proceeds were
invested temporarily in short-term interest bearing obligations. The Company
recorded an extraordinary loss in 1997 of $2,351, net of tax benefit of $1,147,
related to deferred financing costs associated with the payoff of the Senior
Credit Facility.
The Senior Subordinated Notes are unsecured senior subordinated obligations
of the Company and are subordinated in right of payment to the prior payment in
full of all existing and future senior indebtedness, pari passu with all present
and future senior subordinated indebtedness and senior to all present and future
subordinated indebtedness of the Company or the relevant subsidiary guarantors,
as defined in the indenture. The Senior Subordinated Notes will also be
effectively subordinated to any secured indebtedness to the extent of the value
of the assets securing such indebtedness.
The Senior Subordinated Notes are redeemable at the option of the Company,
in whole or in part, after August 1, 2001, at the redemption prices set forth in
the note agreement plus accrued and unpaid interest, if any, to the redemption
date. In addition, at any time prior to August 1, 1999, the Company may redeem,
at its option, up to an aggregate amount of 35% of the original principal amount
of the Senior Subordinated Notes with the proceeds of one or more public equity
offerings at a redemption price of 110% of the principal amount thereof plus
accrued and unpaid interest, if any, to the redemption date, provided that at
least 50% of the original aggregate principal amount of the notes remains
outstanding after each such redemption.
Upon the occurrence of a change of control (as defined), each holder of the
Senior Subordinated Notes will have the right to require the Company to purchase
all or a portion of such holder's notes at a price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest, if any, to
the date of purchase.
The indenture pursuant to which the Senior Subordinated Notes were issued
contains certain covenants that, among other things, limit the ability of the
Company and its restricted subsidiaries to (i) incur additional indebtedness,
(ii) pay dividends or make other distributions with respect to capital stock (as
defined) of the Company and its restricted subsidiaries, (iii) sell assets of
the Company or its restricted subsidiaries, (iv) issue or sell restricted
subsidiary stock, (v) enter into certain transactions with affiliates, (vi)
create certain liens, (vii) enter
F-15
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
into certain mergers and consolidations and (viii) incur indebtedness which is
subordinate to senior indebtedness and senior to the Senior Subordinated Notes.
Pursuant to a registration agreement among the Company and the initial
purchasers, the Company will commence an exchange offer pursuant to an effective
registration statement or cause the Notes to be registered under the Securities
Act pursuant to a resale shelf registration statement. If an exchange offer
registration statement is not (i) filed by October 31, 1997 or (ii) declared
effective by December 31, 1997, or (iii) if an exchange offer is not consummated
or a resale shelf registration statement is not declared effective by January
31, 1998, special interest will accrue initially at the rate of .25% per annum
increasing to a maximum rate of 1% per annum, payable semi-annually until such
time as an exchange offer is consummated or a resale shelf registration is
declared effective.
GM Acquisition Note
In connection with the GM Acquisition, DRA issued to GM a subordinated note
in the principal amount of $45,000 due 2004. Interest accrues semiannually at a
rate of 11.5% per annum and is added to the unpaid principal balance in amounts
ranging from 60% of the accruing interest in 1997 to 20% in 1999.
Beginning in 2000, interest is payable semiannually in cash.
A&B Seller Notes
In connection with the A&B acquisition, a subsidiary of DRI issued
subordinated notes in the principal amount of $3,500 due 2002. Interest is
payable semiannually at 10% per annum. The notes are subordinated to the senior
credit facility, senior subordinated debt, and the World Note. The notes may be
prepaid at any time without penalty.
Junior Subordinated Notes
DRI issued $18,200 in an initial principal amount of Junior Subordinated
Notes to two investors, who are also holders of the Company's common stock.
Interest on the junior subordinated notes accrues semiannually at 11% and is
payable entirely in additional principal, through 2004, when the entire balance
is due and payable.
Capital Lease Obligations
In 1996 the Company entered into an aggregate of $13,931 of new capital
leases with respect to three manufacturing facilities and its world headquarters
building. The leases have 15 year terms with options to renew for additional
periods. These leases have been capitalized using interest rates ranging from
12.5% to 14.2%. The carrying value of assets under capital leases was $15,870 at
July 31, 1997.
Other
Total cash interest paid for 1995, 1996 and 1997 was $7,738, $19,895 and
$31,744, respectively.
The following is the required principal payments of long-term debt and
capitalized leases:
1998....................................... $ 507
1999....................................... 721
2000....................................... 817
2001....................................... 9,366
2002....................................... 844
Thereafter................................. 351,513
----------------
$ 363,768
================
8. EMPLOYEE BENEFIT PLANS
Agreements with GM
In connection with the GM Acquisition, the Company and GM agreed to
allocate the responsibility for employee pension benefits and post-retirement
health care and life insurance on a pro-rata basis between DRA and GM. The
allocation is primarily determined upon years of service with DRA and aggregate
years of service with DRA and GM. In addition, GM has agreed to retain complete
responsibility for all pension and post-retirement
F-16
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
benefit costs for salaried and hourly employees who retired from DRA before
August 1, 1996 and October 1, 1996, respectively. Effective August 1, 1994, DRA
established hourly and salaried pension and post-retirement health care and life
insurance plans which are similar to the respective GM plans.
Pension Plans
DRA has defined benefit pension plans covering substantially all employees.
The plan covering salaried employees provides benefits that are based upon years
of service and final estimated average compensation. Benefits for hourly
employees are based on stated amounts for each year of service. DRA's funding
policy is to contribute amounts to provide the plans with sufficient assets to
meet future benefit payment requirements consistent with actuarial
determinations of the funding requirements of federal laws. DRA made
contributions of $6,454 and $1,085 to the plans in 1996 and 1997, respectively.
No contributions were made in 1995. Plan assets are primarily invested in mutual
funds which invest in both debt and equity instruments.
The components of net periodic pension cost for the plans are as follows:
For the Year Ended July 31
----------------------------------------------------------
1995 1996 1997
---------------- ---------------- -----------------
Service cost - benefits earned during the period......... $ 4,435 $ 2,935 $ 3,163
Interest costs on projected benefit obligation........... 2 293 544
Actual (gain) loss on assets............................. -- 51 (2,180)
Net amortization and deferral............................ 22 (316) 1,512
Special charge for early retirement...................... -- -- 1,633
---------------- ---------------- -----------------
Net periodic pension cost................................ $ 4,459 $ 2,963 $ 4,672
================ ================ =================
In 1997, the Company offered retirement incentives to salaried employees.
The program liability of $1,633 was included with the restructuring charge.
The following table sets forth the funded status for DRA's defined benefit
pension plans.
July 31
----------------------------------
1996 1997
--------------- ---------------
Actuarial present value of accumulated pension benefit
obligation:
Vested..................................................... $ 5,988 $ 11,375
Nonvested.................................................. 489 1,318
--------------- ---------------
Accumulated benefit obligation.................................. $ 6,477 $ 12,693
=============== ===============
Projected benefit obligation.................................... $ 7,021 $ 13,540
Plan assets at fair value....................................... (6,406) (9,664)
--------------- ---------------
Projected benefit obligation in excess of fair value of
plan assets................................................ 615 3,876
Prior service cost not yet recognized........................... (37) (911)
Unrecognized net gain........................................... 372 1,577
--------------- ---------------
Pension liability recognized in the balance sheet............... $ 950 $ 4,542
=============== ===============
The measurement of the July 31, 1996 and 1997 projected benefit obligation
was based upon a discount rate of 7.75%. The expected compensation growth rate
is 5% for salaried employees. The expected rate of return on plan assets is 10%.
Defined Contribution Plans
Various subsidiaries of the Company sponsor voluntary savings plans for
eligible salaried and hourly employees. These plans allow participants to make
contributions pursuant to section 401(k) of the Internal Revenue
F-17
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
Code. Certain of these plans have Company matching contribution provisions.
Charges to operations were $452, $686 and $532 for 1995, 1996 and 1997,
respectively.
Profit Sharing Plans
DRA sponsors profit sharing plans covering substantially all of its
employees. Distributions are determined based upon formulas established by
management and are made annually. Profit sharing expense for 1995, 1996 and 1997
was $1,700, $1,300 and $1,400, respectively.
