<PAGE> 1
Pursuant to Rule 424B1
Registration No. 333-11801
DATED NOVEMBER 8, 1996
PROSPECTUS
OFFER FOR ALL OUTSTANDING 11 7/8% SENIOR NOTES DUE 2006
IN EXCHANGE FOR 11 7/8% SENIOR NOTES DUE 2006 OF
AETNA LOGO
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON DECEMBER 10, 1996, UNLESS EXTENDED
Aetna Industries, Inc., a Delaware corporation (the "Company"), hereby
offers to exchange an aggregate principal amount of up to $85,000,000 of its
11 7/8% Senior Notes due 2006 (the "New Notes") for a like principal amount of
its 11 7/8% Senior Notes due 2006 (the "Old Notes") outstanding on the date
hereof upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
"Exchange Offer"). The New Notes and the Old Notes are collectively hereinafter
referred to as the "Notes." The terms of the New Notes are identical in all
material respects to those of the Old Notes, except for certain transfer
restrictions and registration rights relating to the Old Notes. The New Notes
will be issued pursuant to, and entitled to the benefits of, the Indenture (as
defined herein) governing the Old Notes. The New Notes will be senior unsecured
obligations of the Company ranking pari passu in right of payment with all
existing and future senior obligations of the Company and will be effectively
subordinated in right of payment to all existing and future secured indebtedness
of the Company and its subsidiaries. As of June 30, 1996, on a pro forma basis
after giving effect to the Transactions (as defined herein) and the Exchange
Offer, the Company would have had $85.0 million of senior debt outstanding,
consisting of the New Notes. In addition, the Company would have had available
$35.0 million of undrawn borrowings under its Senior Revolving Credit Facility
(as defined herein). As of September 29, 1996, there is no outstanding debt as
to which the Old Notes are, or the New Notes would be senior. The Company's
obligations under the Senior Revolving Credit Facility will be secured by first
liens on substantially all of the property and assets of the Company (other than
interests in real property). Because the Notes are unsecured, advances under the
Senior Revolving Credit Facility effectively rank senior to the Notes to the
extent of the security securing such advances. See "Description of Senior
Revolving Credit Facility" and "Description of Notes."
The New Notes will be fully and unconditionally guaranteed on a senior
unsecured basis jointly and severally by each of Aetna Holdings, Inc., the
Company's direct parent corporation ("Holdings"), and MS Acquisition Corp., the
direct parent corporation of Holdings ("MS Acquisition"). MS Acquisition and
Holdings currently conduct no business (except for a Management Agreement
between MS Acquisition and the Company) and have no significant assets other
than the capital stock of Holdings and the Company, respectively. The New Notes
will also be guaranteed (the "Subsidiary Guarantee") fully and unconditionally
on a senior unsecured, joint and several basis by Aetna Export Sales Corp., a
U.S. Virgin Islands company, and a wholly-owned subsidiary of the Company
("Export" or the "Subsidiary Guarantor" and, collectively with Holdings and MS
Acquisition, the "Guarantors"). As of September 29, 1996, there were no
liabilities of either MS Acquisition nor Holdings, except for liabilities
attributable to the Company. The New Notes will bear interest from and including
the date of consummation of the Exchange Offer. Interest on the New Notes will
be payable semi-annually on April 1 and October 1 of each year, commencing April
1, 1997. Additionally, interest on the New Notes will accrue from the last
interest payment date on which interest was paid on the Old Notes surrendered in
exchange therefor or, if no interest has been paid on the Old Notes, from the
date of original issue of the Old Notes. See "Description of Notes."
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company and the Guarantors contained in the Registration
Rights Agreement dated August 13, 1996 (the "Registration Rights Agreement"),
among the Company, Holdings, MS Acquisition, Export and Smith Barney Inc.,
Schroder Wertheim & Co. Incorporated and First Chicago Capital Markets, Inc.
(the last three named entities collectively referred to herein as the "Initial
Purchasers"), with respect to the initial sale of the Old Notes.
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of Old
Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date (as defined) for the Exchange Offer. In the event the Company
terminates the Exchange Offer and does not accept for exchange any Old Notes
with respect to the Exchange Offer, the Company will promptly return such Old
Notes to the holders thereof. See "The Exchange Offer."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivery of a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. Each of the Company and
the Guarantors has agreed that, for a period of 180 days after the Expiration
Date, it will make this Prospectus available to any broker-dealer for use in
connection with any such release. See "Plan of Distribution."
------------------
Prior to the Exchange Offer, there has been no public market for the Old
Notes. If a market for the New Notes should develop, such New Notes could trade
at a discount from their principal amount. The Company currently does not intend
to list the New Notes on any securities exchange or to seek approval for
quotation through any automated quotation system and no active public market for
the New Notes is currently anticipated. There can be no assurance that an active
public market for the New Notes will develop.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange pursuant to the Exchange Offer.
SEE "RISK FACTORS" COMMENCING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS THAT
HOLDERS OF NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
------------------
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.
The date of this Prospectus is November 8, 1996.
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AVAILABLE INFORMATION
The Company and the Guarantors have filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-4 (the
"Exchange Offer Registration Statement," which term shall encompass all
amendments, exhibits, annexes and schedules thereto) pursuant to the Securities
Act, and the rules and regulations promulgated thereunder, covering the New
Notes being offered hereby. This Prospectus does not contain all the information
set forth in the Exchange Offer Registration Statement. For further information
with respect to the Company, the Guarantors and the Exchange Offer, reference is
made to the Exchange Offer Registration Statement. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to accurately describe the material terms so referred to, but are not
necessarily a complete description of the contents of any such contract,
agreement or other document. With respect to each such contract, agreement or
other document filed as an exhibit to the Exchange Offer Registration Statement,
reference is made to the exhibit for a more complete description of the document
or matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Exchange Offer Registration Statement, including
the exhibits thereto, can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Regional Offices of the Commission at Seven
World Trade Center, Suite 1300, New York, New York 10048 and at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of such Web site is:
http://www.sec.gov.
As a result of the Exchange Offer, the Company and the Guarantors will
become subject to the informational requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and in accordance therewith will be
required to file periodic reports and other information with the Commission. In
the event the Company ceases to be subject to the informational requirements of
the Exchange Act, the Company will be required under the Indenture to continue
to file with the Commission the annual and quarterly reports, information,
documents or other reports, including, without limitation, reports on Forms
10-K, 10-Q and 8-K, which would be required pursuant to the informational
requirements of the Exchange Act. The Company will also furnish such other
reports as may be required by law.
This Prospectus includes forward-looking statements which involve risks and
uncertainties as to future events. Actual events or results may differ
materially from those discussed in the forward-looking statements as a result of
various factors, including, without limitation, those set forth under "Risk
Factors".
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SUMMARY
This Summary is qualified in its entirety by the more detailed information
and financial statements and notes thereto that appear elsewhere in this
Prospectus. Prospective investors are urged to read this Prospectus in its
entirety.
THE COMPANY
Aetna Industries, Inc. (the "Company") is a leading "Tier I" or direct
supplier of high-quality modules, welded subassemblies and stampings used as
original equipment components by original equipment manufacturers ("OEMs") in
the North American automobile industry. The Company's core products, which in
1995 represented over 74% of its net sales, are complex, high value-added
modules and welded subassemblies. With wide-bed press capabilities in excess of
150 inches, the Company is one of a small group of independent suppliers capable
of producing large bed-size stampings and assemblies. The Company produces over
200 products that are used in the production of 51 different models (23
different platforms). 86% of the Company's net sales in 1995 were derived from
sales of products manufactured for the light truck sector (consisting of sport
utility vehicles, mini-vans, utility vans and light pick-up trucks), which has
recently experienced stronger growth than the passenger car sector. The Company
has been a direct supplier to Chrysler Corporation ("Chrysler") and General
Motors Corporation ("GM") since 1941, with net production sales to these
customers in 1995 accounting for 60% and 36%, respectively, of the Company's net
production sales. Since 1991, the Company has implemented new manufacturing and
marketing practices that management believes have improved the Company's
manufacturing productivity and quality and have enhanced and expanded the
Company's customer relationships. As a result of these efforts, from 1991 to
1995, net sales grew at a compound annual growth rate ("CAGR") of 14% from
$123.7 million in 1991 to $211.9 million in 1995, and EBITDA (as defined herein)
grew at a CAGR of 13% from $13.5 million in 1991 to $21.9 million in 1995.
Management believes that the Company is benefitting from certain
industry-wide structural developments that are altering the competitive
environment for parts suppliers to OEMs, including cost-driven purchasing by
OEMs of integrated modules and subassemblies. Because of increasing global
competition, OEMs have been upgrading their supplier policies, reducing the
number of strategic suppliers that may bid for awards and outsourcing an
increasing percentage of their production requirements. On new platforms, there
has been an increasing trend toward involving potential suppliers much earlier
in the design and development process in order to encourage the suppliers to
share some of the design and development responsibility. Early involvement in
the design and engineering of new components affords the Company a competitive
advantage in securing new business and provides its customers with significant
cost reduction opportunities.
Management believes that the Company's long-standing industry relationships
are based upon the Company's ability to produce large parts, along with its
performance as a low-cost, on-time supplier of quality products. The Company has
developed and is implementing a business strategy to enhance the effectiveness
of its core operating strengths, to respond to industry-wide structural
developments in the OEM parts supplier industry and to increase sales and
profitability. Key elements of this strategy include (i) focusing on the high
growth light truck sector (in particular sport utility vehicles), a sector of
the North American new car sales market which, in recent years, has experienced
significantly stronger growth than the passenger car sector; (ii) producing more
complex, high value-added modules and assemblies, which generate higher dollar
content per vehicle for the Company than individual stampings, enabling the
Company to utilize its capability to produce large bed-size stampings and
assemblies; and (iii) achieving a low cost structure by maximizing asset
utilization, reducing manufacturing costs and rationalizing the Company's
component parts and services supplier base. At the core of the Company's
business strategy is the "Aetna Production System", a production process based
upon the "Total Elimination of Waste" philosophy and a streamlined, cellular
manufacturing process. All of the Company's manufacturing facilities have
achieved QS 9000 certification, the standard recently adopted by the Automotive
Industry Action Group ("AIAG"), which Chrysler and GM have each stated will be
required of all Tier I suppliers by July 31, 1997 and December 31, 1997,
respectively, in order to bid on new manufacturing business.
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THE TRANSACTIONS
The Old Notes were issued in connection with the recapitalization (the
"Recapitalization") of the Company's parent corporation ("MS Acquisition"),
which prior to the Recapitalization owned all of the outstanding capital stock
of the Company. In the Recapitalization, Citicorp Venture Capital, Ltd. ("CVC")
acquired the significant equity interest in MS Acquisition described below from
the equityholders of MS Acquisition (the "Former Stockholders"), as follows:
As part of the Recapitalization, on August 13, 1996: (1) MS Acquisition
amended its charter to provide for the reclassification of its capital stock
into two new classes (voting and non-voting) of Common Stock (together, "Common
Stock" or "New Common Stock") and a new class of Preferred Stock ("Preferred
Stock" or "New Preferred Stock"); (2) the Former Stockholders exchanged their MS
Acquisition stock, pro rata, for an aggregate of 2,283,932 shares of New Common
Stock (consisting of 372,851 shares of voting Common Stock and 1,911,081 shares
of non-voting Common Stock) and 291,775 shares of New Preferred Stock; (3) CVC
purchased an aggregate of 90,000 shares of the New Preferred Stock and 704,461
shares of the New Common Stock (consisting of 187,871 shares of voting Common
Stock and 516,590 shares of non-voting Common Stock) from the Former
Stockholders for $10.0 million cash; (4) MS Acquisition formed Aetna Holdings,
Inc., a Delaware corporation ("Holdings") and contributed to Holdings all of the
shares of capital stock of the Company; (5) Holdings then purchased from the
Former Stockholders 1,394,491 shares of non-voting Common Stock and 178,156
shares of New Preferred Stock, in exchange for (a) $11.1 million in cash and (b)
$8.7 million in principal amount of 11.0% junior subordinated debentures of
Holdings due 2007 (the "Junior Subordinated Debentures" and together with the
$11.1 million cash, the "Holdings Consideration"); (6) certain outstanding
employee stock options were cancelled in exchange for a mix of consideration,
including New Common Stock (representing 1.2% of the New Common Stock on a
fully-diluted basis, including voting and non-voting Common Stock), New
Preferred Stock, an unfunded obligation of Holdings and $200,000 in cash; and
(7) certain other outstanding employee stock options were cancelled in exchange
for $450,000 in cash. The Former Stockholders retained (i) $2.36 million in
stated value of New Preferred Stock and (ii) shares of New Common Stock
representing 20.6% of the New Common Stock on a fully-diluted basis (including
voting and non-voting Common Stock). After the Recapitalization, on a
fully-diluted basis (including voting and non-voting Common Stock), CVC owns
78.3% of the New Common Stock. The shares of New Common Stock held by Holdings
are not included in the foregoing percentages because they are deemed to be
beneficially owned by MS Acquisition.
Following the completion of the Transactions, the capital stock of MS
Acquisition is owned by CVC, certain employees whose options were cancelled as
described in (6) above ("Certain Former Option Holders") the Former Stockholders
and Holdings. Holdings is a wholly-owned subsidiary of MS Acquisition. The
Company is a wholly-owned subsidiary of Holdings.
To the extent dividends to Holdings to fund cash interest payments on the
Junior Subordinated Debentures are not permitted under the Indenture (as defined
herein) or the Senior Revolving Credit Facility (as defined herein), interest on
the Junior Subordinated Debentures may be paid by issuing additional Junior
Subordinated Debentures in an aggregate principal amount equal to the amount of
interest due and payable on any interest payment date. Up to $2.5 million in
aggregate principal amount of the Junior Subordinated Debentures will be
required to be redeemed by Holdings from time to time to the extent dividends to
Holdings by the Company to fund such redemptions are permitted to be paid under
the Indenture and the Senior Revolving Credit Facility.
The New Preferred Stock has a cumulative dividend rate of 11.0%. The New
Preferred Stock held by CVC, the Former Stockholders and Certain Former Option
Holders has an aggregate stated value of $11.50 million, consisting of (i) $9.0
million purchased by CVC in connection with the Recapitalization; (ii) $2.36
million retained by the Former Stockholders and (iii) $0.13 million issued in
connection with the cancellation of certain employee stock options. At the
option of MS Acquisition, dividends on the New Preferred Stock may be paid in
additional shares of New Preferred Stock.
In connection with the consummation of the foregoing transactions and
pursuant to the terms of the Indenture, on August 13, 1996 the Company issued
the Old Notes in the aggregate principal amount of $85.0
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<PAGE> 5
million. The gross proceeds to the Company from the sale of the Old Notes, being
approximately $82.4 million ($85.0 million less the Initial Purchasers' discount
of approximately $2.5 million), were and will be used (i) to repay all of the
outstanding indebtedness, accrued interest and prepayment penalties of the
Company ($64.9 million as of June 30, 1996), (ii) to fund the $11.1 million cash
component of the Holdings Consideration, (iii) to pay approximately $650,000 to
terminate certain outstanding employee options as described under "Management --
Stock Option Plan", (iv) to pay fees and expenses of approximately $5.0 million
in connection with the Transactions (as defined in the following paragraph) and
the Exchange Offer, (v) to pay approximately $570,000 of bonuses and accrued
compensation to certain directors and officers of the Company as described under
"Certain Relationships and Transactions," (vi) to pay $250,000 of accrued
management fees to a Former Stockholder and (vii) for general corporate
purposes. After giving effect to the Transactions, the Company had $35.0 million
of available borrowings under its Senior Revolving Credit Facility. See
"Description of Senior Revolving Credit Facility".
The foregoing transactions, together with the offering of the Old Notes and
the application of the proceeds therefrom, are referred to herein as the
"Transactions".
CVC has significant capital resources through its affiliation with Citibank
N.A. and has invested in over 100 companies since its founding in 1967. CVC has
been an active participant in the automotive industry, having completed equity
investments in eight automotive-related companies with revenues aggregating over
$2.0 billion. CVC's automotive and heavy duty portfolio includes investments in
Delco Remy International, Inc., a leading manufacturer of electrical and other
engine-related components, Titan Wheel International, Inc., a leading global
manufacturer of steel wheel and tire assemblies for off-highway vehicles, JAC
Products, Inc., a leading global supplier of original equipment and aftermarket
roof racks, and Sinter Metals, Inc., a producer of sintered powder metal
products for automotive and other applications.
3
<PAGE> 6
THE EXCHANGE OFFER
Securities Offered............ Up to $85,000,000 aggregate principal amount of
11 7/8% Senior Notes due 2006 (the "New
Notes"). The terms of the New Notes and Old
Notes (collectively, the "Notes") are identical
in all material respects, except for certain
transfer restrictions and registration rights
relating to the Old Notes.
The Exchange Offer............ The New Notes are being offered in exchange for
a like principal amount of Old Notes. Old Notes
may be exchanged only in integral multiples of
$1,000. The issuance of the New Notes is
intended to satisfy obligations of the Company
and the Guarantors contained in the
Registration Rights Agreement.
Expiration Date; Withdrawal of
Tender........................ The Exchange Offer will expire at 5:00 p.m. New
York City time, on December 10, 1996, or such
later date and time to which it may be extended
by the Company. The tender of Old Notes
pursuant to the Exchange Offer may be withdrawn
at any time prior to the Expiration Date. Any
Old Notes not accepted for exchange for any
reason will be returned without expense to the
tendering holder thereof as promptly as
practicable after the expiration or termination
of the Exchange Offer.
Certain Conditions to the
Exchange Offer................ The Company's obligation to accept for
exchange, or to issue New Notes in exchange
for, any Old Notes is subject to certain
customary conditions relating to compliance
with any applicable law, or order of any
governmental agency or any applicable
interpretation by the Staff of the Commission,
which may be waived by the Company in its
reasonable discretion. The Company currently
expects that each of the conditions will be
satisfied and that no waivers will be
necessary. See "The Exchange Offer -- Certain
Conditions to the Exchange Offer."
Procedures for Tendering Old
Notes......................... Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof,
in accordance with the instructions contained
herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with such Old Notes and any
other required documentation, to the Exchange
Agent (as defined) at the address set forth
herein. See "The Exchange Offer -- Procedures
for Tendering Old Notes."
Use of Proceeds............... There will be no proceeds to the Company from
the exchange of Notes pursuant to the Exchange
Offer.
Exchange Agent................ Norwest Bank Minnesota, National Association,
is serving as the Exchange Agent in connection
with the Exchange Offer.
Federal Income Tax
Consequences.................. The exchange of Notes pursuant to the Exchange
Offer should not be a taxable event for federal
income tax purposes. See "Certain Federal
Income Tax Considerations."
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<PAGE> 7
CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT TO THE EXCHANGE OFFER
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, the Company is of the view that
holders of Old Notes (other than any holder who is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) who exchange their Old
Notes for New Notes pursuant to the Exchange Offer generally may offer such New
Notes for resale, resell such New Notes, and otherwise transfer such New Notes
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided such New Notes are acquired in the ordinary course
of the holders' business and such holders have no arrangement with any person to
participate in a distribution of such New Notes. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution." In addition, to comply with the
securities laws of certain jurisdictions, if applicable, the New Notes may not
be offered or sold unless they have been registered or qualified for sale in
such jurisdiction or in compliance with an available exemption from registration
or qualification. The Company has agreed, pursuant to the Registration Rights
Agreement and subject to certain specified limitations therein, to register or
qualify the New Notes for offer or sale under the securities or blue sky laws of
such jurisdictions as any holder of the Notes reasonably requests in writing. If
a holder of Old Notes does not exchange such Old Notes for New Notes pursuant to
the Exchange Offer, such Old Notes will continue to be subject to the
restrictions on transfer contained in the legend thereon. In general, the Old
Notes may not be offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. Holders of Old Notes do not
have any appraisal or dissenters' rights under Delaware General Corporation Law
in connection with the Exchange Offer. See "The Exchange Offer -- Consequences
of Failure to Exchange; Resales of New Notes."