Post-Retirement Health Care and Life Insurance Plans
DRA maintains hourly and salaried benefit plans that provide
post-retirement health care and life insurance to retirees and eligible
dependents. The benefits are payable for life, although DRA retains the right to
modify or terminate the plans providing these benefits. The salaried plan is
contributory, with additional cost sharing features such as deductibles and
co-payments. Salaried employees who were not GM employees prior to 1992 are not
eligible for the above described post-retirement benefits. It is DRA's policy to
fund these benefits as claims are incurred.
The following table sets forth the status of DRA's post-retirement benefit
plans.
July 31
-------------------------------------
1996 1997
---------------- -----------------
Accumulated post-retirement benefit obligation:
Fully eligible active participants...................... $ 148 $ 160
Active participants not yet fully eligible.............. 6,960 11,459
---------------- -----------------
7,108 11,619
Unrecognized net gain................................... 1,078 1,058
---------------- -----------------
Post-retirement benefit liability....................... $ 8,186 $ 12,677
================ =================
The components of post-retirement benefit expense are as follows:
For the Year Ended July 31
-----------------------------------------------------------
1995 1996 1997
----------------- ----------------- ----------------
Service Cost.......................................... $ 4,114 $ 3,557 $ 3,959
Interest Cost......................................... 320 254 551
Amortization of gain.................................. - (59) (19)
----------------- ----------------- ----------------
$ 4,434 $ 3,752 $ 4,491
================= ================= ================
Measurement of the accumulated post-retirement benefit obligation was based
on an 8.3% annual rate of increase in the cost of covered health care benefits.
The rate was assumed to decrease ratably to 5.5% through 2002 and remain level
at that rate thereafter. The discount rate used in determining the accumulated
post-retirement benefit obligation was 7.75%. An increase of 1% in assumed
health care cost trend rates would increase the accumulated post-retirement
benefit obligation as of July 31, 1997 by 25.8% and the net periodic cost for
1997 would be increased by 28.6%.
9. STOCKHOLDERS' EQUITY AND REDEEMABLE EXCHANGEABLE PREFERRED STOCK OF DRA
All shares of Class A Common Stock and Class B Common Stock are identical
and will entitle the holders thereof to the same rights and privileges, provided
that except as otherwise required by law, the holders of Class B common stock
shall have no voting rights. Each share of Class A stock is convertible into one
share of Class B stock and each share of Class B stock is convertible into one
share of Class A stock. Pursuant to a Stockholders Agreement dated July 29,
1994, the Company issued 470,590 shares of Class A Common Stock and 319,410
shares of Class B Common Stock for an aggregate of $1,581. In addition, 28,750
shares of Class A common stock were issued in connection with the Nabco
acquisition. On October 21, 1994, the Company approved a private placement
memorandum whereby the Company is authorized to offer for sale to certain
members of management of DRA up to 95,000 shares of Class A Common Stock. As of
July 31, 1997, 90,000 shares were outstanding
F-18
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
pursuant to the private placement at a price approximating book value. Shares
issued pursuant to this plan generally vest over three years. During 1997,
26,750 shares were sold for $6,079 less than the deemed fair market value. As a
result, compensation expense of $1,616 was recorded during the current year and
the balance of the unearned compensation of $4,463 will be amortized over the
remaining vesting period
The stockholder notes receivable of $179 and $350 at July 31, 1996 and
1997, respectively, were issued in connection with the sale of Class A Common
Stock and are payable in 1999 through 2002 together with interest at 9.25%
accrued interest per annum. The members of DRA management who are stockholders
of the Company are subject to agreements that impose certain restrictions and
grant rights on their ownership and transfer of Company stock. During the first
three years after issuance, stockholders are generally prohibited from
transferring shares of common stock of the Company owned by them. The Company
further has the right to repurchase such stock at amounts described in the
respective agreements when the management investor is no longer employed by DRA.
Warrants
In connection with the issuance of the Junior Subordinated Notes, DRI
issued warrants to purchase 100,000 shares of DRI Class A Common Stock at a
price of $.02 per share. The warrants can be exercised, in whole or in part, at
any time through June 31, 2004.
Redeemable Exchangeable Preferred Stock of DRA
In connection with the GM Acquisition, DRA issued 15,000 shares of Class A
Preferred Stock (par value $.01 per share and liquidation preference $1,000 per
share) to GM (DRA Preferred Stock). The provisions of the preferred stock call
for a cumulative cash dividend equal to $80 per share (8%). For financial
statement purposes the preferred stock has been discounted to approximately
$11,500 to reflect fair value at the issuance date based upon an 11.5% dividend
rate. The excess of the preference amount over the carrying value of the DRA
Preferred Stock is being accreted through August 1, 2004, at which time the DRA
Preferred Stock must be redeemed by DRA at $1,000 per share plus accrued and
unpaid dividends. At the option of DRA, the DRA Preferred Stock may be redeemed
at a price per share equal to $1,000 plus accrued and unpaid dividends. In
addition, the DRA Preferred Stock may be exchanged, at the option of DRA, in
whole or in part, for 8% subordinated debentures to be issued by DRA at $1,000
per share plus accrued and unpaid dividends. Dividends which accrue but remain
unpaid for one year accrue additional dividends at the rate of 8%. The carrying
value of the DRA Preferred Stock includes unpaid and accrued dividends of $3,896
as of July 31, 1997.
10. INCOME TAXES
The following is a summary of the components of the provision for income
taxes (benefit) of continuing operations:
For the Year Ended July 31
----------------------------------------------------
1995 1996 1997
--------------- --------------- ---------------
Current:
Federal................................. $ 9,529 $ 5,969 $ 3,220
State and Local......................... 1,927 916 2,019
Foreign................................. 61 131 977
--------------- --------------- ---------------
11,517 7,016 6,216
Deferred:
Federal................................. (3,021) (1,240) (8,615)
State and Local......................... (650) (35) (960)
Foreign................................. -- -- 345
--------------- --------------- ---------------
$ 7,846 $ 5,741 $ (3,014)
=============== =============== ===============
F-19
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
Income (loss) from continuing operations before income taxes (benefit),
preferred dividend requirement of subsidiary and minority interest was taxed in
the following jurisdictions:
For the Year Ended July 31
----------------------------------------------------
1995 1996 1997
--------------- --------------- ---------------
Domestic.................................................. $ 18,198 $ 10,104 $ (15,640)
Foreign................................................... 371 3,208 4,903
--------------- --------------- ---------------
$ 18,569 $ 13,312 $ (10,737)
=============== =============== ===============
A reconciliation of income taxes at the United States federal statutory
rate to the effective income tax rate follows:
For the Year Ended July 31
-------------------------------------------------------
1995 1996 1997
--------------- ---------------- ----------------
Federal statutory income tax rate.......................... 35.0% 35.0% 35.0%
State and local income taxes- net of federal tax benefit... 4.5 4.3 (7.7)
Compensation expense....................................... -- -- 6.0
Other items................................................ 2.7 3.8 6.8
--------------- ---------------- ----------------
Effective income tax rate.................................. 42.2% 43.1% 28.1%
=============== ================ ================
State and local income taxes include provisions for Indiana and Michigan
which do not provide proportional benefit in loss years.
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities:
July 31
----------------------------------
1996 1997
--------------- ---------------
Deferred tax assets:
Restructuring..................................... $ -- $ 4,424
Employee benefits................................. 7,385 7,157
Inventories....................................... 2,165 7,196
Warranty.......................................... 2,665 3,207
Asset impairment.................................. 1,380 8,480
Discontinued operations........................... 4,352 774
Non-compete agreements............................ -- 789
Alternative minimum tax credits................... 1,244 1,488
Other............................................. 3,054 2,835
--------------- ---------------
22,245 36,350
Deferred tax liabilities:
Depreciation...................................... (11,275) (13,475)
Discount on exchangeable securities............... (1,381) (1,336)
Other............................................. (922) (1,621)
--------------- ---------------
(13,578) (16,432)
--------------- ---------------
Net deferred tax asset................................. $ 8,667 $ 19,918
=============== ===============
The Company's alternative minimum tax credit may be carried forward
indefinitely. Income tax payments, including state taxes, for 1995, 1996 and
1997 were $8,900, $14,000 and $5,600, respectively.
No provision has been made for United States federal and state or foreign
taxes that may result from future remittances of undistributed earnings of
foreign subsidiaries ($9,336 at July 31, 1997) because it is expected that
F-20
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
such earnings will be reinvested in these foreign operations indefinitely. It is
not practical to estimate the amount of taxes that might be payable on the
eventual remittances of such earnings.
11. TRANSACTIONS WITH GM
The Company and GM have entered into several transactions and agreements
related to their respective businesses. In addition to the transactions
disclosed elsewhere in the accompanying consolidated financial statements and
related notes, the Company entered into the following transactions with GM:
For the Year Ended July 31
-----------------------------------------------
1995 1996 1997
------------- ------------- -------------
Sales....................................... $ 338,356 $ 298,084 $ 301,328
Material purchases and costs for services... 205,874 112,372 97,934
In addition, the Company had the following balances with GM:
July 31
------------------------------
1996 1997
------------- -------------
Trade accounts receivable............................. $ 27,391 $ 30,286
Other receivables..................................... 9,807 4,886
Accounts payable...................................... 10,752 7,644
12. LEASE COMMITMENTS
The Company occupies space and uses certain equipment under lease
arrangements. Rent expense was $959, $3,208 and $4,004 for 1995, 1996 and 1997,
respectively. Rental commitments at July 31, 1997 for long-term non-cancelable
operating leases were as follows for the year ending:
1998.......................................... $ 4,581
1999.......................................... 3,855
2000.......................................... 2,649
2001.......................................... 1,449
2002.......................................... 1,387
Thereafter.................................... 1,784
=============
$ 15,705
=============
13. COMMITMENTS AND CONTINGENCIES
The Company is party to various legal actions and administrative
proceedings and subject to various claims arising in the ordinary course of
business. The Company believes that the disposition of these matters will not
have a material adverse effect on the financial position, results of operations
or cash flows of the Company.
F-21
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
14. GEOGRAPHICAL INFORMATION
The Company operates predominantly in a single industry as a designer,
manufacturer, remanufacturer, and distributor of electrical and other engine
related components, including starter motors and alternators for automobiles,
trucks, and other heavy duty vehicles. The Company is a multi-national
corporation with operations in many countries including the United States,
Canada, Mexico, Hungary, Germany, Korea and the Netherlands. Sales, operating
profits and identifiable assets of Canadian, European and other foreign
locations are those sales, operating profits and assets related to the
operations in those locations. Geographical information is shown below:
For the Year Ended July 31
---------------------------------------------------
1995 1996 1997
-------------- --------------- ---------------
Net sales:
United States...................... $ 584,859 $ 657,782 $ 684,790
Canada............................. -- 26,815 47,240
Europe............................. 5,090 15,975 14,487
Other foreign...................... -- -- 7,052
Eliminate intercompany sales....... (16,526) (63,720) (63,782)
-------------- --------------- ---------------
Total net sales.................... $ 573,423 $ 636,852 $ 689,787
============== =============== ===============
Operating income:
United States...................... $ 36,544 $ 36,751 $ 23,196
Canada............................. -- 2,319 2,341
Europe............................. 457 1,609 784
Other foreign...................... -- -- (366)
-------------- --------------- ---------------
Total operating income............. $ 37,001 $ 40,679 $ 25,955
============== =============== ===============
Identifiable assets:
United States...................... $ 310,292 $ 427,847 $ 474,991
Canada............................. -- 29,959 31,197
Europe............................. 11,523 10,138 13,105
Other foreign...................... -- -- 16,303
-------------- --------------- ---------------
Total identifiable assets.......... 321,815 467,944 535,596
Corporate assets................... 65,096 119,339 192,458
Elimination........................ (64,384) (112,201) (157,485)
-------------- --------------- ---------------
Total assets................... $ 322,527 $ 475,082 $ 570,569
============== =============== ===============
15. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR
SUBSIDIARIES
The Company conducts a significant portion of its business through
subsidiaries. The Senior Notes referred to in Note 16 below are unconditionally
guaranteed, jointly and severally, by certain direct and indirect subsidiaries
(the Subsidiary Guarantors). Certain of the Company's subsidiaries do not
guarantee the Senior Notes (the Non-Guarantor Subsidiaries). The claims of
creditors of Non-Guarantor Subsidiaries have priority over the rights of the
Company to receive dividends or distributions from such subsidiaries.
Presented below is condensed consolidating financial information for the
Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at July
31, 1997 and 1996 and for the years ended July 31, 1997, 1996 and 1995.
The equity method has been used by the Company with respect to investments
in subsidiaries. The equity method has been used by Subsidiary Guarantors with
respect to investments in Non-Guarantor Subsidiaries. Separate financial
statements for Subsidiary Guarantors are not presented based on management's
determination that they do not provide additional information that is material
to investors.
F-22
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
The following table sets forth the Guarantor and direct Non-Guarantor
Subsidiaries:
Guarantor Subsidiaries Non-Guarantor Subsidiaries
- ----------------------------------------------------------- ---------------------------------------------------------
Delco Remy America, Inc. Autovill RT Ltd.
Remy International, Inc. Power Investments Canada Ltd.
Reman Holdings, Inc. Remy UK Limited
Nabco, Inc. Delco Remy International (Europe) GmbH
The A&B Group, Inc. Remy India Holdings, Inc.
A&B Enterprises, Inc. Remy Mauritius Ltd.
Dalex, Inc. Remy Korea Holdings, Inc.
A&B Cores, Inc. 681287 Alberta Ltd.
R&L Tool Company, Inc. Publitech, Inc.
MCA, Inc. of Mississippi World Wide Automotive Distributors, Inc.
Power Investments, Inc. Autovill Holdings, Inc.
Franklin Power Products, Inc.
International Fuel Systems, Inc.
Marine Drive Systems, Inc.
Marine Corporation of America
Powrbilt Products, Inc.
World Wide Automotive, Inc.
F-23
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
Condensed Consolidating Balance Sheet
July 31, 1997
-----------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- --------------------------------------------------------------
Assets:
Current assets:
Cash and cash equivalents........ $ -- $ 1,504 $ 8,546 $ -- $ 10,050
Trade accounts receivable........ -- 99,745 10,439 -- 110,184
Affiliate accounts receivable, net -- 33,409 2 (33,411)(a) --
Other receivables................ -- 9,605 882 -- 10,487
Recoverable income taxes......... -- 2,889 -- -- 2,889
Inventories...................... -- 145,035 19,382 -- 164,417
Deferred income taxes............ 4,315 17,159 -- -- 21,474
Other current assets............. -- 4,163 480 -- 4,643
-------------- -------------- -------------- -------------- --------------
Total current assets.................. 4,315 313,509 39,731 (33,411) 324,144
Property and equipment................ 20 133,769 13,433 -- 147,222
Less accumulated depreciation......... 13 22,353 4,492 -- 26,858
-------------- -------------- -------------- -------------- --------------
7 111,416 8,941 -- 120,364
Deferred financing costs.............. 5,148 3,655 -- -- 8,803
Goodwill, net......................... -- 76,437 10,175 -- 86,612
Net assets held for disposal.......... -- 25,279 -- -- 25,279
Investment in affiliates.............. 171,614 -- -- (168,495)(b)(c) 3,119
Other assets.......................... 1,953 (1,463) 1,758 -- 2,248
-------------- -------------- -------------- -------------- --------------
Total assets.......................... $ 183,037 $ 528,833 $ 60,605 $(201,906) $ 570,569
============== ============== ============== ============== ==============
(a) Eliminations of intercompany receivables and payables.
(b) Elimination of investments in subsidiaries.
(c) Elimination of investments in subsidiaries' earnings.