The Old Notes are currently eligible for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") market. Following
commencement of the Exchange Offer but prior to its consummation, the Old Notes
may continue to be traded in the PORTAL market. Following consummation of the
Exchange Offer, the New Notes will not be eligible for PORTAL trading.
THE NEW NOTES
The terms of the New Notes are identical in all material respects to the
Old Notes, except for certain transfer restrictions and registration rights
relating to the Old Notes.
Issuer........................ Aetna Industries, Inc.
Securities Offered............ $85.0 million aggregate principal amount of
11 7/8% Senior Notes due 2006.
Maturity Date................. October 1, 2006.
Interest Payment Dates........ October 1 and April 1 of each year, commencing
April 1, 1997.
Ranking....................... The New Notes will be senior unsecured
obligations of the Company ranking pari passu
in right of payment with all existing and
future senior obligations of the Company and
will be effectively subordinated in right of
payment to all existing and future secured
indebtedness of the Company and its
subsidiaries. As of June 30, 1996, after giving
effect to the consummation of the Transactions
and the Exchange Offer, the Company would have
had $85.0 million of senior debt outstanding,
consisting of the New Notes. In addition, the
Company would have had available $35.0 million
of undrawn borrowings under its Senior
Revolving Credit Facility. The Senior Revolving
Credit Facility is secured by first liens on
substantially all of the assets of the Company.
See "Description of Senior Revolving Credit
Facility".
Guarantees.................... Like the Old Notes, the New Notes will be fully
and unconditionally, jointly and severally
guaranteed on a senior unsecured basis by each
of MS Acquisition and Holdings. MS Acquisition
and Holdings will initially conduct no business
and have no significant assets other than the
capital stock of Holdings and the Company,
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<PAGE> 8
respectively. In addition, like the Old Notes,
the New Notes will be guaranteed (each, a
"Subsidiary Guarantee") on a senior unsecured
basis by each material subsidiary of the
Company (each, a "Subsidiary Guarantor").
Currently, the only Subsidiary Guarantor is
Aetna Export Sales Corp., a wholly-owned
subsidiary of the Company ("Export" or the
"Subsidiary Guarantor") and, collectively with
MS Acquisition and Holdings, the "Guarantors").
The financial statements of MS Acquisition are
included herein, along with certain condensed
financial information of Holdings and Export.
Full financial statements of Holdings and
Export are not provided as management has
determined that they would not be material to
investors. See "Description of Notes --
Guarantees and Subsidiary Guarantees".
Optional Redemption........... Except as provided below, the New Notes (like
the Old Notes) are not redeemable at the
Company's option prior to October 1, 2001.
Thereafter, the New Notes (and any outstanding
Old Notes) will be redeemable, in whole or in
part, at the option of the Company, at the
redemption prices set forth herein plus accrued
interest to the date of redemption. In
addition, prior to October 1, 1999, the Company
may, at its option, redeem up to $25.0 million
principal amount of Notes originally issued
with the net proceeds from one or more Public
Equity Offerings (as defined herein) at the
redemption price set forth herein plus accrued
interest to the date of redemption; provided
that at least $60.0 million aggregate principal
amount of Notes would remain outstanding after
giving effect to any such redemption. See
"Description of Notes -- Optional Redemption".
Change of Control............. In the event of a Change of Control (as defined
herein), the Company will be obligated to make
an offer to purchase all of the outstanding
Notes at a redemption price of 101% of the
principal amount thereof plus accrued interest
to the date of purchase. In the event a Change
of Control were to occur, there can be no
assurance that the Company will have available
funds sufficient to repurchase all of the Notes
that holders elect to tender. See "Description
of Notes -- Change of Control".
Offer to Purchase............. The Company is required in certain
circumstances to make an offer to purchase
Notes, at a purchase price equal to 100% of the
principal amount thereof plus accrued interest
to the date of purchase, with the net cash
proceeds of certain asset sales. See
"Description of Notes -- Certain Covenants --
Limitation on Asset Sales".
Certain Covenants............. The indenture governing the Notes (the
"Indenture") contains covenants including, but
not limited to, covenants with respect to
limitations on the following matters: (i) the
incurrence of additional indebtedness, (ii) the
issuance of preferred stock by subsidiaries,
(iii) the creation of liens, (iv) sale and
leaseback transactions, (v) restricted
payments, (vi) the sales of assets and
subsidiary stock, (vii) mergers and
consolidations, (viii) payment restrictions
affecting subsidiaries and (ix) transactions
with affiliates. See "Description of Notes --
Certain Covenants".
RISK FACTORS
Holders of Old Notes should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors under "Risk Factors" beginning on page 9 in connection with the Exchange
Offer.
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<PAGE> 9
SUMMARY FINANCIAL DATA
(AMOUNTS IN THOUSANDS EXCEPT RATIOS AND PRODUCTION DATA)
The following table sets forth (i) summary historical financial data of the
Company for the five years ended December 31, 1995 and the six months ended June
30, 1995 and 1996 and (ii) summary pro forma financial data for the year ended
December 31, 1995 and the six months ended June 30, 1996. The summary financial
data for the years ended December 31, 1993, 1994 and 1995 are derived from the
audited consolidated financial statements of the Company included elsewhere in
this Prospectus. The summary financial data for the years ended December 31,
1991 and 1992 are derived from the audited consolidated financial statements of
the Company. The summary financial data as of June 30, 1996 and for the six
months ended June 30, 1995 and 1996 are derived from unaudited consolidated
financial statements of the Company included elsewhere in this Prospectus which,
in the opinion of management, include all adjustments, consisting of only
normal, recurring adjustments, necessary for a fair presentation of the
financial condition and results of operations of the Company for such periods.
The results of operations for interim periods are not necessarily indicative of
a full year's operations. The summary pro forma financial data are derived from
pro forma unaudited condensed consolidated financial data of the Company for the
six months ended June 30, 1996 and the year ended December 31, 1995 included
elsewhere in this Prospectus. The summary pro forma statement of operations
data, other financial data and production data for the year ended December 31,
1995 and the six months ended June 30, 1996 give effect to the Transactions and
the Exchange Offer as if they occurred on January 1, 1995, and the summary pro
forma balance sheet data at June 30, 1996 gives effect to the Transactions and
the Exchange Offer as if they occurred as of such date. The following table
should be read in conjunction with "Selected Financial Data", "Pro Forma
Unaudited Condensed Consolidated Financial Data", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the historical
consolidated financial statements of the Company presented elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------------------- ------------------------------
PRO PRO
FORMA FORMA
1991 1992 1993 1994 1995 1995(A) 1995 1996 1996(A)
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales................. $123,712 $128,905 $162,908 $204,850 $211,905 $211,905 $119,111 $114,944 $114,944
Cost of sales............. 110,177 112,830 139,499 172,428 183,542 183,542 100,321 98,472 98,472
Gross profit.............. 13,535 16,075 23,409 32,422 28,363 28,363 18,790 16,472 16,472
Selling, general and
administrative
expenses(b)............. 6,079 9,984 12,544 12,898 13,331 13,203 6,835 7,371 7,307
Operating profit.......... 7,456 6,091 10,865 19,524 15,032 15,160 11,955 9,101 9,165
Interest expense, net..... 9,525 9,206 9,020 8,929 8,579 10,094 4,246 4,132 5,047
Income (loss) before
effect of accounting
changes(c).............. (2,287) (2,768) 915 6,595 4,576 3,674 5,466 2,806 2,253
Net income (loss)......... (2,287) (2,768) (3,856) 6,595 4,576 3,674 5,466 2,806 2,253
OTHER FINANCIAL DATA
Depreciation and
amortization............ 6,066 5,902 6,009 6,150 6,579 6,701 3,426 3,558 3,619
Capital expenditures...... 3,432 1,736 3,474 6,125 10,103 10,103 4,966 2,732 2,732
Cash flows from operating
activities.............. 3,907 5,406 13,156 22,040 14,564 5,812 1,913
Cash flows from investing
activities.............. (4,720) (1,676) (4,337) (6,454) (10,252) (4,966) (2,570)
Cash flows from financing
activities.............. 512 (3,601) (9,401) (15,433) (4,184) (504) 677
Ratio of earnings to fixed
charges(d).............. -- -- 1.2 2.1 1.7 1.5 2.6 2.0 1.7
PRODUCTION AND OTHER DATA
EBITDA(e)................. $ 13,522 $ 11,993 $ 17,624 $ 25,924 $ 21,861 $ 21,861 $ 15,506 $ 12,781 $ 12,781
EBITDA margin(f).......... 10.9% 9.3% 10.8% 12.7% 10.3% 10.3% 13.0% 11.1% 11.1%
Ratio of EBITDA to
interest expense(f)..... 1.4 1.3 1.9 2.9 2.5 2.2 3.7 3.1 2.5
Ratio of long-term debt to
EBITDA(f)............... 5.4 6.3 3.9 2.2 2.6 3.9 3.9 4.8 6.7
Adjusted net production
sales per employee(g)... $102,683 $108,994 $128,822 $130,157 $129,850 $129,850 $ 67,850 $ 80,125 $ 80,125
Adjusted net production
sales per square
foot(g)................. 170.4 178.9 234.4 251.8 282.7 282.7 147.7 158.7 158.7
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30,
-------------------
AT DECEMBER 31, PRO
---------------------------------------------------- FORMA
1991 1992 1993 1994 1995 1996 1996(A)
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets.......................... $103,866 $105,414 $109,587 $113,331 $118,242 $122,885 $130,130
Long-term debt........................ 73,417 75,390 69,238 57,744 57,741 61,719 85,000
Stockholder's equity (deficit)........ 2,856 88 (3,768) 2,827 7,402 10,208 (2,925)
</TABLE>
(footnotes on next page)
7
<PAGE> 10
- ------------------------------
(a) Gives pro forma effect to the Transactions in the manner described under
"Pro Forma Unaudited Condensed Consolidated Financial Data".
(b) Included in selling, general and administrative expenses are management fees
of $750, $250, $250, $125, and $125 for 1993, 1994, 1995 and the six months
ended June 30, 1995 and 1996, respectively. Due to reaching selected
thresholds and measurements, selling, general and administrative expenses in
1993 included $500 of management fees relating to prior years. Such
management fees were eliminated upon consummation of the Transactions.
(c) Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes" which resulted in a one-time, non-cash, after tax charge of
$4,771. See note 9 to the Company's consolidated financial statements
appearing elsewhere in this Prospectus.
(d) For purposes of the ratio of earnings to fixed charges, (i) earnings include
earnings before income taxes, the effect of changes in accounting, and fixed
charges and (ii) fixed charges include interest on all indebtedness,
amortization of deferred financing costs and the portion of rental expense
(one-third) that the Company believes to be representative of interest. The
Company's earnings were insufficient to cover fixed charges by $2.1 million
and $3.1 million for the years ended December 31, 1991 and 1992,
respectively.
(e) EBITDA is defined as income before the effect of changes in accounting plus
interest, income taxes, management fees, depreciation and amortization.
EBITDA is presented because it is a widely accepted financial indicator of a
company's ability to incur and service debt. However, EBITDA should not be
considered in isolation as a substitute for net income or cash flow data
prepared in accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity.
(f) EBITDA margin is defined as EBITDA divided by net sales. Ratio of EBITDA to
interest expense is defined as EBITDA divided by interest expense, net.
Ratio of long-term debt to EBITDA is defined as long-term debt divided by
EBITDA. The above ratios have been presented because they are accepted
indicators of a company's ability to incur and service debt. However, none
of these ratios should be considered in isolation as a substitute for net
income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity.
(g) Adjusted net production sales is defined as net sales excluding (i) net
tooling and prototype sales and (ii) net sales relating to an unusually
large factory assist job which contributed $26.3 million, $16.2 million and
$16.2 million to net sales in 1994, 1995 and the six months ended June 30,
1995, respectively. Adjusted net production sales per employee is based upon
the average of the number of employees at quarter-end during each period
presented.
8
<PAGE> 11
RISK FACTORS
Holders of Old Notes should carefully consider the specific factors set
forth below as well as the other information included in this Prospectus in
connection with the Exchange Offer. The risk factors set forth below are
generally applicable to the Old Notes as well as the New Notes.
SIGNIFICANT LEVERAGE AND DEBT SERVICE
The Company has indebtedness which is substantial in relation to its
stockholder's equity, as well as interest and debt service requirements which
are significant compared to its cash flow from operations. As of June 30, 1996,
on a pro forma basis after giving effect to the Transactions, the Company would
have had $85.0 million of senior debt outstanding, consisting of the Notes. In
addition, the Company would have had available $35.0 million of undrawn
borrowings under the Senior Revolving Credit Facility. For the year ended
December 31, 1995 and the six months ended June 30, 1996, the Company's ratio of
EBITDA (as defined herein) to interest expense was 2.2 to 1 and 2.5 to 1,
respectively, on a pro forma basis after giving effect to the Transactions and
the Exchange Offer.
The level of the Company's indebtedness could have important consequences
to holders of the Notes, including: (i) a substantial portion of the Company's
cash flow from operations must be dedicated to debt service and will not be
available for other purposes; (ii) the Company's ability to obtain additional
debt financing in the future for working capital, capital expenditures or
acquisitions may be limited; and (iii) the Company's level of indebtedness could
limit its flexibility in reacting to changes in the industry and economic
conditions generally.
The Company's ability to pay interest on the Notes and to satisfy its other
obligations will depend upon its future operating performance, which will be
affected by prevailing economic conditions and financial, business and other
factors, certain of which are beyond its control. The Company anticipates that
its operating cash flow, together with available borrowings under the Senior
Revolving Credit Facility, will be sufficient to meet its operating expenses and
to service interest requirements on its debt obligations as they become due. The
Company may be required to refinance the Notes at maturity. No assurance can be
given that, if required, the Company will be able to refinance the Notes on
terms acceptable to it, if at all. If the Company is unable to service its
indebtedness, it will be forced to adopt an alternative strategy that may
include actions such as reducing or delaying capital expenditures, selling
assets, restructuring or refinancing its indebtedness or seeking additional
equity capital. There can be no assurance that any of these strategies could be
effected on satisfactory terms, if at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources".
The Indenture contains certain restrictive covenants which affect, and in
many respects significantly limit or prohibit, among other things, the ability
of the Company to incur indebtedness, make prepayments of certain indebtedness,
pay dividends, make investments, engage in transactions with stockholders and
affiliates, create liens, sell assets and engage in mergers and consolidations.
The Senior Revolving Credit Facility contains similar and more restrictive
covenants and also requires the Company to meet certain financial ratios and
tests. These covenants may significantly limit the operating and financial
flexibility of the Company and may limit its ability to respond to changes in
its business or competitive activities. The ability of the Company to comply
with such provisions may be affected by events beyond its control. In the event
of any default under the Senior Revolving Credit Facility, the lenders
thereunder could elect to declare all amounts borrowed under the Senior
Revolving Credit Facility, together with accrued interest, to be due and
payable. If the Company were unable to repay such borrowings, the lenders
thereunder could proceed against the collateral securing the Senior Revolving
Credit Facility, which consists of substantially all of the property and assets
of the Company other than interests in real property. If the indebtedness under
the Senior Revolving Credit Facility were to be accelerated, there can be no
assurance that the assets of the Company would be sufficient to repay such
indebtedness and the Notes in full. See "Description of Senior Revolving Credit
Facility".
Like the Old Notes, the New Notes will be unsecured senior indebtedness of
the Company. In the event of a bankruptcy, liquidation or reorganization of the
Company, holders of secured indebtedness will be entitled to payment out of the
proceeds of their collateral prior to any holders of general unsecured
indebtedness,
9
<PAGE> 12
including the Notes. Substantially all of the property and assets of the Company
(other than interests in real property) are pledged to secure obligations under
the Senior Revolving Credit Facility. To the extent that the value of such
collateral is insufficient to satisfy such secured indebtedness, holders of
amounts remaining outstanding on such secured indebtedness (as well as other
unsubordinated creditors of the Company) would be entitled to share pari passu
with the Notes with respect to any other assets of the Company. The Company may
not have sufficient assets to pay amounts due on any or all of the Notes then
outstanding.
RISK OF FRAUDULENT TRANSFER CONSIDERATIONS
A portion of the net proceeds from the sale of the Old Notes was used by
the Company to pay a dividend of approximately $11.7 million to Holdings as part
of the Transactions. The incurrence by the Company of indebtedness, such as the
Notes, to pay a dividend would be subject to review under relevant federal and
state fraudulent transfer laws in a bankruptcy case or a lawsuit by or on behalf
of unpaid creditors of the Company or a representative of such creditors, such
as a trustee or the Company as debtor-in-possession. Management believes the
indebtedness represented by the Notes was incurred for proper purposes and in
good faith, and that based on present forecasts, asset valuations and other
financial information, immediately prior to and following the consummation of
the Transactions the Company was solvent, had sufficient capital for carrying on
its business and was able to pay its debts as they matured. Notwithstanding
management's belief, if a court were to find that, at the time of the incurrence
of indebtedness represented by the Notes, the Company was insolvent, was
rendered insolvent by reason of such incurrence or such dividend, was engaged in
a business or transaction for which its remaining assets constituted
unreasonably small capital, intended to incur, or believed that it would incur,
debts beyond its ability to pay such debts as they matured, or intended to
hinder, delay or defraud its creditors, such court could, among other things,
void all or a portion of such indebtedness and/or subordinate such indebtedness
to other existing and future indebtedness of the Company, the effect of which
would be to entitle such other creditors to be paid in full before any payment
could be made on the Notes. The measure of insolvency for purposes of the
foregoing will vary depending upon the law of the relevant jurisdiction.
Generally, however, the Company would be considered insolvent for purposes of
the foregoing if the sum of its debts is greater than all its property at a fair
valuation, or if the present fair saleable value of its 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.
THE OEM SUPPLIER INDUSTRY
The North American OEM supplier market in which the Company competes is
highly cyclical, depending in large part on the overall strength of consumer
demand for light trucks and passenger cars. There can be no assurance that the
automotive industry for which the Company supplies parts will not experience
downturns in the future. A recession typically impacts highly leveraged
companies such as the Company more than less leveraged companies. A decrease in
overall consumer demand for light trucks or passenger cars or a general
recession could have a material adverse effect on the Company.
The automotive industry is characterized by a small number of OEM customers
that are able to exert considerable pressure on component suppliers to reduce
costs, improve quality and provide additional engineering capabilities. In the
past, OEMs have demanded price reductions and measurable increases in quality
through more competitive selection processes, rating programs and various other
arrangements. Through increased partnering on platform work, OEMs have required
more design engineering input at earlier stages, the costs of which have, in
some cases, been absorbed by component suppliers. There can be no assurance that
price reductions or increased quality or additional engineering capabilities
required by OEMs will not have a material adverse effect on the Company.
DEPENDENCE ON KEY CUSTOMERS AND PRODUCTS
The Company's primary customers are Chrysler and GM, which accounted for
60% and 36%, respectively, of the Company's total 1995 net production sales. Net
sales to Chrysler and GM are not made pursuant to long-term contractual
arrangements, but are competitively awarded for specific projects in the case of
both platform and factory assist work. Strong customer relationships are
critical to platform revenues,
10
<PAGE> 13
which are increasingly contingent on whether the Company is chosen by an OEM to
participate on a platform development team. There can be no assurance that
business from these OEMs will continue at comparable levels in the future or
that Chrysler and GM will not experience setbacks in their operations, such as
labor difficulties or unsuccessful vehicle models. In addition, a substantial
portion of the Company's revenues is derived from platform work for the Chrysler
Jeep Cherokee and Chrysler Jeep Grand Cherokee vehicle models. The loss of
either Chrysler or GM as a customer, or a significant reduction in business
generated by either OEM, would have a material adverse effect on the Company.
Moreover, changing consumer vehicle preferences could have a material adverse
effect on the Company.
Each of the Company's primary customers, Chrysler and GM, has major
contracts with the United Auto Workers (the "UAW"). Because of the OEMs'
dependence on a single union, labor difficulties and work stoppages at an OEM's
facilities have an immediate adverse impact on the Company. For example, during
a 17-day work stoppage in March 1996 at two Dayton, Ohio GM plants that resulted
in shutdowns at other GM facilities, certain production lines of the Company
dedicated to factory assist work for GM vehicles were shut down within a period
ranging from one day to 14 days after the related GM facility stopped
operations. Although the Company took steps to minimize the consequences of this
unplanned work stoppage, there was an adverse effect on production, and
therefore on the Company's financial performance for the period involved. The
Chrysler and GM contracts with the UAW and the Canadian Auto Workers ("CAW")
expired in September 1996, and new collective bargaining agreements are being
negotiated. Although the UAW and the CAW had publicly announced plans to
negotiate with the OEMs to reduce dependence upon outsourcing the Company
believes that there will be no material adverse effect on the Company as a
result of the agreements being negotiated by Chrysler and GM with the UAW and
the CAW. However, there can be no assurance to this effect or as to the impact
of collective bargaining agreements that may be negotiated in the future.
COMPETITIVE INDUSTRY
The markets in which the Company competes are highly competitive. The
Company's competitors include large and established national and multinational
companies and smaller companies, as well as production facilities within the
OEMs themselves. Some of these competitors have, and new competitors may have,
greater resources than the Company, including resources to commit to marketing
and product engineering and development. Consequently, there can be no assurance
that the Company will be able to compete effectively in the future. See
"Business -- Competition".
UNION WORKFORCE; PLANT CLOSING
The Company's production work force consists of UAW members, with contracts
that expire at various times at each production facility. While the Company
believes it has maintained good relations with its unions, there can be no
assurance that this will continue to be the case. The collective bargaining
agreement with Local 155 of the UAW covering the approximately 145 hourly
employees of the Company's Plant #7 expired on August 18, 1996. As part of the
Company's continuing efforts to rationalize production and capture efficiencies,
on July 16, 1996 the Company announced plans to shut down in sixty days the
operations of Plant #7. Plant #7 continued operations after the expiration of
the collective bargaining agreement on August 18 until it was closed as of
September 16, 1996. The Company and Local 155 negotiated an agreement on matters
relating to the effects of the facility's closure on the employees represented
by the UAW local. Under this agreement, the Company has no liability for current
or future employee severance benefits. While the analysis of the costs
associated with the closing of Plant #7 is in a preliminary stage, management
believes that the charges associated with closing Plant #7, if any, will not
have a material adverse effect on the Company, although no assurance to such
effect can be given.
CONTROL OF MS ACQUISITION AND THE COMPANY
MS Acquisition owns, through Holdings, all of the outstanding capital stock
of the Company, and CVC owns New Common Stock representing approximately 49% of
the voting stock of MS Acquisition. Circumstances may occur in which the
interests of CVC, as an equity holder of MS Acquisition, could be in conflict
with the interests of the holders of the Notes. For example, if the Company
encounters financial
11
<PAGE> 14
difficulties, or is unable to pay certain of its debts as they mature, the
interests of MS Acquisition's equity investors might conflict with those of the
holders of the Notes. In addition, the equity investors may have an interest in
pursuing acquisitions, divestitures or other transactions that, in their
judgment, could enhance their equity investment, even though such transactions
might involve risks to the holders of the Notes.
ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES
The New Notes are new securities and there is currently no established
market for the New Notes. Accordingly, there can be no assurance as to the
liquidity of any markets that may develop for the New Notes, the ability of
holders to sell the New Notes or the price at which holders would be able to
sell the New Notes. Future trading prices of the New Notes will depend on many
factors, including, among other things, prevailing interest rates, the Company's
operating results and the market for similar securities. Historically, the
market for securities similar to the New Notes, including non-investment grade
debt, has been subject to disruptions that have caused substantial volatility in
the prices of such securities. There can be no assurance that any market for the
New Notes, if such market develops, will not be subject to similar disruptions.
The Initial Purchasers have advised the Company that they currently intend to
make a market in the New Notes offered hereby. However, the Initial Purchasers
are not obligated to do so and any market making may be discontinued at any time
without notice. The Old Notes currently are eligible for trading by qualified
buyers in the Private Offerings, Resale and Trading through Automated Linkages
(PORTAL) Market. The Company and the Guarantors do not intend to apply for
listing of the New Notes on any national securities exchange or for their
quotation through the National Association of Securities Dealers Automated
Quotation System.
12
<PAGE> 15
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange of the Notes
pursuant to the Exchange Offer.
CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following tables set forth the consolidated cash and capitalization of
the Company and of MS Acquisition (i) as of June 30, 1996 and (ii) as adjusted
to give effect to the Transactions.
THE COMPANY
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-----------------------
AS ADJUSTED
FOR THE
ACTUAL TRANSACTIONS
------- ------------
<S> <C> <C>
Cash..................................................... $ 311 $ 2,891
======== ========
Long-term debt...........................................
Senior Revolving Credit Facility(1).................... $18,976 $ 0
Subordinated debt...................................... 42,743
Notes offered hereby................................... 85,000
-------- --------
Total long-term debt................................... 61,719 85,000
-------- --------
Total stockholder's equity............................... 10,208 (2,925)
-------- --------
Total capitalization..................................... $71,927 $ 82,075
======== ========
</TABLE>
MS ACQUISITION
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
--------------------------
AS ADJUSTED
FOR THE
ACTUAL TRANSACTIONS(2)
------- ---------------
<S> <C> <C>
Cash................................................... $ 311 $ 2,891
======== ========
Long-term debt.........................................
Senior Revolving Credit Facility(1).................. $18,976 $ 0
Subordinated debt.................................... 42,743
Junior subordinated debentures....................... 8,731
Notes offered hereby................................. 85,000
-------- --------
Total long-term debt................................. 61,719 93,731
Preferred stock........................................ 2,580 11,496
-------- --------
Total stockholders' equity............................. 7,628 (23,650)
-------- --------
Total capitalization................................... $71,927 $81,577
======== ========
</TABLE>
- ------------------------------
(1) The Senior Revolving Credit Facility provides for borrowings of up to $35.0
million for working capital, capital expenditures and general corporate
purposes and is secured by liens on substantially all of the property of the
Company other than interests in real property. See "Description of Senior
Revolving Credit Facility."
(2) As adjusted, for MS Acquisition, includes adjustments for the purchase of
shares of New Preferred Stock and New Common Stock by CVC, the exchange of
existing MS Acquisition preferred stock for New Preferred Stock, the
issuance of $8.7 million in principal amount of the Junior Subordinated
Debentures of Holdings due 2007 and $0.5 million in the form of an unfunded
obligation of Holdings to certain option holders.
13
<PAGE> 16
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT RATIOS AND PRODUCTION DATA)
The following table sets forth selected historical financial data of the
Company for the five years ended December 31, 1995 and selected historical
financial data for the six months ended June 30, 1995 and 1996. The selected
financial data for the years ended December 31, 1993, 1994 and 1995 were derived
from the audited consolidated financial statements of the Company included
elsewhere in this Prospectus. The selected financial data for the years ended
December 31, 1991 and 1992 are derived from the audited consolidated financial
statements of the Company. The selected financial data as of June 30, 1996 and
for the six months ended June 30, 1995 and 1996 are derived from unaudited
consolidated financial statements of the Company included elsewhere in this
Prospectus which, in the opinion of management, include all adjustments,
consisting of only normal, recurring adjustments, necessary for a fair
presentation of the financial condition and results of operations of the Company
for such periods. The results of operations for interim periods are not
necessarily indicative of a full year's operations. The following table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the historical consolidated financial
statements of the Company presented elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Net sales................ $123,712 $128,905 $162,908 $204,850 $211,905 $119,111 $114,944
Cost of sales............ 110,177 112,830 139,499 172,428 183,542 100,321 98,472
Gross profit............. 13,535 16,075 23,409 32,422 28,363 18,790 16,472
Selling, general and
administrative
expenses(a)........... 6,079 9,984 12,544 12,898 13,331 6,835 7,371
Operating profit......... 7,456 6,091 10,865 19,524 15,032 11,955 9,101
Interest expense, net.... 9,525 9,206 9,020 8,929 8,579 4,246 4,132
Income (loss) before
effect of accounting
changes(b)............ (2,287) (2,768) 915 6,595 4,576 5,466 2,806
Net income (loss)........ (2,287) (2,768) (3,856) 6,595 4,576 5,466 2,806
OTHER FINANCIAL DATA
Depreciation and
amortization.......... 6,066 5,902 6,009 6,150 6,579 3,426 3,558
Capital expenditures..... 3,432 1,736 3,474 6,125 10,103 4,966 2,732
Cash flows from operating
activities............ 3,907 5,406 13,156 22,040 14,564 5,812 1,913
Cash flows from investing
activities............ (4,720) (1,676) (4,337) (6,454) (10,252) (4,966) (2,570)
Cash flows from financing
activities............ 512 (3,601) (9,401) (15,433) (4,184) (504) 677
Ratio of earnings to
fixed charges(c)...... -- -- 1.2 2.1 1.7 2.6 2.0
PRODUCTION AND OTHER DATA
EBITDA(c)................ $ 13,522 $ 11,993 $ 17,624 $ 25,924 $ 21,861 $ 15,506 $ 12,781
EBITDA margin(e)......... 10.9% 9.3% 10.8% 12.7% 10.3% 13.0% 11.1%
Ratio of EBITDA to
interest expense(e)... 1.4 1.3 1.9 2.9 2.5 3.7 3.1
Ratio of long-term debt
to EBITDA(e).......... 5.4 6.3 3.9 2.2 2.6 3.9 4.8
Adjusted net production
sales per
employee(f)........... $102,683 $108,994 $128,822 $130,157 $129,850 $ 67,850 $ 80,125
Adjusted net production
sales per square
foot(f)............... 170.4 178.9 234.4 251.8 282.7 147.7 158.7
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------- AT JUNE 30,
1991 1992 1993 1994 1995 1996
-------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets....................... $103,866 $105,414 $109,587 $113,331 $118,242 $ 122,885
Long-term debt..................... 73,417 75,390 69,238 57,744 57,741 61,719
Stockholder's equity (deficit)..... 2,856 88 (3,768) 2,827 7,402 10,208
</TABLE>
(footnotes on next page)
14
<PAGE> 17
- ------------------------------
(a) Included in selling, general and administrative expenses are management fees
of $750, $250, $250, $125 and $125 for 1993, 1994, 1995 and the six months
ended June 30, 1995 and 1996, respectively. Due to reaching selected
thresholds and measurements, selling, general and administrative expenses in
1993 included $500 of management fees relating to prior years. Such
management fees were eliminated upon consummation of the Transactions.
(b) Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes", which resulted in a one-time, non-cash, after tax charge of
$4,771. See note 9 to the Company's consolidated financial statements
appearing elsewhere in this Prospectus.
(c) For purposes of the ratio of earnings to fixed charges, (i) earnings include
earnings before income taxes, the effect of changes in accounting, and fixed
charges and (ii) fixed charges include interest on all indebtedness,
amortization of deferred financing costs and the portion of rental expense
(one-third) that the Company believes to be representative of interest. The
Company's earnings were insufficient to cover fixed charges by $2.1 million
and $3.1 million for the years ended December 31, 1991 and 1992,
respectively.
(d) EBITDA is defined herein as income before the effect of changes in
accounting plus interest, income taxes, management fees, and depreciation
and amortization. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to incur and service debt.
However, EBITDA should not be considered in isolation as a substitute for
net income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity.
(e) EBITDA margin is defined as EBITDA divided by net sales. Ratio of EBITDA to
interest expense is defined as EBITDA divided by interest expense, net.
Ratio of long-term debt to EBITDA is defined as long-term debt divided by
EBITDA. The above ratios have been presented because they are accepted
indicators of a company's ability to incur and service debt. However, none
of these ratios should be considered in isolation as a substitute for net
income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity.
(f) Adjusted net production sales is defined as net sales excluding (i) net
tooling and prototype sales and (ii) net sales relating to an unusually
large factory assist job which contributed $26.3 million, $16.2 million and
$16.2 million to net sales in 1994, 1995 and the six months ended June 30,
1995, respectively. Adjusted net production sales per employee is based upon
the average of the number of employees at quarter-end during each period
presented.
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<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a leading Tier I supplier of high-quality modules, welded
subassemblies and stampings used as original equipment components by OEMs in the
production of sport utility vehicles, mini-vans, utility vans, light pick-up
trucks and passenger cars. The Company's core products include complex, high
value-added modules and welded subassemblies, such as rear floor pan modules
that form a section of a vehicle underbody, and individual stampings, such as
oil pans, wheel retainers, headlight brackets, crossmembers, rails, heat shields
and door hinge pillars. The Company's manufacturing processes include roll
forming, blanking and stamping and, since 1991, the Company has implemented new
manufacturing processes including a cellular manufacturing strategy that has
increased production capacity and labor efficiency. The Company regularly
pursues and receives long-term OEM factory assist jobs, producing components of
existing vehicle models previously made by an OEM in-house. OEM factory assist
jobs can be the result of (i) short term production requirements prior to or
during model change-overs which allow the OEMs to retool their plants, (ii) cost
reduction initiatives resulting in increased outsourcing by OEMs or (iii)
capacity constraints after the introduction of a new platform. The Company also
participates with its OEM customers in process engineering activities.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the Company's
statement of operations expressed as a percentage of net sales. This table and
subsequent discussions should be read in conjunction with the consolidated
financial statements and related notes thereto of the Company included elsewhere
in this Prospectus.
AS PERCENTAGE OF NET SALES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales......................... 85.6 84.2 86.6 84.2 85.7
Gross profit.......................... 14.4 15.8 13.4 15.8 14.3
SG&A expenses......................... 7.7 6.3 6.3 5.7 6.4
Operating profit...................... 6.7 9.5 7.1 10.0 7.9
Interest expense...................... 5.5 4.4 4.0 3.6 3.6
Income before cumulative effect of
change in accounting and income
taxes............................... 1.1 5.2 3.0 6.5 4.3
Income tax provision.................. 0.6 2.0 0.9 1.9 1.9
Net income (loss)..................... (2.4)% 3.2% 2.2% 4.6% 2.4%
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995:
NET SALES: Net sales for the six months ended June 30, 1996 were $114.9 million,
a decrease of 3.5% from net sales of $119.1 million for the same period in 1995.
The decrease was principally due to the planned successful completion of a
factory assist job for Chrysler which ran for 16 months from early 1994 to
mid-1995. This factory assist job contributed $16.2 million of net sales for the
six month period ended June 30, 1995. Partially offsetting this decrease was an
increase of 11.3% in net sales to Chrysler (excluding factory assist work) for
the six months ended June 30, 1996 compared to the similar period for 1995. In
addition, net sales to GM increased 2.9% due to strong mini-van and small car
shipments, despite the planned phase out of a van program.
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<PAGE> 19
GROSS PROFIT: Gross profit was $16.5 million, or 14.3% of net sales, for the six
months ended June 30, 1996, compared to $18.8 million, or 15.8% of net sales,
for the six months ended June 30, 1995. Gross margins for the 1996 period are
slightly lower compared to the 1995 period due to the decrease in the Chrysler
factory assist work from 1995 to 1996 as discussed above. Additionally, gross
profit was negatively affected by a 17-day March 1996 work stoppage at two GM
plants located in Dayton, Ohio.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expenses were $7.4
million, or 6.4% of net sales, for the six months ended June 30, 1996, compared
to $6.8 million, or 5.7% of net sales for the six months ended June 30, 1995.
The increase in SG&A expenses, as a percentage of net sales, was primarily
attributable to engineering expenses which have increased $0.6 million over the
same period in 1995 primarily as a result of establishing an engineering project
team to launch a 1999 sports utility platform.
INTEREST EXPENSE: Interest expense for the six months ended June 30, 1996 was
$4.1 million, or 3.6% of net sales, compared to $4.2 million, or 3.6% of net
sales, for the six months ended June 30, 1995. The decrease in interest expense
was attributable to lower levels of debt outstanding in 1996 as compared to the
same period in the prior year.
INCOME TAXES: The provision for income taxes for the six months ended June 30,
1996 was $2.2 million with an effective rate of 43.5%, as compared to $2.2
million with an effective tax rate of 29.0% in the same period of the prior
year. The increase in the effective rate is due primarily to the effect of
graduated rates coupled with non-deductible amortization of cost in excess of
assets acquired.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994:
NET SALES: Net sales for the year ended December 31, 1995 were $211.9 million,
an increase of $7.0 million, or 3.4%, from $204.9 million in 1994. The increase
was principally the result of continued strong consumer demand in the North
American automotive market for sport utility vehicles, with total sport utility
vehicle production increasing 26.6% in 1995. Net tooling and prototype sales
were $4.4 million in 1995, down 46.3% from 1994 net tooling and prototype sales
of $8.2 million. In 1994, the Company completed the installation of a mini-van
radiator support assembly which contributed $5.0 million to net tooling and
prototype sales. Net production sales to Chrysler and GM as a percentage of
total net production sales were 60% and 36% in 1995, respectively, as compared
to 62% and 35%, respectively, in 1994.
GROSS PROFIT: Gross profit was $28.4 million, or 13.4% of net sales, in 1995,
compared to $32.4 million, or 15.8% of net sales, in 1994. Gross margins were
unfavorably impacted by the need to execute a major assembly line overhaul to
meet increased demand for the Chrysler Jeep Grand Cherokee. This overhaul, which
was implemented while the Company remained in full production, was required as
the result of running an assembly line at a rate 20 to 25 percent greater than
its originally designed maximum capability for over two years due to high
product demand. Additionally, gross profit was adversely affected by start-up
costs on a new weld assembly job and delays in receiving anticipated factory
assist work.
SG&A: SG&A expenses, which were $13.3 million in 1995, compared to $12.9 million
in 1994, remained constant as a percentage of net sales at 6.3%.
INTEREST EXPENSE: Interest expense for the year ended December 31, 1995 was $8.6
million, or 4.0% of net sales, compared to $8.9 million, or 4.4% of net sales,
for the year ended December 31, 1994. Weighted average interest rates were 12.9%
and 12.3% in 1995 and 1994, respectively. The decrease in interest expense is
attributable to lower levels of debt outstanding.
INCOME TAXES: The provision for income taxes for the year ended December 31,
1995 was $1.9 million, with an effective income tax rate of 29.0%, as compared
to $4.0 million, with an effective tax rate of 37.8% in the same period of the
prior year. The decrease in the effective rate is due principally to the effect
of the rate change on deferred tax balances and the reversal of tax reserves no
longer required.