F-24
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
Condensed Consolidating Balance Sheet
July 31, 1997
------------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
Liabilities and stockholders' equity
(deficit):
Current liabilities:
Accounts payable................. $ 195 $ 82,585 $ 5,798 $ -- $ 88,578
Affiliate accounts payable....... 15,684 6,152 11,575 (33,411)(a) --
Accrued interest payable......... -- 3,107 -- -- 3,107
Accrued restructuring charges.... -- 37,377 -- -- 37,377
Liabilities related to
discontinued operations.......... -- 3,324 -- -- 3,324
Other liabilities and accrued
expenses......................... (11,076) 41,034 5,991 -- 35,949
Current portion of long-term
debt............................. -- 506 1 -- 507
-------------- -------------- -------------- -------------- --------------
Total current liabilities............. 4,803 174,085 23,365 (33,411) 168,842
Deferred income taxes................. 10,631 (9,114) 39 -- 1,556
Long-term debt, less current portion.. 173,511 189,669 81 -- 363,261
Post-retirement benefits other than
pensions......................... -- 12,677 -- -- 12,677
Accrued pension benefit............... -- 4,542 -- -- 4,542
Other non-current liabilities......... 876 3,231 17 -- 4,124
Minority interest in subsidiary....... -- 6,504 1,528 -- 8,032
Redeemable exchangeable preferred
stock of subsidiary.............. -- 16,071 -- -- 16,071
Stockholders' equity (deficit):
Common stock:
Class A Shares.............. 5 -- -- -- 5
Class B Shares.............. 4 -- -- -- 4
Paid-in capital.................. 10,194 -- -- -- 10,194
Subsidiary investment............ -- 127,665 31,970 (159,635)(b) --
Retained earnings (deficit)...... (12,174) 3,503 5,357 (8,860)(c) (12,174)
Cumulative translation
adjustment....................... -- -- (1,752) -- (1,752)
Stock purchase plan.............. (4,813) -- -- -- (4,813)
-------------- -------------- -------------- -------------- --------------
Total stockholders' equity
(deficit)........................ (6,784) 131,168 35,575 (168,495) (8,536)
-------------- -------------- -------------- -------------- --------------
Total liabilities and stockholders'
equity (deficit)................. $ 183,037 $ 528,833 $ 60,605 $ (201,906) $ 570,569
============== ============== ============== ============== ==============
(a) Eliminations of intercompany receivables and payables.
(b) Elimination of investments in subsidiaries.
(c) Elimination of investments in subsidiaries' earnings.
F-25
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
Condensed Consolidating Statement of Operations
For the Year Ended July 31, 1997
------------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
Net sales............................. $ -- $ 684,790 $ 68,779 $(63,782)(a) $ 689,787
Cost of goods sold.................... -- 548,875 55,141 (63,782)(a) 540,234
-------------- -------------- -------------- -------------- --------------
Gross profit.......................... -- 135,915 13,638 -- 149,553
Selling, engineering, and
administrative expenses.......... 6,325 71,933 10,840 -- 89,098
Restructuring charges................. -- 34,500 -- -- 34,500
-------------- -------------- -------------- -------------- --------------
Operating (loss) income............... (6,325) 29,482 2,798 -- 25,955
Other income (expense):
Gain on sale of building......... -- -- 2,082 -- 2,082
Interest expense................. (18,815) (19,997) 38 -- (38,774)
-------------- -------------- -------------- -------------- --------------
(Loss) income from continuing
operations before income tax
(benefit), preferred dividend
requirement of subsidiary, and
minority interest................ (25,140) 9,485 4,918 -- (10,737)
Minority interest in income of
subsidiaries..................... -- 921 (29) -- 892
Equity in earnings of subsidiaries.... 1,821 -- -- (1,821)(b) --
Income taxes (benefit)................ (9,023) 4,042 1,967 -- (3,014)
Preferred dividend requirement of
subsidiary....................... -- -- -- 1,648(c) 1,648
-------------- -------------- -------------- -------------- --------------
(Loss) income from continuing
operations....................... (14,296) 4,522 2,980 (3,469) (10,263)
Discontinued operations:
Loss from operations of
discontinued businesses (less
applicable income tax benefit)... -- 808 -- -- 808
Loss on disposal of businesses
(less applicable income tax
benefit)......................... -- 874 -- -- 874
Extraordinary item:
Write-off of debt issuance costs
(less applicable income tax
benefit)......................... -- 2,351 -- -- 2,351
-------------- -------------- -------------- -------------- --------------
Net (loss) income..................... $ (14,296) $ 489 $ 2,980 $ (3,469) $ (14,296)
============== ============== ============== ============== ==============
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary.
F-26
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
Condensed Consolidating Statement of Cash Flows
For the Year Ended July 31, 1997
------------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
Operating Activities:
Net (loss) income..................... $ (14,296) $ 489 $ 2,980 $(3,469)(a) $ (14,296)
Extraordinary item.................... 375 3,123 -- -- 3,498
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization.... 1,629 19,942 752 -- 22,323
Gain on sale of building......... -- -- (2,082) -- (2,082)
Equity in earnings of subsidiary. (1,821) -- -- 1,821(a) --
Deferred income taxes............ 7,864 (17,481) 39 -- (9,578)
Post-retirement benefits other
than pensions.................... -- 4,491 -- -- 4,491
Accrued pension benefits......... -- 3,592 -- -- 3,592
Non-cash interest expense........ 3,337 4,612 -- -- 7,949
Preferred dividend requirement of
subsidiary....................... -- -- -- 1,648(b) 1,648
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable.......... -- (1,715) (1,626) -- (3,341)
Inventories.................. -- (4,950) (5,295) -- (10,245)
Accounts payable............. (67) (10,970) 1 -- (11,036)
Intercompany accounts........ (74,450) 65,730 8,720 -- --
Other current assets and
liabilities.................. (8,727) 995 3,194 -- (4,538)
Accrued restructuring........ -- 31,836 -- -- 31,836
Other non-current assets and
liabilities, net............. (12,209) 16,180 (1,655) -- 2,316
-------------- -------------- -------------- -------------- --------------
Net cash (used in) provided by
operating activities............. (98,365) 115,874 5,028 -- 22,537
Investing activities:
Acquisition, net of cash acquired..... (45,284) 135 2,707 -- (42,442)
Purchase of property and equipment.... -- (27,025) (4,863) -- (31,888)
Investment in affiliates.............. (3,119) -- -- -- (3,119)
Proceeds from sale of building........ -- -- 3,362 -- 3,362
-------------- -------------- -------------- -------------- --------------
Net cash (used in) provided by
investing activities............. (48,403) (26,890) 1,206 -- (74,087)
Financing activities:
Proceeds from issuances of long-term
debt............................. 162,700 17,300 -- -- 180,000
Payments on long-term debt............ (16,000) (110,200) -- -- (126,200)
Other financing activities............ -- 3,986 -- -- 3,986
-------------- -------------- -------------- -------------- --------------
Net cash provided by (used in)
financing activities............. 146,700 (88,914) -- -- 57,786
Effect of exchange rate changes
on cash.......................... -- -- 408 -- 408
-------------- -------------- -------------- -------------- --------------
Net (decrease) increase in cash and
cash equivalents................. (68) 70 6,642 -- 6,644
Cash and cash equivalents at beginning
of year.......................... 68 1,434 1,904 -- 3,406
-------------- -------------- -------------- -------------- --------------
Cash and cash equivalents at end of
year............................. $ -- $ 1,504 $ 8,546 $ -- $ 10,050
============== ============== ============== ============== ==============
(a) Elimination of equity in earnings of subsidiary.
(b) Recording of preferred dividend requirement of subsidiary.