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<PAGE> 20
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
NET SALES: Net sales for the year ended December 31, 1994 were $204.9 million,
an increase of $42.0 million, or 25.8%, from $162.9 million in 1993. The
increase was principally the result of a factory assist job for Chrysler as well
as increased consumer demand for light trucks. Net tooling and prototype net
sales were $8.2 million in 1994, up 91% from $4.3 million in 1993 primarily as a
result of a $5.0 million mini-van radiator support assembly tooling project in
1994. Net production sales to Chrysler and GM as a percentage of total net
production sales were 62% and 35%, respectively, in 1994, compared to 59% and
39%, respectively, in 1993.
GROSS PROFIT: Gross profit was $32.4 million, or 15.8% of net sales, in 1994,
compared to $23.4 million, or 14.4% of net sales, in 1993. The improvement in
gross margins was primarily attributable to a better sales mix of higher margin
production jobs, including factory assist work.
SG&A: SG&A expenses were $12.9 million, or 6.3% of net sales, in 1994, compared
to $12.5 million, or 7.7% of net sales, in 1993. The decrease in SG&A, as a
percent of net sales, occurred because the Company was able to take in a large
number of factory assist jobs in 1994 without a significant increase in support
staff. In addition, due to reaching selected thresholds and measurements, SG&A
for 1993 included $0.5 million or 0.3% of net sales, of management fees relating
to prior years.
INTEREST EXPENSE: Interest expense for the year ended December 31, 1994 was $8.9
million, or 4.4% of net sales, compared with $9.0 million, or 5.5% of net sales,
for the year ended December 31, 1993. Weighted average interest rates were 12.3%
and 11.3% in 1994 and 1993, respectively. The decrease in interest expense is
attributable to lower levels of debt outstanding.
INCOME TAXES: The provision for income taxes for the year ended December 31,
1994 was $4.0 million with an effective tax rate of 37.8%, compared to $0.9
million with an effective tax rate of 50.4% in the same period of the prior
year. The effective tax rate in both 1993 and 1994 was affected by the
amortization of non-deductible cost in excess of net assets acquired.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are to fund working capital
needs, to meet required debt payments, and to complete planned maintenance and
expansion expenditures. The Company anticipates that its operating cash flow,
together with available borrowings under the Senior Revolving Credit Agreement,
will be sufficient to meet its working capital requirements and capital
expenditure requirements and service interest requirements on its debt
obligations. As of June 30, 1996, on a pro forma basis after giving effect to
the Transactions, the Company would have had $85.0 million of debt outstanding
and would have had the ability to borrow an additional $35.0 million for working
capital and capital expenditure requirements under the Senior Revolving Credit
Facility. The Company anticipates that its operating cash flow, together with
available borrowings under the Senior Revolving Credit Agreement will be
sufficient to meet its working capital requirements and capital expenditure
requirements for a minimum period of five (5) years.
While purchases of raw or coil steel represent a material component of
costs of good sold, the Company believes that its participation in the Chrysler
and General Motors steel resale programs has reduced the effect of steel price
increases over the life of a manufacturing project. The Company's steel
purchases have ranged from $57.6 million in 1993 to $74.4 million through June
30, 1996, or 36% and 37% respectively, as a percent of sales. The Company
believes that annual industry steel price increases (based upon Company
estimates) of 1% in each of fiscal 1993 and 1994, 3% in fiscal 1995 and 1% in
fiscal 1996 through June 30, have been passed through to Chrysler and General
Motors in an aggregate amount of $3.9 million. Without the protection provided
by the Company's participation in its customers' steel resale programs, industry
cost increases would have reduced operating income. As a result of the pricing
arrangements implemented through the Chrysler and General Motors steel resale
programs, industry steel price increases do not result in increased liquidity
requirements for the Company.
Net cash flow from operations aggregated $1.9 million for the six months
ended June 30, 1996 as compared to $5.8 million for the same period in the prior
year. The decrease was primarily attributable to a
18
<PAGE> 21
$2.7 million and $2.2 million decrease in net income and working capital,
respectively, partially offset by an increase in depreciation and deferred
interest of $0.1 million and $0.7 million, respectively.
Net cash flow from operating activities totaled $14.6 million for the year
ended December 31, 1995 as compared to $22.0 million for the prior year. The
decrease in operating cash flow in 1995 compared to 1994 is attributable to net
income decreasing $2.0 million, working capital decreasing $2.5 million,
depreciation and amortization increasing $0.4 million, deferred interest
decreasing $1.7 million and deferred income taxes decreasing $0.2 million.
The Company currently expects that its capital expenditures (exclusive of
any potential acquisitions) will be approximately $3.7 million for the second
half of fiscal 1996 and approximately $7.0 million to $10.0 million in each of
the five fiscal years subsequent to December 31, 1995, including maintenance
capital expenditures of approximately $4.5 million to $5.0 million each year.
However, the Company's capital expenditures will be affected by, and may be
greater than currently anticipated depending upon the size and nature of new
business opportunities. Major capital projects anticipated for the remainder of
fiscal 1996 include expenditures in the approximate amounts of $1.0 million for
new dies, $0.5 million for renovations and building repair, $0.6 million for new
equipment and $0.2 million for engineering software.
Capital expenditures for the six months ended June 30, 1996 were $2.4
million as compared to $5.0 million for the same period in the prior year. Major
capital projects during this period included a land purchase, construction of a
rear suspension weld assembly line, automation of the M-Van production line and
purchase and installation of a smoke control system. Capital expenditures in the
year ended December 31, 1995 were $10.1 million, compared with $6.1 million in
1994 and $3.5 million in 1993. Major capital projects for 1995 included
completion of a platform specific control arm project, continued expenditures
related to a plant modernization program, and start-up costs related to a new
rear suspension project. Major capital projects for 1994 included expenses
related to a plant modernization program and initial plant refurbishment costs
associated with a platform specific control arm project awarded in October 1994.
Cash provided by financing activities for the six months ended June 30,
1996 was $0.7 million as compared to cash used for financing activities of $0.5
million for the same period in the prior year. The increase in cash provided by
financing primarily represents the impact of the timing of the payment of
certain debt obligations, and, in 1996, the refinancing of the Company's Senior
Revolving Credit Facility.
Cash used for financing activities for the years ended December 31, 1995,
1994, and 1993 totalled $4.2 million, $15.4 million and $9.4 million,
respectively, and consisted primarily of principal payments on long-term debt.
The Company's average working capital borrowings under its credit agreement
were $11.7 million, $11.5 million and $7.4 million for the years ended December
31, 1995, 1994 and 1993, respectively. The Company's maximum working capital
borrowings outstanding were $19.2 million, $19.0 million and $10.6 million,
respectively, in those same periods.
To the extent dividends to Holdings to fund cash interest payments on the
Junior Subordinated Debentures and cash payments on the unfunded contractual
obligations to former option holders are permitted under the Indenture and the
Senior Revolving Credit Facility, interest on the Junior Subordinated Debentures
and the contractual obligations will be funded by cash dividends by the Company
to Holdings. Such dividends would be approximately $1.0 million annually.
Additionally, up to $2.5 million in aggregate principal amount of the Junior
Subordinated Debentures will be required to be redeemed by Holdings from time to
time to the extent dividends to Holdings are permitted to be paid under the
Indenture and the Senior Revolving Credit Facility.
The Company's liquidity is affected by both the cyclical nature of its
business and levels of net sales with its two major customers. The Company's
ability to meet its working capital requirements and capital expenditure
requirements and service its debt obligations will depend upon its future
operating performance, which will be affected by prevailing economic conditions
and financial, business and other factors, certain of which are beyond its
control.
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<PAGE> 22
INFLATION
The Company does not believe that inflation has had any material effect on
the Company's business over the past three years.
RECENT ACCOUNTING PRONOUNCEMENTS
FAS 109: Effective January 1, 1993, the Company prospectively adopted the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes". The statement requires a change from the deferred method to
the asset and liability method of accounting for income taxes. Previously, the
Company deferred the past tax effects of timing differences between financial
reporting and taxable income. The asset and liability approach requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
basis of the Company's assets and liabilities. Prior year financial statements
have not been restated. As a result of the adoption of this statement, the
Company recorded a charge in 1993 of $4.8 million as the effect of an accounting
change in 1993.
FAS 121: In March 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
(FAS 121). This statement requires companies to evaluate long-lived assets,
certain identifiable intangibles and associated goodwill on a exception basis
when there is evidence that events or changes in circumstances have made
recovery of an asset's carrying value unlikely. The Company adopted FAS 121 at
the beginning of 1995; the effect of this adoption was not material.
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<PAGE> 23
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on December 10, 1996; provided, however, that if the Company has
extended the period of time for which the Exchange Offer is open, the term
"Expiration Date" means the latest time and date to which the Exchange Offer is
extended.
As of the date of this Prospectus, $85.0 million aggregate principal amount
of the Old Notes are outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about November 12 , 1996 to all holders
of Old Notes known to the Company. The Company's obligation to accept Old Notes
for exchange pursuant to the Exchange Offer is subject to certain conditions as
set forth under "-- Certain Conditions to the Exchange Offer" below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for any exchange of any Old Notes, by giving notice of
such extension to the holders thereof. During any such extension, all Old Notes
previously tendered will remain subject to the Exchange Offer and may be
accepted for exchange by the Company. Any Old Notes not accepted for exchange
for any reason will be returned without expense to the tendering holder thereof
as promptly as practicable after the expiration or termination of the Exchange
Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified below under "-- Certain Conditions to the Exchange Offer." The Company
will give notice of any extension, amendment, non-acceptance or termination to
the holders of the Old Notes as promptly as practicable, such notice in the case
of any extension to be issued no later than 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the Delaware General Corporation Law in connection with the Exchange Offer.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal, to Norwest Bank Minnesota, National
Association, (the "Exchange Agent") at one of the addresses set forth below
under "Exchange Agent" on or prior to the Expiration Date. In addition, either
(i) certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal, or (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or the holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
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<PAGE> 24
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instruction" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than a
signer of the Letter of Transmittal, the Old Notes surrendered for exchange must
be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Company in its
sold discretion, duly executed by, the registered holder with the signature
thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to waive
any defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any holder who seeks to tender Old Notes in
the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the Company
shall determine. Neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity with
respect to any tender of Old Notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each broker-dealer holder will represent to the Company that,
among other things, the New Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the holder and any
beneficial holder, that neither the holder nor any such beneficial holder has an
arrangement or understanding with any person to participate in the distribution
of such New Notes and that neither the holder nor any such other person is an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company. If
the holder is not a broker-dealer, the holder must represent that it is not
engaged in nor does it intend to engage in a distribution of the New Notes.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. For purposes of the Exchange Offer, the Company shall be deemed to
have accepted properly tendered Old Notes for exchange when, as and if the
Company has given oral and written notice thereof to the Exchange Agent.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Old Notes are submitted for a greater principal amount than the
holder
22
<PAGE> 25
desires to exchange, such unaccepted or non-exchanged Old Notes will be returned
without expense to the tendering holder thereof (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described below, such non-exchanged Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility) as promptly as practicable
after the expiration of the Exchange Offer.
BOOK-ENTRY TRANSFER
Any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof
with any required signature guarantees and any other required documents must, in
any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "Exchange Agent" on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent received from such Eligible Institution a properly competed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by telegram, telex,
facsimile and transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within five New York
Stock Exchange ("NYSE") trading days after the date of execution of the Notice
of Guaranteed Delivery, the certificates for all physically tendered Old Notes,
in proper form for transfer, or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility
(a "Book-Entry Confirmation"), as the case may be, and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent and (iii) the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the Letter
of Transmittal are received by the Exchange Agent within five NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date. For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which such
Old Notes are registered, if different from that of the withdrawing holder. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates, the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer. Any Old
Notes which have been tendered for exchange but which are not exchanged for any
reason will be returned to the holder thereof without cost to such holder (or,
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<PAGE> 26
in the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book entry
transfer described above, such Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old Notes) as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "-- Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Notes in exchange
for, any Old Notes and may terminate or amend the Exchange Offer if at any time
before the acceptance of such Old Notes for exchange or the exchange of New
Notes for such Old Notes, the Company determines that the Exchange Offer
violates applicable law, any applicable interpretation of the staff of the
Commission or any order of any governmental agency or court of competent
jurisdiction.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its reasonable discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as amended
(the "TIA"). In any such event the Company is required to use every reasonable
effort to obtain the withdrawal of any stop order at the earliest possible time.
EXCHANGE AGENT
Norwest Bank Minnesota, National Association, has been appointed as the
Exchange Agent for the Exchange Offer. All executed Letters of Transmittal
should be directed to the Exchange Agent at one of the addresses set forth
below. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<TABLE>
<CAPTION>
By Hand: By Registered or Certified Mail: By Overnight Courier:
- ----------------------------- -------------------------------- -----------------------------
<S> <C> <C>
Norwest Bank Minnesota, Norwest Bank Minnesota, Norwest Bank Minnesota,
National Association National Association National Association
Corporate Trust Operations Corporate Trust Operations Corporate Trust Operations
Northstar East, 12th Floor P.O. Box 1517 Norwest Center
608 2nd Avenue Minneapolis, MN 55480-1517* Sixth and Marquette
Minneapolis, MN 55479-0113* Minneapolis, MN 55479-0113*
<CAPTION>
By Facsimile:
-----------------------------
<S> <C> <C>
*or Norwest Trust Company Norwest Bank Minnesota,
3 New York Plaza National Association
15th Floor Corporate Trust Operations
New York, New York 10004 (612) 667-4927
Confirm by telephone:
(612) 667-9764
</TABLE>
DELIVERY OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
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<PAGE> 27
FEES AND EXPENSES
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is the principal amount as reflected in the Company's accounting records
on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized. The expenses of the Exchange Offer will be
capitalized for accounting purposes.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF NEW NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to the exemptions from, or
in transactions not subject to, the registration requirements of, the Securities
Act and applicable state securities law. Old Notes not exchanged pursuant to the
Exchange Offer will continue to accrue interest at 11 7/8% per annum and will
otherwise remain outstanding in accordance with their terms. Holders of Old
Notes do not have any appraisal or dissenters' rights under Delaware General
Corporation Law in connection with the Exchange Offer. In general, the Old Notes
may not be offered or sold unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Old Notes under the Securities
Act. However, (i) if the Initial Purchasers so request with respect to Old Notes
not eligible to be exchanged for New Notes in the Exchange Offer and held by
them following consummation of the Exchange Offer or (ii) if any holder of Old
Notes is not eligible to participate in the Exchange Offer or, in the case of
any holder of Old Notes that participates in the Exchange Offer, does not
receive freely tradable New Notes in exchange for Old Notes, the Company is
obligated to file a registration statement on the appropriate form under the
Securities Act relating to the Old Notes held by such persons.
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, the Company is of the view that New
Notes issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any such holder which
is an "affiliate' of the Company within the meaning of Rule 405 under the
Securities Act or (ii) any broker-dealer that purchases Notes from the Company
to resell pursuant to Rule 144A or any other available exemption) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement or understanding
with any person to participate in the distribution of such New Notes. If any
holder has any arrangement or understanding with respect to the distribution of
the New Notes to be acquired pursuant to the Exchange Offer, such holder (i)
could not rely on the applicable interpretations of the staff of the Commission
and (ii) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction. A
broker-dealer who holds Old Notes that were acquired for its own account as a
result of market-making or other trading activities may be deemed
25
<PAGE> 28
to be an "underwriter" within the meaning of the Securities Act and must,
therefore, deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of New Notes. Each such broker-dealer that
receives New Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, pursuant to the Registration Rights Agreement and subject to certain
specified limitations therein, to register or qualify the New Notes for offer or
sale under the securities or blue sky laws of such jurisdictions as any holder
of the Notes reasonably requests in writing.
26
<PAGE> 29
BUSINESS
The Company is a leading Tier I or direct supplier of high-quality modules,
welded subassemblies and stampings used as original equipment components by OEMs
in the North American automobile industry. The Company's core products, which in
1995 represented over 74% of its net sales, are complex, high value-added
modules and welded subassemblies. With wide-bed press capabilities in excess of
150 inches, the Company is one of a small group of independent suppliers capable
of producing large bed-size stampings and assemblies. The Company produces over
200 products that are used in the production of 51 different models (23
different platforms). 86% of the Company's 1995 net sales were derived from
sales of products manufactured for the light truck sector (consisting of sport
utility vehicles, mini-vans, utility vans and light pick-up trucks), which has
recently experienced stronger growth than the passenger car sector. The Company
has been a direct supplier to Chrysler and GM since 1941, with net production
sales to these customers in 1995 accounting for 60% and 36%, respectively, of
the Company's net production sales. Since 1991, the Company has implemented new
manufacturing and marketing practices that management believes have improved the
Company's manufacturing productivity and quality and have enhanced and expanded
the Company's customer relationships. As a result of these efforts, from 1991 to
1995, net sales grew at a CAGR of 14% from $123.7 million in 1991 to $211.9
million in 1995, and EBITDA grew at a CAGR of 13% from $13.5 million in 1991 to
$21.9 million in 1995.
THE OEM SUPPLIER INDUSTRY
Management believes that the Company is benefitting from certain
industry-wide structural developments that are altering the competitive
environment for parts suppliers to OEMs, including cost-driven purchasing by
OEMs of integrated modules and subassemblies. Because of increasing global
competition, OEMs have been upgrading their supplier policies, reducing the
number of strategic suppliers that may bid for awards and outsourcing an
increasing percentage of their production requirements. Chrysler and GM have
indicated that by July 31, 1997 and December 31, 1997, respectively, only Tier I
suppliers with QS 9000 certification will be allowed to bid on new manufacturing
business. The Company is already QS 9000 certified at all of its manufacturing
facilities.
Strategic suppliers to Chrysler and GM are invited to bid on the
manufacture and assembly of specific products to be incorporated in both new and
existing automotive platforms. If the model or platform already exists, the
current supplier may be favored by the OEM because of the supplier's familiarity
with the existing product as well as its existing investment in the
manufacturing process and tooling. As a result, it is considered unusual for
incumbent suppliers to be removed from existing contracts, particularly if they
have consistently been able to deliver the existing products on time, within
agreed quality levels and at competitive prices.
On new platforms, there has been an increasing trend toward involving
potential suppliers much earlier in the design and development process in order
to encourage the suppliers to share some of the design and development
responsibility. Management believes that early involvement in the design and
engineering of new components affords the Company a competitive advantage in
securing new business and provides its customers with significant cost reduction
opportunities. Once selected, an OEM supplier generally manufactures and/or
purchases the necessary tooling and supplies the product on a sole-source basis
for the life of a vehicle model or platform, which typically ranges from five to
seven years. In most cases, it will be at least two years before a Tier I OEM
supplier sees its products incorporated into new models or platforms.
Consequently, the key success factors for suppliers to OEMs have changed from
pure cost minimization to total program management that encompasses
state-of-the-art design, manufacture and delivery of high quality products at
competitive prices.
27
<PAGE> 30
BUSINESS STRATEGY
The Company has developed and is implementing a business strategy to
enhance the effectiveness of its core operating strengths, to respond to
industry-wide structural developments in the OEM parts supplier industry and to
increase sales and profitability. Key elements of this strategy are as follows:
- FOCUS ON HIGH GROWTH VEHICLE CATEGORIES. While the Company's products are
generally used on a diverse group of automotive platforms (23) and models
(51), the Company's sales and marketing efforts have been directed
towards sectors of the automotive market that have experienced strong
consumer demand and growth in sales. In 1995, 86% or $181.4 million of
the Company's net sales were derived from sales of products manufactured
for sport utility vehicles, mini-vans, utility vans and light pick-up
trucks, versus 60% or $73.7 million in 1991. In recent years the light
truck sector (consisting of sport utility vehicles, mini-vans, utility
vans and light pick-up trucks) experienced comparatively stronger growth
in production units than the passenger car sector, with a 1991-1995 CAGR
of approximately 13% for the light truck sector and 7% for the passenger
car sector. Production for the sport utility vehicle market has been the
fastest growing sector in the North American new car sales market with a
1991-1995 CAGR of approximately 23%. 48% of the Company's net sales in
1995 were derived from sales of products manufactured for sport utility
vehicles, as compared to 27% in 1991.
- PRODUCTION OF MORE COMPLEX, HIGH VALUE-ADDED ASSEMBLIES. The Company's
business strategy includes seeking awards for more complex, high
value-added modules and welded subassemblies which typically generate
higher dollar content per vehicle for the Company than individual
stampings. In 1995, modules and welded subassemblies accounted for
approximately 74% of the Company's total net sales, versus 56% in 1991.
Structural changes within the automotive manufacturing industry have
substantially increased the reliance of OEMs on purchasing integrated
modules and subassemblies from independent suppliers such as the Company.
Management believes that this continuing shift will create new
opportunities for the Company to utilize its capability to produce large
bed-size stampings and assemblies, along with its broad range of
services, including process and design engineering capabilities and
low-cost, quality manufacturing. For example, after seven years of
collaboration with Chrysler, the Company was recently awarded the rear
floor pan module for the new generation Chrysler Jeep Grand Cherokee due
out in model year 1999, an example of a complex module with sophisticated
engineering requirements.
- LOW COST STRUCTURE. An integral part of the Company's business strategy
has been to achieve a low cost structure by maximizing asset utilization,
reducing manufacturing costs and rationalizing the Company's component
parts and services supplier base. Over the past four years, the Company's
manufacturing initiatives have significantly improved its productivity
and asset utilization and have enabled the Company to achieve, in 1995,
adjusted net production sales per employee and per square foot of
manufacturing space of $129,850 and $282.7, respectively, compared to
$102,683 and $170.4, respectively, in 1991. By maximizing productivity,
the Company has been able to rapidly adjust its operations to changes in
market demand and manufacturing volumes. In addition, the Company's
average labor rate for hourly employees of approximately $15 per hour,
inclusive of benefits, is substantially below the comparable average
labor rate of approximately $40 per hour of its OEM customers. This low
labor cost structure enables the Company to provide its customers with a
cost effective source of modules and welded subassemblies and has enabled
the Company to participate in the OEMs' outsourcing of an increasing
percentage of their component needs. The Company has also benefitted from
steel purchasing arrangements with Chrysler and GM that allow the Company
to pass through price changes to these customers. As a result of these
arrangements, the effect of changes in the cost of steel, which
represented 36% of the Company's net sales in 1995, has been
substantially mitigated. Moreover, the Company purchases certain
component parts and services for its modules and subassemblies, which in
1995 represented approximately 16% of net sales. The Company believes
that it will be able to achieve further cost reductions by implementing
its strategy of reducing its component parts and services supplier base
to those suppliers who are able to provide continuous quality improvement
on a cost effective basis. Much as the Company's customers have achieved
cost reductions by concentrating their purchases with larger, more cost
effective stamping suppliers, the
28
<PAGE> 31
Company plans to implement a program concentrating purchases of small
components (such as fasteners, small stampings, and weld supplies) and
outside services (such as painting, plating and heat treating) with a
select number of suppliers. In addition to pricing, these suppliers will
be judged on overall quality, stocking policies and delivery
capabilities, ability to communicate data electronically, and a program
at the supplier which addresses continuous cost reductions in the
supplier's operations.
- AETNA PRODUCTION SYSTEM. The Company has implemented the "Aetna
Production System", a production process which is based upon the "Total
Elimination of Waste" manufacturing philosophy. The Company's
manufacturing processes have been realigned to streamline work flow,
achieve flexibility, promote quality and lower manufacturing costs. The
Company has developed a cellular manufacturing strategy by producing and
assembling in a single location all of the stampings that comprise a
module or subassembly. As a result of the Company's commitment to quality
and its investment in quality assurance education and control systems,
none of the Company's products has been subject to a recall. All of the
Company's manufacturing facilities have achieved QS 9000 certification,
the standard recently adopted by AIAG. Chrysler and GM have indicated
that by July 1, 1997 and December 31, 1997, respectively, they will allow
only Tier I suppliers with QS 9000 certification to bid on new
manufacturing business.
PRODUCTS
The Company manufactures, assembles and assists in the design of its core
products which consist of a broad range of complex, high value-added modules and
welded subassemblies, including floor pans and ladders, radiator supports, frame
extensions, bumpers and crossmembers. In recent years, the Company has focused
on producing modules and welded subassemblies as OEMs have increasingly relied
on outside suppliers of these components in order to contain rising labor and
production costs. Over 74% of the Company's 1995 net sales, compared to 56% in
1991, were generated by complex, high value-added modules and welded
subassemblies. The Company produces over 200 products on 23 different platforms
(51 different models) in its nine plants at five manufacturing locations. 86% of
the Company's 1995 net sales were derived from products manufactured for sport
utility vehicles, mini-vans, utility vans and light pick-up trucks, compared to
60% in 1991.
The Company's multiple press lines and flexible manufacturing capacity
enable it to produce a broad array of products, including smaller stampings,
such as oil pans, wheel retainers and headlight brackets, and intermediate-sized
stampings, such as crossmembers, rails, heat shields, wheelhouses and door hinge
pillars. The Company's wide-bed presses (i.e., over 150 inches) make it one of
approximately six independent suppliers capable of producing large bed-size
stampings and assemblies. The Company also has extensive roll-forming production
capabilities, which are utilized in conjunction with the manufacturing of
complete modules and subassemblies. Roll-forming processes have been used for
many years to produce various sizes and shapes of window channels.
Set forth below are examples of modules, subassemblies, detailed stampings
and roll sections currently produced by the Company:
<TABLE>
<CAPTION>
MODULES MODEL PLATFORM
- -------------------------------------------------------- -------------------- -----------
<S> <C> <C>
Chrysler Rear Floor Pan Assembly........................ Jeep Grand Cherokee ZJ
GM Rear Suspension Assembly............................. Aurora, Riviera G
GM Radiator Support Assembly............................ Astro, Safari M Van
GM Rear Bumper Assembly................................. Astro, Safari M Van
</TABLE>
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<PAGE> 32
<TABLE>
<CAPTION>
ASSEMBLIES MODEL PLATFORM
- -------------------------------------------------------- -------------------- -----------
<S> <C> <C>
Chrysler Rear Sill Subassembly.......................... Jeep Cherokee XJ/XJU
Chrysler Wheelhouse Subassembly......................... Jeep Grand Cherokee ZJ
Chrysler "A" Front Pillar............................... Cirrus, Stratus JA
GM Cross Member Subassembly............................. Astro, Safari M Van
GM Control Arm Subassembly.............................. Cavalier, Corsica J,L,N
GM Transmission Support Subassembly..................... Blazer, Tahoe, Jimmy GMT 410/420
GM Fuel Tank Shield Assembly............................ Blazer, Tahoe, Jimmy GMT 410/420
GM Rear Impact Bumper................................... Astro, Safari M Van
</TABLE>
<TABLE>
<CAPTION>
DETAILED STAMPINGS MODEL PLATFORM
- -------------------------------------------------------- -------------------- -----------
<S> <C> <C>
Chrysler Front Sills.................................... Jeep Cherokee XJ/XJU
Chrysler Transmission Pan............................... Jeep Cherokee XJ/XJU
Chrysler Wheelhouse Panel............................... Jeep Wrangler YJ/TJ
GM Bumper Reinforcement................................. Astro, Safari M Van
GM Front Door Inner Panel............................... Beretta, Regal L,W
</TABLE>
<TABLE>
<CAPTION>
ROLL SECTIONS MODEL PLATFORM
- -------------------------------------------------------- -------------------- -----------
<S> <C> <C>
GM Front Door Side Impact Beam.......................... S10/S15 Sonoma S/T Pickup
GM Retainer with Windshield Reveal...................... Regal W
GM Rear Door Sash....................................... Astro, Safari M Van
</TABLE>
CUSTOMERS
Management believes that the Company's long-standing industry relationships
are based on its reputation for low cost, quality products and on-time service.
The Company's primary customers are Chrysler and GM, which accounted for
approximately 60% and 36% of 1995 net production sales, respectively. The
Company has been a direct supplier to GM and Chrysler since 1941, and the
Company has longstanding relationships with buying and engineering personnel at
both companies. For both Chrysler and GM, the Company has been designated a
"strategic supplier" for stamping and assembly work, as part of a limited group
of preferred suppliers invited to bid for platform work. The Company believes
that in the 1995 model year it was the 27th largest (based on annual model year
sales) of Chrysler's 1,298 suppliers. The Company has been producing the rear
floor pan module for the Jeep Grand Cherokee underbody since the model's
introduction in 1992, and produces modules and subassemblies for Chrysler's
standard Jeep Cherokee and other vehicles. More recently, the Company was also
awarded the rear floor pan module for the new generation Jeep Grand Cherokee due
out in model year 1999. The Company is also one of GM's strategic stamping
suppliers, and produces modules, subassemblies and details for GM's passenger
car, mini-van and light truck divisions. The Company is responsible for a number
of critical parts for GM, including the module for the 1995 M-Van radiator
support assembly, as well as the GM CK transmission supports.
The Company also produces roll-form jobs for window channels for the
principal automotive window manufacturers, including PPG Industries, Inc.,
Libbey-Owens-Ford and Guardian Industries Corp. In addition, in recent years the
Company has begun to explore collaborative production efforts with foreign
automobile manufacturers, including CAMI, the North American joint venture
between GM and Suzuki Motor Corporation, whose products include Geo Metro,
Suzuki Sidekick and Geo Tracker.
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<PAGE> 33
The following table sets forth the Company's major customers and the
vehicles to which it supplied products during 1995:
CHRYSLER
<TABLE>
<CAPTION>
TYPE MODEL PLATFORM
-------------------------------------- ------------------------ ---------------
<S> <C> <C>
Sport Utility......................... Jeep Wrangler YJ/TJ
Jeep Grand Cherokee ZJ
Jeep Cherokee XJ/XJU
Vans.................................. Ram Van B Van
Trucks................................ Ram Pick-up T300
Dakota N
Passenger Cars........................ Cirrus/Stratus JA
</TABLE>
GENERAL MOTORS
<TABLE>
<CAPTION>
TYPE MODEL PLATFORM
-------------------------------------- ------------------------ ---------------
<S> <C> <C>
Sport Utility......................... GMC Jimmy S Blazer-Jimmy S
Chevy Blazer S Blazer-Jimmy S
Chevy Blazer/Tahoe GMT 419/420
GMC Jimmy/Yukon GMT 410/420
GMC/Suburban Suburban
Vans.................................. Chevy Van GMT 600
Sport Van G Van
Vandura Rally G Van
Mini-Vans............................. Chevy Astro M Van
GMC Safari M Van
Trucks................................ Sonoma S/T Pick-Up
Chevy S10/S15
Passenger Cars........................ Buick Park Avenue C
Olds Ninety Eight C
Buick LeSabre H
Pontiac Bonneville H
Olds Delta Eighty Eight H
Chevy Corsica/Beretta L
Buick Regal W
Chevy Cavalier J
Olds Aurora G
Buick Riviera G
</TABLE>
CAMI
<TABLE>
<CAPTION>
TYPE MODEL PLATFORM
-------------------------------------- ------------------------ ---------------
<S> <C> <C>
Sport Utility......................... Sidekick J1
Tracker J1
</TABLE>
SALES AND MARKETING
The Company's marketing efforts are currently concentrated on the light
truck sector (consisting of sport utility vehicles, mini-vans, utility vans and
light pick-up trucks), one of the fastest growing sectors in vehicle sales. The
Company's combined net sales of products used on sport utility vehicles,
mini-vans, utility vans and light pick-up trucks increased from $73.7 million in
1991 to $181.4 million in 1995. Management believes that this strong sales
performance has been based on its established reputation for low cost, on-time
and high quality production.
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<PAGE> 34
The Company competes for work both at the beginning of the development of
new model platforms and upon the redesign of existing models. New model
development generally begins two to four years prior to the marketing of these
models to the public. Module, subassembly and stamping jobs are generally
awarded one to three years prior to the initial production period. Once a
producer has been designated to supply parts to a new program, it will generally
continue to be a sole source supplier for these parts for the life of the
program. In the case of Chrysler and GM, anticipated production volumes are
generally confirmed three months in advance, and releases are given to the
Company on a weekly basis. Typically, these arrangements remain in place for the
production life of a car or truck platform and continue through a platform's
redesign period. Production generally runs five to seven years, but on occasion
can be substantially longer or shorter, and then ceases with the discontinuance
of the respective model.
The Company has increasingly been partnering with OEMs during the early
stages of platform development. OEMs have focused on shortening design cycles
and reducing design and production costs, and have involved component suppliers
earlier in the process of designing a vehicle. The Company has been increasingly
given the opportunity to participate in the design of subassemblies, such as the
floor pan and ladder subassembly, radiator supports and crossmember assemblies,
which are designed at an early stage in the development of new vehicles or model
revisions. This has resulted in opportunities to add additional value by
furnishing engineering and process design services and managing the subassembly
process for the manufacturer. It also creates opportunities for early
identification of a broad range of components and related subassemblies which
could be manufactured by the Company. Partnering also involves sharing with the
OEMs tooling, design and other start-up costs.
The Company also seeks work producing components of existing vehicle models
previously made by an OEM in-house. Production by outside suppliers allows OEMs
to free-up critical capacity which can be redeployed in other areas, in
particular during the final years of model production when additional in-house
capacity is required for the try-out of an OEM's new vehicle models. The
Company's sales of value-added modules and subassemblies have increased in part
as a result of its availability for and successful completion of this type of
"factory assist" work. For example, the Company's factory assist work on the
standard Chrysler Jeep Cherokee led to its selection for subsequent platform
work in connection with the Chrysler Jeep Grand Cherokee and the redesigned
Chrysler Jeep Grand Cherokee platforms.
The Company does not issue express warranties to the purchasers of its
products. However, the Company may be subject to warranty obligations as part of
standard purchasing terms and conditions used by its OEM customers. For example,
Chrysler's Facilities & Materials Purchasing General Terms and Conditions
provide that suppliers to Chrysler are to indemnify and hold Chrysler harmless
against all claims and liabilities resulting from negligence of the supplier,
its employees or its subcontractors. None of the Company's products has ever
been subject to a recall.
MANUFACTURING
The Company has supported its "Total Elimination of Waste" philosophy by
instituting the "Aetna Production System", a closed loop production planning
methodology based on QS 9000 quality standards, and by realigning its
manufacturing processes in order to monitor more effectively and control labor
and overhead costs and to ensure the maximum utilization of production
resources. In addition, the Company has introduced a cellular manufacturing
strategy which has consisted of consolidating all detailed stampings that
comprise a module or subassembly into a single production location. For example,
the Company relocated its roll-forming equipment from separate locations,
allowing the Company to increase its production capacity while reducing
production space. The Company believes these changes in its production system
have improved scheduling flexibility, lowered inventory carrying costs,
increased the utilization of manufacturing floor space, improved scheduling
efficiencies and productivity and reduced fixed costs and product costs. As a
result of the implementation of these changes, the Company achieved, in 1995,
adjusted net production sales per employee and per square foot of manufacturing
space of $129,850 and $282.7, respectively, compared to $102,683 and
32
<PAGE> 35
$170.4, respectively, in 1991. Three key programs have been instituted as part
of the Aetna Production System:
JUST-IN-TIME MANUFACTURING. The Company has implemented a progressive
production strategy based on a just-in-time ("Just-in-Time" or "JIT")
manufacturing process specifically designed to promote efficient production and
eliminate various unnecessary costs. Just-in-Time manufacturing is characterized
by flexible work center scheduling as well as vendor scheduling, quality "in
place" as opposed to inspection of vendor deliveries and reduced work queues and
inventory levels. These productivity improvements in the manufacturing process
have helped lower indirect labor costs associated with setup time.
CERTIFIED QUALITY STANDARDS. As a result of the Company's commitment to
quality and its investment in quality assurance education and control systems,
none of the Company's products has been subject to a recall. All of the
Company's manufacturing facilities have achieved the QS 9000 certification, the
standard recently adopted by the AIAG. Chrysler and GM have indicated that by
July 1, 1997 and December 31, 1997, respectively, they will allow only Tier I
suppliers with QS 9000 certification to bid on new manufacturing business.
MANUFACTURING RESOURCE PLANNING II. As OEMs continue to rely on outside
suppliers for modules and subassemblies, production planning and inventory
management have become increasingly important factors in the Company's
competitiveness. In order to control costs, respond to shifting OEM production
demands and develop a more efficient inventory management and production
planning process, the Company has instituted a closed loop manufacturing
resource planning program which uses OEM releases to generate forecasts and
assign the material and labor required for production on a weekly basis.
SUPPLIERS AND RAW MATERIALS
Since 1994, the Company has participated in Chrysler's "Extended
Enterprise" program, a collaborative program undertaken by Chrysler with its
Tier I suppliers designed to promote, between such Tier I suppliers and their
respective Tier II suppliers, production and sales practices which are
comparable to those required by Chrysler of its Tier I suppliers. As a result,
the Company has recently begun to rationalize its component parts and services
supplier base. The Company believes that it will be able to achieve further cost
reduction by implementing its strategy of reducing its supplier base to those
suppliers who are able to provide continuous quality improvement on a
cost-effective basis.
The Company's principal raw material is steel, which represented 36% of the
Company's net sales in 1995. The Company's purchasing department typically buys
approximately 15,000 tons per month of flat-rolled steel. Steel coil purchases
include quantities of hot-rolled, cold-rolled, high strength galvanized,
aluminized and stainless, depending upon production requirements.
The Company currently participates in steel buying programs with both
Chrysler and GM under which the Company has substantially mitigated the effects
of steel price volatility and is provided a steady source of steel. The Company
believes that on a going forward basis, both Chrysler and GM will continue these
arrangements so that the Company will not recognize a steel price increase
unless it receives a matching sales price increase from the OEM.
COMPETITION
The Company currently competes for large-scale production work with a
limited group of approximately five independent suppliers that have the physical
assets and technical skills to produce large bed-size stampings and assemblies.
Competitors with wide bed-size presses (i.e., over 150 inches) and substantial
technical resources include The Budd Company, Lobdell-Emery Corporation, Magna
International Inc., Active Tool & Manufacturing Co., Inc. and Checker Motors
Corporation. Moreover, the Company believes that the high fixed asset and set-up
costs associated with production of large-sized metal stamping and subassemblies
are likely to limit the number of OEM parts suppliers entering the large-scale
stampings market.
33
<PAGE> 36
EMPLOYEES
As of June 30, 1996, the Company's workforce included 1,722 employees, of
which 260 were salaried workers and 1,462 were hourly paid employees.
The Company's hourly employees are covered by six collective bargaining
agreements with two locals of the UAW. Of the six collective bargaining
agreements, two will expire within one year and are thus subject to
renegotiation at the option of the Company or the UAW. The collective bargaining
agreement covering the 145 hourly employees of the Company's Plant #7 expired on
August 18, 1996, and Plant #7 was closed effective September 16, 1996. The
collective bargaining agreement covering 53 hourly employees of the Company's
Plant #5 expires on February 9, 1997. In the last round of negotiations in 1995,
the Company reached early contract settlements with four of its UAW contingents.
The contracts' four-to five-year terms provide a significant benefit to the
Company in its efforts to plan its future operations.