F-27
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
Condensed Consolidating Balance Sheet
July 31, 1996
-----------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- --------------------------------------------------------------
(in thousands)
Assets:
Current assets:
Cash and cash equivalents........ $ 68 $ 1,434 $ 1,904 $ -- $ 3,406
Trade accounts receivable, net... -- 87,161 7,831 -- 94,992
Affiliate accounts receivable.... -- 80,650 -- (80,650)(a) --
Other receivables................ -- 10,265 320 -- 10,585
Recoverable income taxes......... 825 7,013 836 -- 8,674
Inventories...................... -- 111,631 11,952 -- 123,583
Deferred income taxes............ 1,548 13,914 -- -- 15,462
Other current assets............. -- 790 423 -- 1,213
-------------- -------------- -------------- -------------- --------------
Total current assets.................. 2,441 312,858 23,266 (80,650) 257,915
Property and equipment................ 20 162,963 7,408 -- 170,391
Less accumulated depreciation......... -- 28,207 1,028 -- 29,235
-------------- -------------- -------------- -------------- --------------
20 134,756 6,380 -- 141,156
Deferred financing costs.............. 481 6,016 -- -- 6,497
Goodwill, net......................... -- 58,174 8,396 -- 66,570
Investment in affiliate............... 119,240 -- -- (119,240)(b)(c) --
Other assets.......................... 544 345 2,055 -- 2,944
-------------- -------------- -------------- -------------- --------------
Total assets.......................... $ 122,726 $ 512,149 $ 40,097 $(199,890) $ 475,082
============== ============== ============== ============== ==============
F-28
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
Condensed Consolidating Balance Sheet
July 31, 1996
------------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
Liabilities and stockholders' equity
(deficit):
Current liabilities:
Accounts payable................. $ 262 $ 75,509 $ 5,436 $ -- $ 81,207
Affiliate accounts payable....... 73,322 4,968 2,360 (80,650)(a) --
Accrued interest payable......... -- 4,026 -- -- 4,026
Accrued restructuring charges.... -- 5,541 -- -- 5,541
Liabilities related to
discontinued operations.......... -- 11,005 -- -- 11,005
Other liabilities and accrued
expenses......................... (1,524) 31,151 3,056 -- 32,683
Current portion of long-term
debt............................. -- 8,511 1,141 -- 9,652
-------------- -------------- -------------- -------------- --------------
Total current liabilities........ 72,060 140,711 11,993 (80,650) 144,114
Deferred income taxes................. -- 6,795 -- -- 6,795
Long-term debt, less current portion.. 46,919 242,225 -- -- 289,144
Post-retirement benefits other than
pensions......................... -- 8,186 -- -- 8,186
Accrued pension benefit............... -- 950 -- -- 950
Other non-current liabilities......... (3) 2,582 2,848 -- 5,427
Minority interest in subsidiary....... -- 4,457 -- -- 4,457
Redeemable exchangeable preferred
stock of subsidiary.............. -- 14,420 -- -- 14,420
Stockholders' equity (deficit):
Common stock:
Class A Shares.............. 5 -- -- -- 5
Class B Shares.............. 4 -- -- -- 4
Paid-in capital.................. 1,798 -- -- -- 1,798
Subsidiary investment............ -- 87,161 25,040 (112,201)(b) --
Retained earnings (deficit)...... 2,122 4,662 2,377 (7,039)(c) 2,122
Cumulative translation
adjustment....................... -- -- (2,161) -- (2,161)
Notes receivable from
stockholders..................... (179) -- -- -- (179)
-------------- -------------- -------------- -------------- --------------
Total stockholders' equity
(deficit)........................ 3,750 91,823 25,256 (119,240) 1,589
-------------- -------------- -------------- -------------- --------------
Total liabilities and stockholders'
equity (deficit)................. $ 122,726 $ 512,149 $ 40,097 $ (199,890) $ 475,082
============== ============== ============== ============== ==============
(a) Elimination of intercompany receivables and payables.
(b) Elimination of investments in subsidiaries.
(c) Elimination of investments in subsidiaries' earnings.
F-29
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
Condensed Consolidating Statement of Operations
For the Year Ended July 31, 1996
------------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
Net sales............................. $ -- $ 657,782 $ 42,790 $(63,720)(a) $ 636,852
Cost of goods sold.................... -- 541,363 32,435 (63,720)(a) 510,078
-------------- -------------- -------------- -------------- --------------
Gross profit.......................... -- 116,419 10,355 -- 126,774
Selling, engineering, and
administrative expenses.......... 1,923 69,644 6,427 -- 77,994
Restructuring charges................. -- 8,101 -- -- 8,101
-------------- -------------- -------------- -------------- --------------
Operating (loss) income............... (1,923) 38,674 3,928 -- 40,679
Interest expense...................... (4,503) (22,477) (387) -- (27,367)
-------------- -------------- -------------- -------------- --------------
(Loss) income from continuing
operations before income taxes
(benefit), preferred dividend
requirement of subsidiary and
minority interest................ (6,426) 16,197 3,541 -- 13,312
Minority interest in income of
subsidiary....................... -- -- 259 -- 259
Equity in earnings of subsidiary...... (1,904) -- -- 1,904(b) --
Income taxes (benefit)................ (3,489) 8,014 1,216 -- 5,741
Preferred dividend requirement of
subsidiary....................... -- -- -- 1,516(c) 1,516
-------------- -------------- -------------- -------------- --------------
(Loss) income from continuing
operations....................... (4,841) 8,183 2,066 388 5,796
Discontinued operations:
Loss from operations of
discontinued businesses (less
applicable income tax benefit)... -- 1,573 -- -- 1,573
Loss on disposal of businesses
(less applicable income tax
benefit)......................... -- 9,064 -- -- 9,064
-------------- -------------- -------------- -------------- --------------
Net (loss) income..................... $ (4,841) $ (2,454) $ 2,066 $ 388 $ (4,841)
============== ============== ============== ============== ==============
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary.
F-30
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
Condensed Consolidating Statement of Cash Flows
For the Year Ended July 31, 1996
------------------------------------------------------------------------------
Delco Remy Non-
International Subsidiary Guarantor
Inc. Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
(in thousands)
Operating Activities:
Net (loss) income..................... $ (4,841) $ (2,454) $ 2,066 $ 388 $ (4,841)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization.... -- 18,569 986 -- 19,555
Equity in earnings of subsidiary. 1,904 -- -- (1,904)(a) --
Deferred income taxes............ (620) (3,328) 1,001 -- (2,947)
Post-retirement benefits other
than pensions.................... -- 3,752 -- -- 3,752
Accrued pension benefits......... -- (3,509) -- -- (3,509)
Non-cash interest expense........ 2,333 5,534 -- -- 7,867
Preferred dividend requirement of
subsidiary....................... -- -- -- 1,516(b) 1,516
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable.......... -- (24,724) 266 -- (24,458)
Inventories.................. -- (27,048) 1,328 -- (25,720)
Accounts payable............. 262 7,339 1,033 -- 8,634
Intercompany accounts........ 27,650 (29,070) 1,420 -- --
Other current assets and
liabilities.................. (2,679) 21,702 (794) -- 18,229
Accrued restructuring........ -- 5,541 -- -- 5,541
Other non-current assets and
liabilities, net............. (1,148) 1,248 (4,403) -- (4,303)
-------------- -------------- -------------- -------------- --------------
Net cash provided by (used in)
operating activities............. 22,861 (26,448) 2,903 -- (684)
Investing activities:
Acquisition, net of cash acquired..... (47,685) 1,365 -- -- (46,320)
Purchase of property and equipment.... (1) (32,740) -- -- (32,741)
-------------- -------------- -------------- -------------- --------------
Net cash used in investing activities. (47,686) (31,375) -- -- (79,061)
Financing activities:
Proceeds from issuances of long-term
debt............................. 24,300 65,352 -- -- 89,652
Payments on long-term debt............ -- (6,466) (2,376) -- (8,842)
Other financing activities............ -- (20) -- -- (20)
-------------- -------------- -------------- -------------- --------------
Net cash provided by (used in)
financing activities............. 24,300 58,866 (2,376) -- 80,790
Effect of exchange rate changes on
cash............................. -- -- 883 -- 883
-------------- -------------- -------------- -------------- --------------
Net (decrease) increase in cash and
cash equivalents................. (525) 1,043 1,410 -- 1,928
Cash and cash equivalents at beginning
of year.......................... 593 391 494 -- 1,478
-------------- -------------- -------------- -------------- --------------
Cash and cash equivalents at end of
year............................. $ 68 $ 1,434 $ 1,904 $ -- $ 3,406
============== ============== ============== ============== ==============
(a) Elimination of investment in affiliates earnings.
(b) Elimination of preferred dividend requirement of subsidiary.
F-31
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
Condensed Consolidating Statement of Operations
For the Year Ended July 31, 1995
------------------------------------------------------------------------------
Delco Remy
International
Inc. Non-
(Parent Subsidiary Guarantor
Company Only) Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
Net sales............................. $ -- $ 584,859 $ 5,090 $(16,526)(a) $ 573,423
Cost of goods sold.................... -- 488,406 3,336 (16,526)(a) 475,216
-------------- -------------- -------------- -------------- --------------
Gross profit.......................... -- 96,453 1,754 -- 98,207
Selling, engineering, and
administrative expenses.......... 825 59,084 1,297 -- 61,206
-------------- -------------- -------------- -------------- --------------
Operating (loss) income............... (825) 37,369 457 -- 37,001
Interest expense...................... (2,083) (16,263) (86) -- (18,432)
-------------- -------------- -------------- -------------- --------------
(Loss) income from continuing
operations before income taxes
(benefit), preferred dividend
requirement of subsidiary,
and minority interest............ (2,908) 21,106 371 -- 18,569
Equity in earnings of subsidiary...... 8,943 -- -- (8,943)(b) --
Income taxes (benefit)................ (928) 8,713 61 -- 7,846
Preferred dividend requirement of
subsidiary....................... -- -- -- 1,397(c) 1,397
-------------- -------------- -------------- -------------- --------------
Income (loss) from continuing
operations....................... 6,963 12,393 310 (10,340) 9,326
Discontinued operations:
Loss from operations of
discontinued businesses (less
applicable income tax benefit)... -- 2,363 -- -- 2,363
-------------- -------------- -------------- -------------- --------------
Net income (loss)..................... $ 6,963 $ 10,030 $ 310 $ (10,340) $ 6,963
============== ============== ============== ============== ==============
(a) Elimination of intercompany sales and cost of sales.