The Company believes that relations with its employees are good. However,
the Company continually seeks to reduce costs and improve the efficiencies of
its operations. For example, on July 16, 1996 the Company announced plans to
shut down the operations of its Plant #7 in sixty days. The facility's
approximately 145 employees are members of Local 155 of the UAW. Plant #7
continued operations after the expiration of the collective bargaining agreement
on August 18 until the facility was closed effective September 16, 1996. The
Company and Local 155 negotiated an agreement on matters relating to the effects
of the facility's closure on the employees represented by the UAW local. As a
result of this agreement, there is no Company liability for current or future
employee severance benefits. The Company anticipates that those negotiations
will conclude on or about September 13. While the analysis of the costs
associated with the closing of Plant #7 is in a preliminary stage, management
believes that the charges associated with closing Plant #7, if any, will not
have a material adverse effect on the Company, although no assurance to such
effect can be given.
PROPERTIES
The Company is headquartered in Centerline, Michigan, a suburb of Detroit.
The Company currently owns or leases a total of approximately seventeen
properties used for various purposes, including three parcels of land. The
Company's facilities house its blanking, stamping, roll-forming and assembly
operations, as well as its warehousing and shipping functions and administrative
offices for various functional departments. All but one of the Company's
manufacturing facilities are located within one mile of its headquarters, while
the remaining manufacturing facility and the product development center are
located within eight miles of its headquarters. The Company continually seeks to
reduce its costs and increase the efficiency of its operations through
maximizing utilization of its facilities. Management believes that the Company's
facilities and equipment are in good condition and are adequate for the
Company's present and anticipated future operations.
ENVIRONMENTAL MATTERS
The Company is subject to a wide range of evolving federal, state and local
environmental laws and regulations relating to the protection of the
environment, worker health and safety and the emission, discharge, storage,
treatment and disposal of hazardous materials. The laws include the Clean Air
Act, the Resource Conservation and Recovery Act, the Federal Water Pollution
Control Act and the Comprehensive Environmental Response, Compensation and
Liability Act ("Superfund" or "CERCLA").
The Company believes that it is in material compliance with applicable
federal, state and local environmental laws and regulations. Compliance with
these laws and regulations has not in the past had any material adverse effect
on the Company's financial condition or results of operations; however, the
effect of such compliance on the Company in the future cannot be determined.
CERCLA imposes strict, joint and several liability upon owners or operators
of facilities at, from or to which a release of hazardous substances has
occurred, upon parties who generated hazardous substances that were released at
such facilities and upon parties who arranged for the transportation or disposal
of hazardous substances to such facilities. A majority of states have adopted
"Superfund" statutes similar to and, in some
34
<PAGE> 37
cases, more stringent than CERCLA. Due to the Company's current and historic
use, generation and disposal of hazardous substances and petroleum products, the
possibility exists that spills and releases of such substances may have occurred
at certain of the Company's facilities with respect to which the Company could
incur liability under CERCLA or similar state laws. The Company could also be
subject to liability under CERCLA or similar state laws as a result of its
generation and off-site disposal of such substances. To date, the Company's
liability under CERCLA and similar state laws has not had a material adverse
effect on the Company's financial condition or results of operations; however,
the effect of any such liabilities on the Company in the future cannot be
determined.
LEGAL PROCEEDINGS
The Company is from time to time involved in routine litigation incident to
its operations. The Company believes that the litigation currently pending or
threatened against it will not have a material adverse effect on its
consolidated financial condition or results of operations.
35
<PAGE> 38
MANAGEMENT
The following table sets forth certain information and ages as of September
1, 1996 for each of the directors and executive officers of the Company. Each
individual serves in the same capacities with MS Acquisition and Holdings. There
are no arrangements or understandings between any officer and any other person
pursuant to which the officer was or is to be selected.
<TABLE>
<CAPTION>
NAME AND AGE POSITION WITH COMPANY
-------------------------------------- --------------------------------------
<S> <C>
Ueli Spring, 46....................... Director, President and CEO
Harold Brown, 46...................... Director*, Chief Financial Officer,
Vice President, Finance and Secretary
Gary Easterly, 48..................... Vice President, Manufacturing
Daniel Pierce, 54..................... Vice President, Human Resources
Edward Lawson, 42..................... Vice President, Quality Assurance
David Thal, 38........................ Vice President, Product Development
Ralph Bredenbeck, 56.................. Vice President, Tool and Assembly
Engineering
Michael Delaney, 42................... Director*
David Howe, 32........................ Director*
John Wurster, 62...................... Director*
</TABLE>
- ------------------------------
* Appointment became effective on August 13, 1996. Messrs. Spring, Brown,
Delaney, Howe and Wurster also serve (since August 1996) as directors of MS
Acquisition and Holdings.
The Board of Directors of the Company, Holdings and MS Acquisition each
consists of five directors who serve until the next annual meeting of
stockholders or until a successor is duly elected. Executive officers of the
Company, Holdings and MS Acquisition serve at the discretion of the Board of
Directors.
The Board of Directors of Export consists of four directors who serve until
the next annual meeting of stockholders or until a successor is duly elected.
The current directors of Export are Ueli Spring, Harold Brown, Graham Dunn, age
49, and Edward Rogers, age 37. They have been directors of Export since March 9,
1993 and August 15, 1991, respectively. Mr. Spring is the President of Export.
Mr. Brown is Treasurer and Secretary of Export. Each of Mr. Dunn and Mr. Rogers
serves as an Assistant Secretary of Export. Executive Officers of Export serve
at the discretion of its Board of Directors.
Mr. Ueli Spring has served as Chief Executive Officer and President of the
Company since 1994. From 1990 to 1994, Mr. Spring served as Executive Vice
President and Chief Operating Officer of the Company. Mr. Spring has been a
director of the Company since September 1990. From 1986 to 1987, he served as
President of Magna International Inc.'s Cosma International Group and then
served as Chief Operating Officer of Magna International Inc.'s Cosma
International Group from 1987 to 1990. From 1984 to 1986, he served as Director
of Manufacturing with Magna International Inc. In 1972, Mr. Spring joined the
Oetiker operations and later became Vice President from 1980 to 1984. Mr. Spring
received his degree in Tool & Die Engineering from the University Ticinese di
Trevano, Switzerland.
Mr. Harold Brown has served as Vice President of Finance of the Company
since joining the Company in 1992. From 1990 to 1992, he was Controller in
charge of U.S. operations at AVX Kyocera Corp. From 1985 to 1989, Mr. Brown
served as Vice President of Finance at APV Baker Perkins plc after serving as
Manager of Financial Analysis from 1982 to 1985. From 1977 to 1982, Mr. Brown
held various planning, marketing and sales positions with Cooper Industries Inc.
Mr. Brown received an AB in Economics from the University of North Carolina and
an MBA from Duke University. From 1972 to 1975, he served as a Lieutenant,
Supply Corps in the United States Naval Reserve.
Mr. Gary Easterly has served as Vice President of Manufacturing of the
Company since 1988 and has been employed by the Company since 1987. From 1966 to
1987, Mr. Easterly served as Director of Quality Assurance, Quality Engineering
and Production Superintendent for GM's Buick Motor Division. Mr. Easterly
received a BS degree in Industrial Engineering from GMI Institute and an MA
degree in Administration from Central Michigan University.
36
<PAGE> 39
Mr. Daniel Pierce has served as Vice President of Human Resources of the
Company since 1987 and has been employed by the Company since 1973. From 1968 to
1973, Mr. Pierce was Employee Relations Manager at the Demco Division of
Indianhead Corp. Mr. Pierce holds an MA degree in Industrial Relations from the
University of Michigan.
Mr. Edward Lawson has served as Vice President of Quality Assurance of the
Company since 1989 and has been employed by the Company since 1986. From 1980 to
1985, Mr. Lawson was Director of Quality Assurance at Regal Stamping Co. He
received a BS degree in Mechanical Engineering from Mid-Warwickshire College in
England.
Mr. David Thal has served as Vice President of Product Development since
1995 and has been employed by the Company since 1980, also serving as Sherwood
Plant Manager, Quality Assurance Manager, Manufacturing Project Engineer,
Engineering Manager and Sales Manager. Mr. Thal received a BGS degree in
Psychology and Computer Science from the University of Michigan.
Mr. Ralph Bredenbeck has served as Vice President of Tool and Assembly
Engineering of the Company since 1995. From 1989 to 1995, Mr. Bredenbeck served
as Chief Die Engineer of the Company. Before joining the Company, Mr. Bredenbeck
served in various positions at Spartanburg Steel Products Inc. (formerly,
Firestone Steel Products Inc.) from 1967 to 1989, including Director of
Engineering and Manager of Production Engineering. Mr. Bredenbeck received a BS
degree in Mechanical Engineering from Ohio University and is a registered
Professional Engineer.
Mr. Michael Delaney has been a Vice President of Citicorp Venture Capital,
Ltd. since 1989. From 1986 through 1989 he was Vice President of Citicorp
Mergers and Acquisitions. Mr. Delaney serves on the board of directors of Delco
Remy International, Inc., JAC Holdings, Sybron Chemicals, Inc., Palomar
Technologies, Inc., Farm Fresh Inc., AmeriSource Health Corporation, GVC
Holdings, Cort Business Services, Inc., Enterprise Media Inc., FF Holdings
Corporation, SC Processing, Inc. and Triumph Holdings, Inc. Mr. Delaney is a
graduate of Penn State University and The Wharton School.
Mr. David Howe has been employed at Citicorp Venture Capital, Ltd. since
1993 as an investment professional. From 1990 through 1993 he was employed at
Butler Capital Corp. as an investment professional. He serves on the board of
directors of Copes-Vulcan Inc., Cable Systems International Inc., Sinter Metals
Inc., Milk Specialties Company, America-Italian Pasta Company and Brake-Pro Inc.
He also represents Citicorp at the board of directors of Del Monte Foods
Company. Mr. Howe is a graduate of Harvard College and Harvard Business School.
Mr. John Wurster has served as Director of Business Planning -- Chrysler de
Mexico since 1995. From 1992 to 1995, he served as Staff Executive -- Vice
President and Controller's Office for Chrysler de Mexico. From 1989 to 1992, he
served as Director of Source Planning & Asset Management of the Controller's
Office of Chrysler. He has served in various capacities for Chrysler since 1979.
Mr. Wurster received a degree in Business Administration from the Detroit
Institute of Technology.
Mr. Graham Dunn has been an Administration Manager and Financial Controller
of Trident Trust Company (V.I.) Ltd. since July 1992. Prior to joining Trident
Trust Company Mr. Dunn was self-employed.
Mr. Edward Rogers has been a Manager and Vice President of Trident Trust
Company (V.I.) Ltd. since August 1991. Prior to joining Trident Trust Company
Mr. Rogers was employed as an offshore company trust administrator in the Isle
of-Man.
DIRECTOR COMPENSATION
Directors do not receive compensation other than reimbursement of expenses
for attending meetings of the Board of Directors or committee meetings.
37
<PAGE> 40
EXECUTIVE COMPENSATION
The table below shows information concerning cash and noncash compensation
for the Company's Chief Executive Officer and the four most highly compensated
executive officers (other than the Chief Executive Officer) of the Company in
office on December 31, 1995 for each of the last three fiscal years.
AETNA INDUSTRIES, INC.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ----------------------- ------------
-------------------------------- RESTRICTED SECURITIES LONG-TERM
NAME AND OTHER ANNUAL STOCK UNDERLYING INCENTIVE ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION AWARDS OPTIONS PLAN PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($) ($) (#)(1) ($) ($)
- -------------------------- ---- ------- ------- ------------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ueli Spring,.............. 1995 222,117 200,000 -- -- -- -- --
President and 1994 150,000 150,000 -- -- -- -- --
Chief Executive Officer 1993 150,000 60,000 -- -- -- -- --
Harold Brown,............. 1995 104,755 65,000 -- -- -- -- --
VP Finance 1994 101,098 45,000 -- -- 800 -- --
1993 93,621 -- -- -- 10,000 -- --
Gary Easterly,............ 1995 100,172 65,000 -- -- -- -- --
VP Manufacturing 1994 96,380 45,000 -- -- 800 -- --
1993 93,439 6,000 -- -- -- -- --
David Smith,.............. 1995 111,992 90,000 -- -- -- -- --
VP Engineering(2) 1994 108,429 25,000 -- -- 800 -- --
1993 105,688 6,000 -- -- -- -- --
Daniel Pierce,............ 1995 87,735 40,000 -- -- -- -- --
VP Human Resources 1994 85,048 25,000 -- -- 800 -- --
1993 81,893 6,000 -- -- -- -- --
</TABLE>
- ------------------------------
Notes:
1. Shares of Class A Common Stock (as defined) of MS Acquisition.
2. Retired June 30, 1996.
BONUS PROGRAM
The Company maintains a Quality Assurance Bonus Program under which
Production Managers and Plant Floor Managers (collectively, "Managers") are
eligible to receive an annual bonus of up to $20,000 each (the "Maximum
Amount"). Pursuant to this program, each Manager will receive a bonus in the
Maximum Amount in respect of services rendered in any year in which no Qualified
Customer Complaint (as defined herein) is made with respect to his or her unit.
A "Qualified Customer Complaint" is a customer complaint that has been reviewed,
and found to be accurate, by the Company's Vice President of Quality Assurance
with respect to the quality of any product manufactured by such Manager's
production unit. The bonus amount that each Manager is eligible to receive in
any year will be reduced by $5,000 for each Qualified Customer Complaint made
with respect to his or her unit.
In addition to the Quality Assurance Bonus Program, the Company also
annually awards discretionary bonuses to members of its management and certain
of its salaried employees. Such bonuses, which are typically paid in January of
each year in respect of services rendered by recipients during the preceding
year, are awarded based on a variety of factors, including individual and
Company performance.
STOCK OPTION PLAN
Executive officers, directors, employees and other key persons of the
Company are eligible to participate in the MS Acquisition Corp. Executive Stock
Option Plan (the "Plan"). Options granted under the Plan may be either incentive
stock options ("Incentive Options") as defined in Section 422 of the Internal
Revenue Code of 1986, as amended, or nonqualified stock options ("Nonqualified
Options"). Options to purchase an aggregate of 110,000 shares of Class A Common
Stock, par value $.01 per share, of MS Acquisition ("Class A Common Stock") may
be issued under the Plan. The Plan is administered by a committee (the "Option
Committee") of not less than three directors appointed by the Board of Directors
of MS Acquisition.
38
<PAGE> 41
All options granted under the Plan are granted pursuant to individual stock
option agreements executed by MS Acquisition and each option recipient. In
general, options granted under the Plan are exercisable in such installments
(which need not be equal) and at such times as are designated by the Option
Committee, but in no event may the term of an option exceed the tenth
anniversary of the date on which the option was granted. No option may be
granted under the Plan after the tenth anniversary of the effective date of the
Plan, March 3, 1989.
The purchase price per share of Class A Common Stock subject to Incentive
Options must equal or exceed the fair market value of the Class A Common Stock
on the date such options are granted. The aggregate fair market value of the
Class A Common Stock with respect to which Incentive Options are exercisable for
the first time by an optionee during any calendar year shall not exceed
$100,000. The purchase price per share of Class A Common Stock subject to a
Nonqualified Option shall be as determined by the Option Committee. Options
granted under the Plan may not be transferred other than by will or by the laws
of descent.
Immediately prior to the consummation of the Transactions, there were a
total of 96,000 shares of Class A Common Stock subject to outstanding options
held by 20 employees, and each option had an exercise price of $16.2162 per
share. On August 13, 1996, in connection with the consummation of the
Transactions, all then outstanding options (whether or not vested) were
canceled. Options held by certain option holders were exchanged for
consideration substantially similar to that consideration they would have
received had they actually owned the shares (i.e., cash, New Common Stock, New
Preferred Stock and Junior Subordinated Debentures), provided that the cash
portion was reduced by the aggregate exercise price of the options, as well as
the amount necessary to satisfy tax withholding obligations, resulting in
consideration consisting of (i) $0.2 million in cash, (ii) an unfunded
obligation of Holdings to pay $0.5 million on a basis similar to the terms of
the Junior Subordinated Debentures, (iii) $0.13 million in stated value of New
Preferred Stock and (iv) shares of New Common Stock representing 1.2% of the New
Common Stock on a fully diluted basis. With respect to other option holders,
their options were canceled in exchange for all cash of approximately $450,000,
representing an amount equal to the difference between the value of the shares
subject to the options and the aggregate exercise price for the shares. Such
amounts are subject to withholding taxes.
Immediately after the consummation of the Transactions, certain employees
were granted new options under the Plan to purchase shares of New Common Stock
that in the aggregate represent up to 10% of the total number of shares of New
Common Stock (on a fully diluted basis). These options have an exercise price of
$0.75 per underlying share and become exercisable in equal installments over
five years of continued employment, subject to acceleration upon a change in
control of the Company. The grants are subject to stockholder approval.
OPTION GRANTS IN LAST FISCAL YEAR
During the fiscal year ended December 31, 1995, no grants of stock options
were made to any executive officers of the Company.
EXECUTIVE EMPLOYMENT AGREEMENTS
In connection with the offering of the Old Notes, the Company and MS
Acquisition jointly entered into an employment agreement (collectively, the
"Brown and Easterly Employment Agreements") with each of Messrs. Brown and
Easterly and entered into negotiations with Mr. Spring with respect to an
employment agreement (the "Spring Employment Agreement" and, together with the
Brown and Easterly Employment Agreements, the "Employment Agreements") (each of
Messrs. Brown, Easterly and Spring, an "Executive"). The Brown and Easterly
Employment Agreements became effective upon consummation of the Offering of the
Old Notes. The Company and MS Acquisition are currently negotiating the final
terms of the Spring Employment Agreement with Mr. Spring. The Company expects
these negotiations to conclude shortly. The Brown and Easterly Employment
Agreements set forth the basic terms of employment for each of Messrs. Brown and
Easterly and the Spring Employment Agreement will set forth the basic terms of
employment for Mr. Spring, including base salary, bonus and benefits, as well as
the benefits to which each Executive will be entitled if his employment is
terminated for various reasons.
The Employment Agreement with Mr. Spring will have an initial term of three
years commencing August 13, 1996 and provide for a base salary of $225,000 and a
discretionary annual bonus of up to 100% of Mr. Spring's annual base salary. The
discretionary bonus is to be determined based upon the achievement of
39
<PAGE> 42
annual company and individual performance goals to be set by the Board of
Directors, in consultation with Mr. Spring, and included in the Company's annual
business plan. The Employment Agreement will provide that Mr. Spring is entitled
to a one time termination payment equal to the remaining payments of base salary
due him through the end of the term of the Employment Agreement (and in no event
for a period of less than 12 months) and an additional payment equal to the
greater of (x) the bonus received by Mr. Spring for the fiscal year of the
Company preceding the year in which Mr. Spring's employment is terminated and
(y) 50% of his base salary for the fiscal year in which termination occurs, if
his employment is terminated by the Company without cause or if he voluntarily
terminates his employment with the Company for good reason.
The Employment Agreement with Mr. Brown has an initial term of three years
commencing August 13, 1996 and provides for a base salary of $115,000 and a
discretionary annual bonus of up to 60% of Mr. Brown's annual base salary. The
discretionary bonus is to be determined based upon the achievement of annual
company and individual performance goals to be set by the Board of Directors.
The Employment Agreement provides that Mr. Brown is entitled to severance
payments through the end of the term (and in no event for a period of less than
12 months) if his employment is terminated by the Company without cause or if he
voluntarily terminates his employment with the Company for good reason.
The Employment Agreement with Mr. Easterly has an initial term of three
years and provides for a base salary of $105,000 and a discretionary annual
bonus of up to 60% of Mr. Easterly's annual base salary. The discretionary bonus
is to be determined based upon the achievement of annual company and individual
performance goals to be set by the Board of Directors. The Employment Agreement
provides that Mr. Easterly is entitled to severance payments through the end of
the term (and in no event for a period of less than 12 months) if his employment
is terminated by the Company without cause or if he voluntarily terminates his
employment with the Company for good reason.
Each Employment Agreement contains non-competition, non-solicitation and
confidentiality provisions.
OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth certain information concerning stock options
exercised during the year ended December 31, 1995 and the number and value of
unexercised stock options held by each of the named executive officers as of
December 31, 1995:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
ON VALUE (#) ($)(2)
EXERCISE REALIZED ---------------------------- ----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ueli Spring.................... 0 0 30,000 0 406,080 0
Harold Brown................... 0 0 6,320 4,480 85,548 60,641
Gary Easterly.................. 0 0 4,820 980 65,244 13,265
David Smith.................... 0 0 4,820 980 65,244 13,265
Daniel Pierce.................. 0 0 4,820 980 65,244 13,265
</TABLE>
- ------------------------------
(1) Options are for shares of Class A Common Stock.
(2) Year-end value based on the consideration paid for a share of Common Stock
in connection with the Transactions less the option exercise price of
$16.2162 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation of the Company's executive officers has historically been
determined by the Company's Board of Directors. Ueli Spring is the only employee
or present or former officer of the Company who participated in deliberations of
the Company's Board concerning executive officer compensation during the
Company's last completed fiscal year. In August 1996, the Company and the
Guarantors each established a compensation committee consisting of three
members: Michael Delaney, Ueli Spring and John Wurster. Mr. Spring is the
President and Chief Executive Officer of the Company and the Guarantors.
There are no interlocks between the Company and other entities involving
the Company's executive officers and board members who serve as executive
officers or board members of other entities, except with respect to Export,
Holdings and MS Acquisition. The officers and directors of the Company also
serve as officers and directors of Holdings and MS Acquisition. Mr. Spring and
Mr. Brown, who are officers and directors of the Company, Holdings and MS
Acquisition, also serve as officers and directors of Export.
40
<PAGE> 43
BENEFICIAL OWNERSHIP OF CAPITAL STOCK
All of the outstanding capital stock of the Company is currently owned by
Holdings, and all of the outstanding capital stock of Holdings is currently
owned by MS Acquisition. The following table sets forth certain information
regarding the equity ownership of MS Acquisition as of October 30, 1996 by (i)
each person or entity who owns five percent or more of any class of voting
securities of MS Acquisition, (ii) each director of the Company, (iii) the Chief
Executive Officer of the Company and the four most highly compensated executive
officers (other than the Chief Executive Officer) of the Company as of December
31, 1995, and (iv) the directors and officers of the Company as a group. Unless
otherwise specified, all shares are directly held. Shares of Class B Common
Stock are non-voting. 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.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
-------------------------- -----------------------
AMOUNT OF PERCENT OF AMOUNT OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) CLASS OWNERSHIP CLASS
----------------------------------------- ------------ ---------- --------- ----------
<S> <C> <C> <C> <C>
Citicorp Venture Capital, Ltd.(2) ....... 187,871 49.0% 516,590 100.0%
399 Park Avenue
New York, NY 10043
David Howe(3)............................ 187,871 49.0 516,590 100.0%
Citicorp Venture Capital, Ltd.
399 Park Avenue
New York, NY 10043
Michael Delaney(3)....................... 187,871 49.0 516,590 100.0%
Citicorp Venture Capital, Ltd.
399 Park Avenue
New York, NY 10043
The Prudential Life Insurance Company of
America, as Asset Manager for The
Gateway Recovery Trust(4).............. 65,175 17.0 -- --
c/o Financial Restructuring Group
Gateway Center Four
100 Mulberry Street
Newark, NJ 07102
The Berkshire Fund(5).................... 59,636 15.6 -- --
One Boston Place
Suite 3425
Boston, MA 02108
State Treasurer of the State of Michigan,
Custodian of the Public School Employees'
Retirement System; State Employees'
Retirement System, Michigan State Police
Retirement System; Judges' Retirement
System; and Probate Judges' Retirement
System................................... 27,077 7.1 -- --
c/o Michigan Department of Treasury
450 West Allegan
Lansing, MI 48922
Ueli Spring.............................. 5,093 1.3 -- --
Aetna Industries, Inc.
24331 Sherwood Avenue
Centerline, MI 48015-0067
Harold A. Brown.......................... 1,834 * -- --
Aetna Industries, Inc.
24331 Sherwood Avenue
Centerline, MI 48015-0067
Gary Easterly............................ 984 * -- --
Aetna Industries, Inc.
24331 Sherwood Avenue
Centerline, MI 48015-0067
All directors and officers as a group (10
persons)(6)............................ 198,459 51.8 516,590 100.0%
</TABLE>
- ------------------------------
* Represents less than 1%.
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(1) Does not include shares of Class B Common Stock convertible into Class A
Common Stock.
(2) Taking into account the shares of Class A Common Stock and Class B Common
Stock owned by CVC and the officers referred to in the next sentence, the
collective ownership of CVC and such officers represents 78.3% of the New
Common Stock. CVC has transferred beneficial ownership of a portion of its
Class A Common Stock and Class B Common Stock set forth above to a group
comprised of certain individual officers of CVC, (including Michael Delaney
and David Howe), which shares are included in the aggregate total shown.
(3) Consists of shares held by CVC, which may be deemed to be beneficially owned
by Messrs. Delaney and Howe and 657 shares of Class A Common Stock and 1,808
shares of Class B Common Stock owned by Mr. Delaney and 1,127 shares of
Class A Common Stock and 3,100 shares of Class B Common Stock owned by Mr.
Howe. Messrs. Delaney and Howe disclaim beneficial ownership of such shares
(except for the 657 and 1,127 shares of Class A Common Stock and for the
1,808 and 3,100 shares of Class B Common Stock).
(4) The Prudential Life Insurance Company of America, as Asset Manager for The
Gateway Recovery Trust, has voting and dispositive power with respect to all
65,175 shares of Class A Common Stock and, accordingly, may be deemed to be
the beneficial owner thereof.
(5) Berkshire Capital Associates Limited Partnership ("BCALP") is the General
Partner of The Berkshire Fund and, consequently, has the power to control
the exercise of votes with respect to the shares of Class A Common Stock
held by The Berkshire Fund. Each of Carl Ferenbach, Bradley M. Bloom, James
Christopher Clifford, Russell L. Epker and Richard K. Lubin is a General
Partner of BCALP and thereby has the ability to control the activities of
BCALP. Each of them, therefore, has the power to control the exercise of
votes with respect to the shares of Class A Common Stock held by The
Berkshire Fund. Each of them also owns directly 478 shares of Class A Common
Stock and therefore has the power to control the exercise of votes with
respect to 60,114 shares of MS Acquisition, constituting 15.7% of the
aggregate outstanding shares of Class A Common Stock. Each of the general
partners of BCALP disclaims beneficial ownership of the 59,636 shares of
Class A Common Stock held by The Berkshire Fund.
(6) Includes shares held by CVC, which may be deemed to be beneficially owned by
Messrs. Delaney and Howe. Messrs. Delaney and Howe disclaim beneficial
ownership of shares held by CVC.
CAPITAL STOCK
CAPITALIZATION OF MS ACQUISITION
The Company is a wholly-owned subsidiary of Holdings which is, in turn, a
wholly-owned subsidiary of MS Acquisition. The following is a summary
description of the capitalization of MS Acquisition and is subject to and
qualified in its entirety by reference to the Restated Certificate of
Incorporation of MS Acquisition (the "Restated Charter").
The authorized capital stock of MS Acquisition consists of (i)
2,293,123.320 authorized shares of preferred stock ("Preferred Stock"),
consisting of (A) 293,123.320 shares of Series A Preferred Stock ("Series A
Preferred Stock") and (B) 2,000,000 additional shares of authorized preferred
stock which may be issued in one or more series upon such terms as may be set
forth by the Board of Directors of MS Acquisition subject to the terms of the
Restated Charter and any applicable agreement, and (ii) 10,000,000 shares of
common stock, par value $.01 per share ("Common Stock"), consisting of 5,000,000
shares of Class A Common Stock and 5,000,000 shares of Class B Common Stock.
Series A Preferred Stock
Each share ("Share") of Series A Preferred Stock has a stated value of $100
per share. Dividends accrue on each Share at a rate per annum equal to 11% of
the stated value thereof and are payable, when, as and if declared by the Board
and to the extent funds are legally available, semi-annually on the 13th day of
February and August of each year, commencing on February 13, 1997. Dividends on
the Shares, which are cumulative, began to accrue on August 13, 1996, the date
of issuance of the Shares.
In the event of the liquidation, dissolution or winding up of MS
Acquisition, each Share is entitled to a liquidation preference over all other
classes of MS acquisition capital stock equal to the sum of its stated value and
all accrued but unpaid dividends thereon.
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<PAGE> 45
On any business day prior to February 13, 2007, MS Acquisition may redeem
the Shares at the "Redemption Price," which equals for each Share the sum of its
stated value and all accrued but unpaid dividends thereon. In addition, to the
extent funds are legally available, MS Acquisition shall be obligated to redeem
all issued and outstanding Shares at the Redemption Price, upon the earlier of
February 13, 2007 and the date upon which a "Sale of the Company" occurs. See
"-- MS Acquisition Stockholders Agreement -- Drag-Along Rights."
So long as any Shares are outstanding, MS Acquisition agrees, subject to
certain exceptions, not to pay any dividend or make any distribution on, or to
redeem any shares of, any Common Stock or other class or series of stock of MS
Acquisition ranking junior to the Series A Preferred Stock. In addition, so long
as any Shares are outstanding, MS Acquisition agrees not to issue any class or
series of Preferred Stock which will be senior or pari passu with respect to
payment of dividends, other distributions, preference on redemption or
liquidation rights or otherwise, without the consent of the holders of a
majority of the Shares (excluding from such vote any holders who will also hold
securities of such senior or pari passu class or series).
Shares of Series A Preferred Stock do not have any voting rights, except in
certain circumstances, as set forth in the Restated Charter, where the
preferences or rights of the Shares could be adversely affected or as required
by law.
Upon the occurrence of a "Qualifying Offering" (an underwritten public
offering of Common Stock resulting in at least $20 million of aggregate gross
proceeds to the Company), at the option of the holders of a majority of the
Shares then outstanding, the Shares shall become convertible for shares of Class
A Common Stock or Class B Common Stock. In such event, each holder of Shares
would determine whether to convert its Shares and, if so, whether to convert
such Shares into shares of Class A Common Stock or Class B Common Stock. The
number of shares into which each Share would be convertible is determined by
dividing (i) the sum of the stated value of such Share and all accrued but
unpaid dividends thereon, by (ii) the price per share of Common Stock paid by
the public in connection with the Qualifying Offering. The Restated Charter
provides for adjustments and protections in the event of a stock split or
combination or a recapitalization, reorganization, consolidation or merger
between the time of the Qualifying Offering and the exercise of conversion
rights.
COMMON STOCK
Each holder of record of shares of Class A Common Stock is entitled to one
vote per share. Except as required by law or provided in the Restated Charter,
holders of Class B Common Stock are not entitled to voting rights and, to the
extent they are entitled to voting rights, vote together as a single class with
holders of Class A Common Stock.
Each share of Class A Common Stock is convertible into one share of Class B
Common Stock at the option of the holder, if the holder determines that its
holdings of Class A Common Stock might violate any law or regulation. Each share
of Class B Common Stock is convertible into one share of Class A Common Stock at
the option of the holder, so long as the holder determines that no law or
regulation will be violated as a result of its holdings of shares of Class A
Common Stock.
Class A Common Stock and Class B Common Stock are in all other respects
identical. In the event of a stock split or combination with respect to one
class of Common Stock, shares of the other class of Common Stock will be
proportionately subdivided or combined.
MS ACQUISITION STOCKHOLDERS AGREEMENT
As part of the Transactions, MS Acquisition and Holdings have entered into
an agreement (the "Stockholders Agreement") with CVC, the institutional
stockholders of MS Acquisition (other than CVC) and certain persons affiliated
with such institutional stockholders (collectively with their respective
permitted transferees, the "Institutional Stockholders"), and certain present
and former management persons of Holdings and Aetna. 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. The
term "CVC Stockholders" refers to CVC and each of its permitted transferees
under the terms of the Stockholders Agreement. The term "Management
Stockholders" refers to members of management of
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<PAGE> 46
Holdings and Aetna as of the date of the Agreement, together with their
respective permitted transferees under the terms of the Stockholders Agreement.
The term "Individual Stockholders" refers to the Management Stockholders and
former members of management and their respective permitted transferees under
the terms of the Stockholders Agreement.
Board of Directors. Pursuant to the Stockholders Agreement, each
Institutional Stockholder and each Individual Stockholder agrees to vote its
shares and take all other actions necessary to ensure that the Board of
Directors of MS Acquisition shall consist of five directors, with two directors
to be designated by the CVC Stockholders (so long as the CVC Stockholders
continue to own at least ten percent of the outstanding common stock of MS
Acquisition on a diluted basis), one director to be designated by the Management
Stockholders, and two disinterested directors to be designated by a majority
vote of the nominating committee. Pursuant to the terms of the Stockholders
Agreement, the nominating committee shall consist of three members, one
designated by the CVC Stockholders, one designated by the Management
Stockholders, and one disinterested director. With the consent of the CVC
Stockholders, one or both of the disinterested directors may be a member of
management.
The current directors of Holding and Aetna are Michael Delaney and David
Howe (the CVC nominees), Ueli Spring (the management nominee) and John Wurster
and Harold Brown (the disinterested director nominees). Mr. Brown is the Chief
Financial Officer, Vice President, Finance and Secretary of the Company. The
current members of the nominating committee are Michael Delaney, Ueli Spring and
John Wurster.
The CVC Stockholders are not obligated to vote their shares of Common Stock
or other voting securities in favor of any nominee to the Board of Directors or
any committee other than a CVC nominee.
The Stockholders Agreement further provides that the Institutional
Stockholders and the Individual Stockholders shall, unless otherwise consented
to by CVC, take all action necessary or appropriate to cause MS Acquisition to
have an audit committee and a compensation committee, with each of these
committees to consist of three directors, one nominated by the CVC Stockholders,
one nominated by the Management Stockholders and one disinterested director
nominee. The current members of the audit and compensation committees are
Michael Delaney, Ueli Spring and John Wurster.
The affirmative vote of at least a majority of the members of the Board
(assuming no vacancies), which majority must include one of the directors
nominated by the CVC Stockholders (unless the CVC Stockholders have elected in
writing not to designate a director) is required prior to MS Acquisition or any
of its subsidiaries entering into any "Significant Transaction." A "Significant
Transaction" includes (i) any merger, consolidation or other business
combination of MS Acquisition or any subsidiary with or into any Person, (ii)
any sale, lease, exchange or other disposition by MS Acquisition or any
subsidiary of a significant portion of MS Acquisition's assets on a consolidated
basis, (iii) any amendment to any provision of the Restated Charter or Bylaws of
MS Acquisition (iv) certain acquisitions by MS Acquisition or any subsidiary of
securities or assets, (v) certain increases or reductions of the capital of MS
Acquisition or any subsidiary, (vi) the incurrence by MS Acquisition or any
subsidiary of funded debt or any modification to any extension of such debt,
(vii) dissolution and certain insolvency events, and (viii) any transaction
between MS Acquisition or any subsidiary and one or more of its stockholders not
entered into in the ordinary course of business on an arm's-length basis.
Notwithstanding the foregoing, if the CVC Stockholders determine in their
sole discretion that applicable law permits the CVC Stockholder to have the
right to designate a majority of the directors of the Board or directors having
a majority of the weighted votes on the Board, the CVC Stockholders, rather than
the nominating committee, may designate the disinterested directors to the
Board, and the CVC Stockholders may take all actions permitted or required to be
taken by the nominating committee pursuant to the Stockholders Agreement.
Pre-Emptive Rights. The Stockholders Agreement provides the Institutional
Stockholders and the Individual Stockholders with the right to participate
ratably, in accordance with their fully-diluted common equity ownership, in any
additional offering of Common Stock of MS Acquisition (or any security
exercisable, exchangeable or convertible for or into common stock) (an "Equity
Equivalent") offered to the CVC
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<PAGE> 47
Stockholders. A stockholder is not entitled to any pre-emptive rights if the
issuance and sale to the CVC Stockholders is in conjunction with the borrowing
of money from the CVC Stockholders or their affiliates or the guaranteeing of
debt of MS Acquisition or any subsidiary by the CVC Stockholders or their
affiliates, unless such stockholder participates in the related financing or
guarantee on the same terms as the CVC Stockholders and such affiliates.
Right of First Refusal. Pursuant to the Stockholders Agreement, the
Institutional Stockholders and the Individual Stockholders agree not to transfer
their shares of MS Acquisition except to a permitted transferee or otherwise in
accordance with the terms of the Stockholders Agreement. In the event of any
proposed sale of shares ("Offered Shares") by an Institutional Stockholder or an
Individual Stockholder (a "Selling Stockholder") to any Person other than a
permitted transferee (a "Third Party"), such Selling Stockholder shall provide
notice (the "Notice") of such proposed sale of MS Acquisition, the CVC
Stockholders and the other institutional investors (collectively, the
"Prospective Buyers"), MS Acquisition shall have a right of first refusal,
within the time period set forth in the Stockholders Agreement, to purchase such
Offered Shares upon the items set forth in the Notice. In the event that MS
Acquisition does not exercise such right of first refusal for all of the Offered
Shares, the CVC Stockholders and the institutional investors shall have a second
right of refusal, within the time period set forth in the Stockholders
Agreement, for the Offered Shares not elected to be purchased by MS Acquisition.
In the event that such Offered Shares are not accepted in full by the
Prospective Buyers within the time periods specified in the Stockholders
Agreement, the Selling Stockholder then has the right to sell to the Third Party
the shares not by accepted by the Prospective Buyers pursuant to their
respective rights of refusal, at or above the price offered to the Prospective
Buyers and upon the same terms and conditions.
Drag-Along Rights. If the CVC Stockholders, so long as they own at least
thirty-five percent (35%) of the shares of Common Stock of MS Acquisition (on a
diluted basis) or shares of Series A Preferred Stock of MS Acquisition (on a
diluted basis), receive an offer from an unaffiliated third party which would
effect a "Sale of the Company," the CVC Stockholders have the right, under
certain circumstances, to require the other stockholders of MS Acquisition to
sell or transfer all of their Capital Stock and Equity Equivalents of MS
Acquisition to such third party upon the same terms and conditions as are
applicable to the CVC Stockholders. The CVC Stockholders have the right, under
certain circumstances, to require the other stockholders to approve such
transaction and, if applicable, to waive any appraisal rights under Section 262
of the Delaware General Corporation Law. A "Sale of the Company" means the sale
of MS Acquisition or any subsidiary (whether by merger, consolidation,
recapitalization, reorganization, sale of securities, sale of assets or
otherwise) in one transaction or a series of related transactions to a Person or
Persons that is not an affiliate of CVC pursuant to which such Person or Persons
acquires at least a majority of the voting power of all securities of MS
Acquisition or the Company, or all or substantially all of the assets of MS
Acquisition or the Company.