(b) Elimination of equity in net income (loss) from consolidated subsidiaries.
(c) Recording of preferred dividend requirement of subsidiary.
F-32
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
Condensed Consolidating Statement of Cash Flows
For the Year Ended July 31, 1995
------------------------------------------------------------------------------
Delco Remy Non-
International Subsidiary Guarantor
Inc. Guarantors Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- --------------
Operating Activities:
Net income (loss)..................... $ 6,963 $ 10,030 $ 310 $ (10,340)(a)(b)$ 6,963
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization.... -- 14,491 42 -- 14,533
Equity in earnings of subsidiary. (8,943) -- -- 8,943(a) --
Deferred income taxes............ (927) (2,653) -- -- (3,580)
Post-retirement benefits other
than pensions.................... -- 4,434 -- -- 4,434
Accrued pension benefits......... -- 4,459 -- -- 4,459
Non-cash interest expense........ 2,086 5,983 -- -- 8,069
Preferred dividend requirement of
subsidiary....................... -- -- -- 1,397(b) 1,397
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable.......... -- (49,270) (50) -- (49,320)
Inventories.................. -- (7,212) (823) -- (8,035)
Accounts payable............. -- 48,862 751 -- 49,613
Intercompany accounts........ 62,733 (63,674) 941 -- --
Other current assets and
liabilities.................. 330 (6,450) (537) -- (6,657)
Other non-current assets and
liabilities, net............. 3,578 (3,797) 264 -- 45
-------------- -------------- -------------- -------------- --------------
Net cash provided by (used in)
operating activities............. 65,820 (44,797) 898 -- 21,921
Investing activities:
Acquisitions, net of cash acquired.... (64,429) 1,824 595 -- (62,010)
Purchase of property and equipment.... (19) (11,129) (93) -- (11,241)
-------------- -------------- -------------- -------------- --------------
Net cash (used in) provided by
investing activities............. (64,448) (9,305) 502 -- (73,251)
Financing activities:
Proceeds from issuances of long-term
debt............................. -- 31,918 -- -- 31,918
Payments on long-term debt............ (848) (3,163) (906) -- (4,917)
Other financing activities............ -- 118 -- -- 118
-------------- -------------- -------------- -------------- --------------
Net cash (used in) provided by
financing activities............. (848) 28,873 (906) -- 27,119
-------------- -------------- -------------- -------------- --------------
Net increase (decrease) in cash and
cash equivalents................. 524 (25,229) 494 -- (24,211)
Cash and cash equivalents at beginning
of year.......................... 69 25,620 -- -- 25,689
-------------- -------------- -------------- -------------- --------------
Cash and cash equivalents at end of
year............................. $ 593 $ 391 $ 494 $ -- $ 1,478
============== ============== ============== ============== ==============
(a) Elimination of investment in affiliate earnings.
(b) Recording of preferred dividend requirement of subsidiary.
F-33
DELCO REMY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
July 31, 1997
16. SUBSEQUENT EVENTS
Offerings
In October 1997, the Company filed Registration Statements to offer
approximately $60,000 of Class A Common Stock ($69,000 if the Underwriters'
over-allotment option is exercised in full) and $130,000 of % Senior Notes
Due 2007 (the Senior Notes). Net proceeds to the Company from such Offerings,
after deduction of associated expenses, are expected to be approximately
$181,000.
Planned Acquisition
On October , 1997, the Company entered into the Ballantrae Acquisition
Agreement to acquire all of the capital stock of Ballantrae (the Planned
Acquisition) for $49,200 (including assumed debt). Ballantrae operates through
two subsidiaries: Tractech, a leading producer of traction control systems for
heavy duty original equipment manufacturers and the aftermarket; and Kraftube,
Inc., a tubing assembly business which sells products to compressor
manufacturers for commercial air conditioners and refrigeration equipment. In
fiscal year 1997, Tractech accounted for approximately % of Ballantrae's
$37,600 of net sales. The Company will exchange shares of its Common Stock with
a value (at the initial public offering price in the Equity Offering) of
approximately $19,000 for the equity of Ballantrae and will repay approximately
$30,000 of Ballantrae's debt. The acquisition is expected to be completed at or
prior to the consummation of the Offerings.
Recapitalization
In connection with the above-mentioned Offerings and Planned Acquisition,
the Company plans to complete several transactions pursuant to which the
Company's outstanding debt and preferred stock will be restructured (the
Recapitalization). Significant components of the Recapitalization, together with
the applicable accounting effects, will be as follows:
The payment in full of the World Note.
The early extinguishment of the World Note will result in a write-off of
the unamortized debt issue costs of $1,350, net of income taxes, which will
be accounted for as an extraordinary loss on this transaction.
The payment in full of the GM Acquisition Note.
The exchange of the Junior Subordinated Notes for shares of Class A
Common Stock.
The exchange of the outstanding shares of 8% preferred stock of DRA to an
8% subordinated debenture of DRA.
The payment in full of $11,800 principal amount of subordinated notes
payable to certain former stockholders of A&B Group and Power.
The amendment of the senior credit facility in connection with the
consummation of the Offerings.
Payment of Ballantrae debt assumed in the Planned Acquisition.
Share and Per Share Information
On October , 1997, the Company authorized a -to-one stock split. All
share and per share amounts have been adjusted to reflect this split. The
primary loss per share is based on the weighted average number of shares of
common stock and common stock equivalents outstanding during the year, adjusted
to reflect all common stock issued within one year prior to the initial public
offering of common stock as if those shares issued had been outstanding for the
entire year. The supplemental loss per share is based on the weighted average
number of shares of common stock and common stock equivalents used in the
primary loss per share calculation, retroactively adjusted to reflect the
assumed exchange of the Junior Subordinated Notes, the issuance of the Common
Stock and Senior Notes in the Offerings and the repayment of certain debt with
the proceeds of the Offerings. Historical earnings (loss) per share for 1995,
1996 and 1997 are $ , $( ) and $( ), respectively.
F-34
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company or by any of the Underwriters. Neither the delivery of
this Prospectus nor any circumstances, create any implication that there has
been no change in the affairs of the Company since the dates as of which
information is given in this Prospectus. This Prospectus does not constitute an
offer or solicitation by anyone in any jurisdiction in which such an offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make such offer or solicitation.
Until , all dealers effecting transactions in the Notes, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to deliver
a Prospectus when acting as Underwriters and with respect to unsold allotments
or subscriptions.
------------------------
Table of Contents
Page
----
Additional Information..............................3
Prospectus Summary..................................4
Risk Factors.......................................12
Company History....................................18
Use of Proceeds....................................19
Capitalization.....................................21
Selected Consolidated Historical Financial Data....22
Pro Forma Condensed Consolidated Financial
Data (Unaudited)................................24
Management's Discussion and Analysis of
Financial Condition and Results of Operations...32
Business...........................................39
Management.........................................53
Principal Stockholders.............................59
Certain Transactions...............................62
Description of Capital Stock.......................62
Description of Indebtedness........................64
Description of Notes...............................68
Description of Certain Federal Income Tax
Consequences....................................93
Underwriting.......................................95
Legal Matters......................................96
Experts............................................96
Index to Financial Statements.....................F-1
$130,000,000
Delco Remy
International, Inc.
% Senior Notes Due 2007
[LOGO OF DELCO REMY APPEARS HERE]
Salomon Brothers Inc
Credit Suisse First Boston
Morgan Stanley Dean Witter
Prospectus
Dated , 1997
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
SEC Registration Fee....................................... $39,394
NASD Filing Fee............................................ 13,500
Blue Sky Fees and Expenses................................. *
Legal Fees and Expenses.................................... *
Accounting Fees and Expenses............................... *
Registrar and Transfer Agent Fees.......................... *
Expenses of the Trustee.................................... *
Printing and Engraving Expenses............................ *
Miscellaneous.............................................. *
--------
Total...................................................... *
========
- ---------------
* To be completed by amendment.
Each amount set forth above, except the SEC registration fee and NASD
filing fee, is estimated.
Item 14. Indemnification of Directors and Officers.
As permitted by the Delaware Law, the Company's Certificate of
Incorporation provides that directors of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts of
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, relating to prohibited dividends or distributions or the repurchase or
redemption of stock, or (iv) for any transaction from which the director derives
an improper personal benefit. In addition, the Company's By-laws provide for
indemnification of the Company's officers and directors to the fullest extent
permitted under Delaware law. Section 145 of the Delaware Law provides that a
corporation may indemnify any persons, including officers and directors, who
were or are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer, director,
employee or agent of such corporation or is or was serving at the request of
such corporation as an officer, director, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided such person acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, for criminal proceedings, had no reasonable
cause to believe that his conduct was unlawful. A Delaware corporation may
indemnify officers and directors in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses that such officer or
director actually and reasonably incurred. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
The Underwriting Agreement provides for indemnification by the Underwriters
of the registrant and its directors, officers and controlling persons for
certain liabilities, including liabilities arising under the Securities Act of
1933, as amended.
The directors and officers of the registrant are insured against certain
liabilities under the registrant's directors' and officers' liability insurance.
II-1
Item 15. Recent Sales of Unregistered Securities.
1. Securities Sold. 10 5/8% Senior Subordinated Notes due 2006 (the "Senior
Subordinated Notes")
(a) Underwriters and Other Purchasers. No underwriters were involved in the
offering of the Senior Subordinated Notes. The Initial Purchasers were
Salomon Brothers Inc and Smith Barney Inc.
(b) Consideration. The Initial Purchasers paid the Company $135,800,000 for
the Senior Subordinated Notes.
(c) Exemption from Registration Claimed. The Senior Subordinated Notes were
sold pursuant to Section 4(2) of the Securities Act of 1933, as
amended.
2. Securities Sold. Class A Common Stock, par value $.01 per share.
(a) Underwriters and Other Purchasers. No underwriters were involved in the
offering of the Class A Common Stock. The Class A Common Stock was sold
to 45 employees of the Company and its subsidiaries ("Management
Investors") over the past three years.
(b) Consideration. The Management Investors paid an aggregate of $203,054
in cash and notes in an aggregate principal amount of $580,602.
(c) Exemption from Registration Claimed. The Class A Common Stock was sold
pursuant to Section 4(2) of the Securities Act of 1933, as amended.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
The following exhibits are filed herewith unless otherwise indicated:
Exhibit
Number Description
- ------ -----------
1.1* Underwriting Agreement
3.1* Certificate of Incorporation of the Company, as amended
3.2* By-laws of the Company
4.1* Form of Indenture, including form of Note
5.1* Opinion of Dechert Price & Rhoads, counsel to the Company
10.1+ Light Duty Starter Motor Supply Agreement, dated July 31, 1994, by and
between Delco Remy America, Inc. ("DRA") and General Motors Corporation
("GM")
10.2+ Heavy Duty Component Supply Agreement, dated July 31, 1994, by and
between DRA and GM
10.3+ Distribution and Supply Agreement, dated July 31, 1994, by and between
DRA and GM
10.4+ Trademark License, dated July 31, 1994, by and among DRA, DR
International, Inc. and GM
10.5+ Tradename License Agreement, dated July 31, 1994, by and among DRA, DR
International, Inc. and GM
10.6+ Partnership Agreement of Delco Remy Mexico S. de R.L. de C.V., dated
April 17, 1997
10.7* Joint Venture Agreement, dated , by and between Remy Korea Holdings,
Inc. and S.C. Kim
10.8+ Securities Purchase and Holders Agreement, dated July 29, 1994, by and
among the Company, CVC, WEP, MascoTech, Harold K. Sperlich, James R.
Gerrity and the individuals named therein as Management Investors
10.9+ Registration Rights Agreement, dated July 29, 1994, by and among the
Company, CVC, WEP, MascoTech, Harold K. Sperlich, James R. Gerrity and
the individuals named therein as Management Investors
10.10* Employment Agreement, dated July 31, 1994 by and between Delco Remy
International, Inc. and Thomas J. Snyder
10.11* Fourth Amended and Restated Financing Agreement, dated as of
, 1997, among the Company, certain of the Company's subsidiaries
signatories thereto and Bank One, Indianapolis, National Association,
The CIT Group/Business Credit, Inc.
10.12+ Indenture, dated as of August 1, 1996, among the Company, certain of
the Company's subsidiaries signatories thereto and National City Bank
of Indiana, as trustee
10.13* 8% Subordinated Debenture of DRA, due July 31, 2004 in favor of GM
10.14+ Contingent Purchase Price Note of DRA, in favor of GM, dated July 31,
1994
II-2
10.15* Agreement and Plan of Merger, dated October , 1997, among the Company,
Ballantrae, a subsidiary of the Company and the Stockholders of
Ballantrae
11.1* Statement re Computation of Earnings per Share
12.1+ Statement re Computation of Ratios
21.1* Subsidiaries of Registrant
23.1 Consent of Ernst & Young (see page II-4)
23.2 Consent of Dechert Price & Rhoads included in Exhibit 5.1
24.1 Power of Attorney included on Signature Page
25.1 Form T-1 Statement of Eligibility of Trustee
- ------------
* To be filed by amendment.
+ Incorporated by reference to the Exhibit of the same number to the
Registration Statement on Form S-1 previously filed by the Company on
October 10, 1997, registering the issuance of the Company's Class A Common
Stock, par value $.01 per share.
(b) Financial Statement Schedules: None
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining the liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
Consent of Independent Accountants
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Historical Financial Data" and to the use of our reports
dated September 5, 1997 (except for "Share and Per Share Information" in Note
16, as to which the date is October , 1997), in the Registration Statement on
Form S-1 and related Prospectus of Delco Remy International, Inc. for the
registration of its Senior Notes.
October , 1997
The foregoing consent is in the form that will be signed upon the
determination of the stock split as described in Note 16 to the consolidated
financial statements.
ERNST & YOUNG LLP
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 9, 1997.
DELCO REMY INTERNATIONAL, INC.
By: HAROLD K. SPERLICH
--------------------------------
HAROLD K. SPERLICH
Chairman
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
HAROLD K. SPERLICH Chairman (principal executive officer) October 9, 1997
- ----------------------------------------- and Director
Harold K. Sperlich
DAVID L. HARBERT Executive Vice President and Chief October 9, 1997
- ----------------------------------------- Financial Officer (principal financial
David L. Harbert and principal accounting officer)
Director
- -----------------------------------------
E. H. Billig
RICHARD M. CASHIN, JR. Director October 9, 1997
- -----------------------------------------
Richard M. Cashin, Jr.
MICHAEL A. DELANEY Director October 9, 1997
- -----------------------------------------
Michael A. Delaney
JAMES R. GERRITY Director October 9, 1997
- -----------------------------------------
James R. Gerrity
ROBERT J. SCHULTZ Director October 9, 1997
- -----------------------------------------
Robert J. Schultz
THOMAS J. SNYDER Director October 9, 1997
- -----------------------------------------
Thomas J. Snyder
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 9, 1997.
DELCO REMY AMERICA, INC.
By: HAROLD K. SPERLICH
--------------------------------
HAROLD K. SPERLICH
Chairman
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
HAROLD K. SPERLICH Chairman (principal executive officer) October 9, 1997
- -----------------------------------------
Harold K. Sperlich
DAVID L. HARBERT Executive Vice President and Chief October 9, 1997
- ----------------------------------------- Financial Officer (principal financial
David L. Harbert and principal accounting officer)
Director
- -----------------------------------------
E.H. Billig
RICHARD M. CASHIN, JR. Director October 9, 1997
- -----------------------------------------
Richard M. Cashin, Jr.
MICHAEL A. DELANEY Director October 9, 1997
- -----------------------------------------
Michael A. Delaney
JAMES R. GERRITY Director October 9, 1997
- -----------------------------------------
James R. Gerrity
THOMAS J. SNYDER Director October 9, 1997
- -----------------------------------------
Thomas J. Snyder
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 9, 1997.
REMY INTERNATIONAL, INC.
By: HAROLD K. SPERLICH
--------------------------------
HAROLD K. SPERLICH
Chairman
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
HAROLD K. SPERLICH Chairman (principal executive officer) October 9, 1997
- -----------------------------------------
Harold K. Sperlich
DAVID L. HARBERT Executive Vice President and Chief October 9, 1997
- ----------------------------------------- Financial Officer (principal financial
David L. Harbert and principal accounting officer)
Director
- -----------------------------------------
E.H. Billig
RICHARD M. CASHIN, JR. Director October 9, 1997
- -----------------------------------------
Richard M. Cashin, Jr.
MICHAEL A. DELANEY Director October 9, 1997
- -----------------------------------------
Michael A. Delaney
JAMES R. GERRITY Director October 9, 1997
- -----------------------------------------
James R. Gerrity
THOMAS J. SNYDER Director October 9, 1997
- -----------------------------------------
Thomas J. Snyder
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 9, 1997.
REMAN HOLDINGS, INC.
By: HAROLD K. SPERLICH
--------------------------------
HAROLD K. SPERLICH
Chairman
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
HAROLD K. SPERLICH Chairman (principal executive officer) October 9, 1997
- -----------------------------------------
Harold K. Sperlich
DAVID L. HARBERT Executive Vice President and Chief October 9, 1997
- ----------------------------------------- Financial Officer (principal financial
David L. Harbert and principal accounting officer)
Director
- -----------------------------------------
E.H. Billig
RICHARD M. CASHIN, JR. Director October 9, 1997
- -----------------------------------------
Richard M. Cashin, Jr.
MICHAEL A. DELANEY Director October 9, 1997
- -----------------------------------------
Michael A. Delaney
JAMES R. GERRITY Director October 9, 1997
- -----------------------------------------
James R. Gerrity
THOMAS J. SNYDER Director October 9, 1997
- -----------------------------------------
Thomas J. Snyder
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 9, 1997.
NABCO, INC.
By: NICHOLAS J. BOZICH
--------------------------------
NICHOLAS J. BOZICH
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
NICHOLAS J. BOZICH President and Chief Executive Officer October 9, 1997
- ----------------------------------------- (principal executive officer)
Nicholas J. Bozich
DAVID L. HARBERT Vice President, Treasurer (principal October 9, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 9, 1997
- -----------------------------------------
Thomas J. Snyder
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 9, 1997.
THE A&B GROUP, INC.
By: JOHN M. MAYFIELD
--------------------------------
JOHN M. MAYFIELD
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
JOHN M. MAYFIELD President (principal executive officer) October 9, 1997
- -----------------------------------------
John M. Mayfield
DAVID L. HARBERT Vice President, Treasurer (principal October 9, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 9, 1997
- -----------------------------------------
Thomas J. Snyder
JAMES R. GERRITY Director October 9, 1997
- -----------------------------------------
James R. Gerrity
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 9, 1997.
A&B ENTERPRISES, INC.
By: JOHN M. MAYFIELD
--------------------------------
JOHN M. MAYFIELD
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
JOHN M. MAYFIELD President (principal executive officer) October 9, 1997
- -----------------------------------------
John M. Mayfield
DAVID L. HARBERT Vice President, Treasurer (principal October 9, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 9, 1997
- -----------------------------------------
Thomas J. Snyder
JAMES R. GERRITY Director October 9, 1997
- -----------------------------------------
James R. Gerrity
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 9, 1997.
DALEX, INC.
By: JOHN M. MAYFIELD
--------------------------------
JOHN M. MAYFIELD
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
JOHN M. MAYFIELD President (principal executive officer) October 9, 1997
- -----------------------------------------
John M. Mayfield
DAVID L. HARBERT Vice President, Treasurer (principal October 9, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 9, 1997
- -----------------------------------------
Thomas J. Snyder
JAMES R. GERRITY Director October 9, 1997
- -----------------------------------------
James R. Gerrity
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 9, 1997.
A&B CORES, INC.
By: JOHN M. MAYFIELD
--------------------------------
JOHN M. MAYFIELD
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
JOHN M. MAYFIELD President (principal executive officer) October 9, 1997
- -----------------------------------------
John M. Mayfield
DAVID L. HARBERT Vice President, Treasurer (principal October 9, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 9, 1997
- -----------------------------------------
Thomas J. Snyder
JAMES R. GERRITY Director October 9, 1997
- -----------------------------------------
James R. Gerrity
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 9, 1997.
R&L TOOL COMPANY, INC.
By: JOHN M. MAYFIELD
--------------------------------
JOHN M. MAYFIELD
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
JOHN M. MAYFIELD President (principal executive officer) October 9, 1997
- -----------------------------------------
John M. Mayfield
DAVID L. HARBERT Vice President, Treasurer (principal October 9, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 9, 1997
- -----------------------------------------
Thomas J. Snyder
JAMES R. GERRITY Director October 9, 1997
- -----------------------------------------
James R. Gerrity
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 9, 1997.
MCA, INC. OF MISSISSIPPI
By: JOHN M. MAYFIELD
------------------------------------
JOHN M. MAYFIELD
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
JOHN M. MAYFIELD President (principal executive officer) October 9, 1997
- -----------------------------------------
John M. Mayfield
DAVID L. HARBERT Vice President, Treasurer (principal October 9, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 9, 1997
- -----------------------------------------
Thomas J. Snyder
JAMES R. GERRITY Director October 9, 1997
- -----------------------------------------
James R. Gerrity
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 9, 1997.
POWER INVESTMENTS, INC.
By: J. MICHAEL JARVIS
-------------------------------
J. MICHAEL JARVIS
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
J. MICHAEL JARVIS President (principal executive October 9, 1997
- ----------------------------------------- officer) and Director
J. Michael Jarvis
DAVID L. HARBERT Vice President, Treasurer (principal October 9, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 9, 1997
- -----------------------------------------
Thomas J. Snyder
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 9, 1997.
FRANKLIN POWER PRODUCTS, INC.
By: J. MICHAEL JARVIS
---------------------------------
J. MICHAEL JARVIS
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
J. MICHAEL JARVIS President (principal executive October 9, 1997
- ----------------------------------------- officer) and Director
J. Michael Jarvis
DAVID L. HARBERT Vice President, Treasurer (principal October 9, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 9, 1997
- -----------------------------------------
Thomas J. Snyder
II-17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 9, 1997.
INTERNATIONAL FUEL SYSTEMS, INC.
By: J. MICHAEL JARVIS
------------------------------------
J. MICHAEL JARVIS
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
J. MICHAEL JARVIS President (principal executive October 9, 1997
- ----------------------------------------- officer) and Director
J. Michael Jarvis
DAVID L. HARBERT Vice President, Treasurer (principal October 9, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 9, 1997
- -----------------------------------------
Thomas J. Snyder
II-18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 9, 1997.
MARINE DRIVE SYSTEMS, INC.
By: J. MICHAEL JARVIS
-----------------------------------
J. MICHAEL JARVIS
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
J. MICHAEL JARVIS President (principal executive October 9, 1997
- ----------------------------------------- officer) and Director
J. Michael Jarvis
DAVID L. HARBERT Vice President, Treasurer (principal October 9, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 9, 1997
- -----------------------------------------
Thomas J. Snyder
II-19
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 9, 1997.
MARINE CORPORATION OF AMERICA
By: J. MICHAEL JARVIS
-------------------------------------
J. MICHAEL JARVIS
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
J. MICHAEL JARVIS President (principal executive October 9, 1997
- ----------------------------------------- officer) and Director
J. Michael Jarvis
DAVID L. HARBERT Vice President, Treasurer (principal October 9, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 9, 1997
- -----------------------------------------
Thomas J. Snyder
II-20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 9, 1997.
POWRBILT PRODUCTS, INC.
By: J. MICHAEL JARVIS
---------------------------------
J. MICHAEL JARVIS
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
J. MICHAEL JARVIS President (principal executive October 9, 1997
- ----------------------------------------- officer) and Director
J. Michael Jarvis
DAVID L. HARBERT Vice President, Treasurer (principal October 9, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 9, 1997
- -----------------------------------------
Thomas J. Snyder
II-21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Anderson and State of
Indiana on October 9, 1997.
WORLD WIDE AUTOMOTIVE, INC.
By: RICHARD L. KEISTER
-----------------------------------
RICHARD L. KEISTER
President
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Thomas J. Snyder and Susan E. Goldy and each of
them such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
RICHARD L. KEISTER President (principal executive October 9, 1997
- ----------------------------------------- officer) and Director
Richard L. Keister
DAVID L. HARBERT Vice President, Treasurer (principal October 9, 1997
- ----------------------------------------- financial and principal accounting
David L. Harbert officer) and Director
THOMAS J. SNYDER Director October 9, 1997
- -----------------------------------------
Thomas J. Snyder
II-22