Tag-Along Rights. If a CVC Stockholder proposes to transfer Common Stock,
Preferred Stock or Equity Equivalents to any Person other than a permitted
transferee, the other stockholders of MS Acquisition have the right, under
certain circumstances, to participate in such sale on the same terms and on a
pro-rata basis. This tag-along right does not apply to a registered public
offering or to the extent that all sales by CVC Stockholders to such Persons
other than permitted transferees represent, in the aggregate, less than five
percent of the shares of Common Stock (on a diluted basis) held by the CVC
Stockholders on August 13, 1996.
Management Repurchase. All shares of Common Stock and Preferred Stock held
by a Management Stockholder are subject to repurchase by MS Acquisition for a
specified period of time following the termination of employment of such
Management Stockholder for any reason. The CVC Stockholders have the right for a
specified period to purchase, on a pro-rata basis, such shares not so purchased
by MS Acquisition. Shares so purchased by the CVC Stockholders are, in turn,
subject to a further right of repurchase, at the option of MS Acquisition or
CVC, in favor of current or future officers, directors, employees or independent
contractors of MS Acquisition or any subsidiary.
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<PAGE> 48
REGISTRATION RIGHTS AGREEMENT
Pursuant to a registration rights agreement, the CVC Stockholders and the
Institutional Stockholders are entitled to require MS Acquisition to effect an
initial public offering of Common Stock of MS Acquisition underwritten on a
firmly committed basis. The CVC Stockholders are entitled to three long-form
registrations and unlimited short-form registrations on demand, in each case at
the expense of MS Acquisition (other than underwriting commissions and
discounts. The Institutional Investors are entitled to one long-form
registration and three short-form registrations on demand, in each case at the
expense of MS Acquisition (other than underwriting commissions and discounts).
In addition, the CVC Stockholders, the Institutional Stockholders and the
Management Stockholders are entitled to include, at the expense of MS
Acquisition, their shares of Common Stock of MS Acquisition in any primary
registration by MS Acquisition or any secondary registration on behalf of other
stockholders on a pro-rata basis, subject to customary underwriter's cutback
rights.
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<PAGE> 49
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Jerome Singer, the former chairman of the Company's Board of Directors,
owns and leases to the Company seven of the 14 facilities currently used by the
Company in its operations. The leases, certain of which expire in 1996 and 1997,
may be extended in certain circumstances. For the year ended December 31, 1995,
the Company paid to Mr. Singer approximately $965,100 in the aggregate in
respect of rental payments under such leases. Management believes that all such
leases, from the Company's perspective, are on terms equal to or better than
current market rates for such properties.
Pursuant to a promissory note, the Company has outstanding to Ueli Spring,
President of the Company, a demand loan in the aggregate principal amount of
$75,000, plus accumulated interest. The loan bears interest at the prime rate
plus 1.0%. As of June 30, 1996, the aggregate amount owed to the Company by Mr.
Spring in respect of the loan was $107,336.
Pursuant to a Management Agreement (the "Berkshire Management Agreement")
between the Company, MS Acquisition and Berkshire Partners, since March 1989,
Berkshire Partners, a shareholder of MS Acquisition, had provided to the Company
and MS Acquisition certain advisory and management consulting services relating
to financial and strategic corporate planning. In consideration for such
services, the Company had paid to Berkshire Partners a fee of $250,000 per annum
and had reimbursed Berkshire Partners' direct, out-of-pocket expenses incurred
in performing such services. The Berkshire Management Agreement was terminated
on August 13, 1996 in connection with the Transactions. In connection with such
termination, the Company paid Berkshire Partners accrued management fees and
current operating expenses of approximately $280,000 with a portion of the
proceeds of the issuance of the Old Notes.
Messrs. Spring, Brown and Easterly and certain other employees of the
Company received in the aggregate bonuses of approximately $350,000 in
recognition of the quantity and quality of the services performed by these
individuals to facilitate the consummation of the Transactions. These services
included: management of the business, preparation and presentation of data,
functioning as liaison between management and the Company's professional
advisors and structuring and negotiating specific aspects of the Transactions.
Mr. Singer was paid approximately $225,000 of accrued compensation in
connection with the Transactions.
In connection with the Transactions, the Company entered into a management
agreement with MS Acquisition (the "Management Agreement") pursuant to which MS
Acquisition has agreed to provide to the Company and any subsidiary certain
management and administrative services. The initial term of the Management
Agreement extends through December 1997. In consideration for services provided
thereunder, the Company has agreed to reimburse MS Acquisition for the actual
cost of the services rendered. The Company is also responsible for contributing
to the general operating costs of MS Acquisition. The Company's obligations to
reimburse MS Acquisition may be deferred, without interest, if payment of such
reimbursement obligations would be restricted by the Indenture or the Senior
Revolving Credit Facility.
DESCRIPTION OF JUNIOR SUBORDINATED PROMISSORY NOTES DUE 2007
As part of the Transactions, Holdings issued to the Former Stockholders, on
August 13, 1996, Junior Subordinated Promissory Notes Due 2007 in the aggregate
principal amount of approximately $8.7 million (the "Junior Subordinated
Debentures"), having a maturity date of August 13, 2007. The following is a
summary description of the principal terms of the Junior Subordinated Debentures
and is subject to and qualified in its entirety by reference to the Stockholders
Agreement. The Junior Subordinated Debentures accrue interest at the rate of 11%
per annum through the maturity date and at the rate of 13% per annum after the
maturity date. Interest on the Junior Subordinated Debentures is payable
semi-annually on February 13 and August 13 of each year, commencing on February
13, 1997.
In the event that the payment of interest on the Junior Subordinated
Debentures is prohibited under the Credit Agreement or the Indenture or, in the
event that the Company is prohibited, pursuant to the Credit Agreement or the
Indenture, from paying cash dividends to Holdings for the purpose of paying
interest on the Junior Subordinated Debentures, and the aggregate indebtedness
of MS Acquisition and its subsidiaries
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<PAGE> 50
exceeds $10,000,000, Holdings has agreed to issue to the holders of the Junior
Subordinated Debentures (the "Debenture Holders") additional 11% junior
subordinated debentures ("Secondary Debentures") in the amount of the accrued
but unpaid interest on the Junior Subordinated Debentures. Secondary Debentures
shall bear interest from the applicable interest payment date.
The outstanding principal amount of the Junior Subordinated Debentures and
the Secondary Debentures (collectively, the "Debentures"), together with accrued
interest through the date of repayment, is prepayable in full or in part at any
time at the option of Holdings, subject to any restrictions under the Credit
Agreement or the Indenture or other applicable restrictions. Any prepayment in
part shall be pro rata among holders of the Debentures ("Debentures Holders").
In addition, upon a Sale of the Company (see "Capital Stock -- MS Acquisition
Stockholders Agreement -- Drag-Along Rights"), Holdings shall be obligated to
prepay in full the aggregate outstanding principal amount of the Debentures,
together with accrued interest.
The rights of the Debenture Holders under the Debentures are subordinated
to the rights of the Banks under the Senior Revolving Credit Facility and the
rights of the holders of the Notes under the Indenture.
If the Debenture Holders so elect, the Debentures shall be convertible into
shares of Common Stock of MS Acquisition upon the consummation of a Qualified
Offering. Holdings shall notify the Debenture Holders upon the consummation of a
Qualified Offering. If the holders of a majority in principal amount of the
Debentures then notify Holdings in writing that they elect to convert their
Debentures into shares of Common Stock of MS Acquisition, each Debenture Holder
shall have the right to convert principal amounts outstanding under the
Debentures, together with accrued interest, into shares of Common Stock of MS
Acquisition. For purposes of the conversion, the Common Stock shall be valued at
the price per share of Common Stock paid by the public in connection with the
Qualifying Offering. The Debentures provide for adjustments and protections in
the event of a stock split or combination or recapitalization, reorganization,
consolidation or merger between the time of the Qualifying Offering and the
exercise of conversion rights.
The Debentures restrict the declaration or payment of dividends or the
making of any other distribution by Holdings or any subsidiary, the redemption
of any capital stock by Holdings and the redemption by Holdings of any
obligations which are subordinate to the Debentures, subject to certain
exceptions such as the issuance of shares of Common Stock in connection with a
conversion of Series A Preferred Stock or Debentures upon the consummation of a
Qualifying Offering. The Debentures further restrict the payment by Holdings or
any subsidiary of any management or services fee other than management or
services fees payable to MS Acquisition in an amount not to exceed $300,000 in
any fiscal year of Holdings.
DESCRIPTION OF SENIOR REVOLVING CREDIT FACILITY
In connection with the offering of the Old Notes, on August 13, 1996, the
Company amended its existing Credit Agreement, dated as of May 2, 1996 (the
"Credit Agreement"), by and among the Company, MS Acquisition, Export and NBD
Bank, a Michigan banking corporation ("NBD"), as agent for the banks named
therein (the "Banks"). Pursuant to the amendment, Holdings became a party to the
Credit Agreement. As so amended, the Credit Agreement is referred to in this
Prospectus as the "Senior Revolving Credit Facility". The Senior Revolving
Credit Facility currently has an initial term of five years.
Borrowings under the Senior Revolving Credit Facility will be used by the
Company for working capital and other general corporate purposes. The Senior
Revolving Credit Facility, which includes a letter of credit facility, has an
aggregate principal amount of $35.0 million. As of September 6, 1996 there were
no outstanding advances under the Senior Revolving Credit Facility.
Borrowings under the Senior Revolving Credit Facility bear interest at a
per annum rate equal to a Eurodollar Rate plus a margin ranging from 1.0% to
2.75% (based on the Company's ratio of funded debt to EBITDA); a Floating Rate
equal to the sum of (A) the greater of (i) the Prime Rate (defined in the Senior
Revolving Credit Facility as the per annum rate announced by NBD from time to
time as its "prime rate"), and (ii) the sum of 1.0% per annum plus the Federal
Funds Rate (defined in the Senior Revolving Credit Facility as the per annum
rate that is equal to the average of the rates on overnight federal funds
transactions
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<PAGE> 51
with members of the Federal Reserve System) and (B) a margin ranging from zero
percent to 1.25%; or a negotiated rate.
The Senior Revolving Credit Facility is secured by, among other things,
first liens on the inventory, accounts receivable, furniture, fixtures,
machinery and equipment, intellectual property and certain other intangibles of
the Company and Export. MS Acquisition, Holdings and Export have unconditionally
guaranteed repayment of all borrowings of the Company under the Senior Revolving
Credit Facility. The Senior Revolving Credit Facility is secured by a pledge of
all of the outstanding capital stock of Export.
The Senior Revolving Credit Facility contains customary representations and
warranties and events of default and requires compliance with certain covenants
by the Company and its subsidiaries, including, among other things: (i)
maintenance of certain financial ratios and compliance with certain financial
tests and limitations; (ii) limitations on the payment of dividends, incurrence
of additional indebtedness and granting of certain liens; and (iii) restrictions
on mergers, acquisitions, asset sales, capital expenditures and investments.
The availability of the Senior Revolving Credit Facility is subject to
various conditions precedent. Advances will be made under the Senior Revolving
Credit Facility based on a borrowing base comprised of eligible accounts
receivable, production and tooling inventory and net fixed assets at the
following advance rates: 85% of the value of eligible accounts receivable; plus
60% of the value of eligible production inventory; plus 50% of eligible fixed
assets; plus 50% of eligible tooling inventory not to exceed $5.0 million.
Eligible accounts receivable will be reduced by the outstanding payable balances
owed by the Company to Chrysler and GM for coil steel products purchased through
their respective steel resale programs.
Because the Notes are unsecured, advances under the Senior Revolving Credit
Facility effectively rank senior to the Notes to the extent of the security
securing such advances.
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DESCRIPTION OF NOTES
The Old Notes were issued under an indenture (the "Indenture") dated as of
August 1, 1996 by and among the Company, MS Acquisition, Holdings, the
Subsidiary Guarantor and Norwest Bank Minnesota National Association, as Trustee
(the "Trustee"). The terms of the Indenture apply to the Old Notes and to the
New Notes to be issued in exchange therefor pursuant to the Exchange Offer (all
such Notes are referred to herein collectively as the "Notes"). The following
summary of certain provisions of the Indenture is intended to summarize the
material terms of the Indenture. However, the following summary does not purport
to be complete and is subject to, and is qualified in its entirety by reference
to, the Trust Indenture Act of 1939, as amended (the "TIA"), and to all of the
provisions of the Indenture, including the definitions of certain terms therein
and those terms made a part of the Indenture by reference to the TIA as in
effect on the date of the Indenture. A copy of the form of Indenture may be
obtained from the Company or the Initial Purchasers. The definitions of certain
capitalized terms used in the following summary are set forth below under "--
Certain Definitions".
The Notes are senior obligations of the Company, ranking pari passu in
right of payment with all other senior obligations of the Company. The
Guarantees are senior obligations of MS Acquisition and Holdings, ranking pari
passu in right of payment with all other senior obligations of MS Acquisition
and Holdings. The Subsidiary Guarantee is, and any additional Subsidiary
Guarantee will be, a senior obligation of the applicable Subsidiary Guarantor,
ranking pari passu in right of payment with all other senior obligations of such
Subsidiary Guarantor.
The Notes are issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Initially, the Trustee
is acting as paying agent and registrar for the Notes. The Notes may be
presented for registration of transfer and exchange at the offices of the
registrar, which initially are the Trustee's corporate trust office. The Company
may change any paying agent and registrar without notice to holders of the Notes
(the "Holders"). The Company will pay principal (and premium, if any) on the
Notes at the Trustee's corporate office in New York, New York. At the Company's
option, interest may be paid at the Trustee's corporate trust office or by check
mailed to the registered addresses of the Holders.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $85,000,000 and will
mature on October 1, 2006. Interest on the Notes accrues at the rate of 11 7/8%
per annum and will be payable semi-annually in cash on each April 1 and October
1, commencing on April 1, 1997, to the Persons who are registered Holders at the
close of business on March 15 and September 15, respectively, immediately
preceding the applicable interest payment date. Interest on the Notes accrues
from and including the most recent date to which interest has been paid or, if
no interest has been paid, from and including the date of issuance.
The Notes are not entitled to the benefit of any mandatory sinking fund.
REDEMPTION
Optional Redemption. The Notes are redeemable at the Company's option in
whole at any time or in part from time to time, on and after October 1, 2001,
upon not less than 30 nor more than 60 days' notice, at the following redemption
prices (expressed as percentages of the principal amount thereof) if redeemed
during the twelve-month period commencing on October 1 of the years set forth
below, plus, in each case, accrued and unpaid interest, if any, thereon to the
date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
------------------------------------------- ----------
<S> <C>
2001....................................... 105.938%
2002....................................... 103.958%
2003....................................... 101.979%
2004 and thereafter........................ 100.000%
</TABLE>
Optional Redemption upon Public Equity Offerings. At any time, or from time
to time, on or prior to October 1, 1999, the Company may, at its option, use the
net cash proceeds of one or more Public Equity Offerings (as defined below) to
redeem up to $25.0 million aggregate principal amount of Notes at a redemption
price equal to 110.875% of the principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the date of redemption; provided that at least
$60.0 million aggregate principal amount of Notes
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<PAGE> 53
remains outstanding immediately after giving effect to any such redemption. In
order to effect the foregoing redemption with the proceeds of any Public Equity
Offering, the Company shall make such redemption not more than 90 days after the
consummation of any such Public Equity Offering.
As used in the preceding paragraph, a "Public Equity Offering" means an
underwritten public offering of Qualified Capital Stock of any of MS Acquisition
Corp. ("MS Acquisition"), Aetna Holdings, Inc. ("Holdings") or the Company
pursuant to a registration statement filed with and declared effective by the
Commission in accordance with the Securities Act; provided that, in the event of
a Public Equity Offering by MS Acquisition or Holdings, as the case may be,
there is contributed to the capital of the Company the portion of the net cash
proceeds of such Public Equity Offering necessary to pay the aggregate
redemption price, plus accrued and unpaid interest, if any, to the redemption
date of the Notes to be redeemed pursuant to the preceding paragraph.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any
time, selection of such Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed or, if the Notes are not then listed on a
national securities exchange, on a pro rata basis, by lot or by such method as
the Trustee shall deem fair and appropriate; provided, however, that no Notes of
a principal amount of $1,000 or less shall be redeemed in part; and provided,
further, that if a partial redemption is made with the proceeds of a Public
Equity Offering, selection of the Notes or portions thereof for redemption shall
be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis
as is practicable (subject to the procedures of The Depository Trust Company),
unless such method is otherwise prohibited. Notice of redemption shall be mailed
by first-class mail at least 30 but not more than 60 days before the redemption
date to each Holder of Notes to be redeemed at its registered address. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. On and after the redemption date, interest will cease to
accrue on Notes or portions thereof called for redemption as long as the Company
has deposited with the paying agent for the Notes funds in satisfaction of the
applicable redemption price pursuant to the Indenture.
GUARANTEES AND SUBSIDIARY GUARANTEE
MS Acquisition, Holdings and the Subsidiary Guarantor (and any additional
Subsidiary Guarantors pursuant to the covenant described under "-- Certain
Covenants -- Additional Subsidiary Guarantees") will unconditionally guarantee,
on a senior basis, jointly and severally, to each Holder and the Trustee, the
full and prompt performance of the Company's obligations under the Indenture and
the Notes, including the payment of principal of and interest on the Notes. The
obligations of MS Acquisition, Holdings and each Subsidiary Guarantor are
limited to the maximum amount which, after giving effect to all other contingent
and fixed liabilities of MS Acquisition, Holdings or such Subsidiary Guarantor
and after giving effect to any collections from or payments made by or on behalf
of MS Acquisition, Holdings or any other Subsidiary Guarantor, as the case may
be, in respect of the obligations of MS Acquisition, Holdings or such other
Subsidiary Guarantor under its Guarantee or Subsidiary Guarantee, as the case
may be, or pursuant to its contribution obligations under the Indenture, will
result in the obligations of MS Acquisition, Holdings or such Subsidiary
Guarantor under its Guarantee or Subsidiary Guarantee, as the case may be, not
constituting a fraudulent conveyance or fraudulent transfer under Federal or
state law. MS Acquisition, Holdings and each Subsidiary Guarantor that makes a
payment or distribution under its Guarantee or Subsidiary Guarantee, as the case
may be, shall be entitled to a contribution from MS Acquisition, Holdings and
each Subsidiary Guarantor, as the case may be, in an amount pro rata, based on
the net assets of MS Acquisition, Holdings and each Subsidiary Guarantor,
determined in accordance with GAAP.
Each Subsidiary Guarantor may consolidate with or merge into or sell its
assets to the Company or another Subsidiary Guarantor, or with other Persons
upon the terms and conditions set forth in the Indenture. See "-- Certain
Covenants -- Merger, Consolidation and Sale of Assets." In the event all of the
Capital
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Stock of a Subsidiary Guarantor is sold by the Company and/or one or more of its
Subsidiaries and the sale complies with the provisions set forth in "-- Certain
Covenants -- Limitation on Asset Sales," such Subsidiary Guarantor's Subsidiary
Guarantee will be released.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control
(unless, on or prior to the date of such Change of Control, the Company shall
have given a notice of redemption with respect to all outstanding Notes), each
Holder will have the right to require that the Company purchase all or a portion
of such Holder's Notes pursuant to the offer described below (the "Change of
Control Offer"), at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, thereon to the date of
purchase.
Within 30 days following the date upon which the Change of Control
occurred, the Company must send, by first class mail, a notice to each Holder,
with a copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state, among other things, the purchase date,
which must be no earlier than 30 days nor later than 60 days from the date such
notice is mailed, other than as may be required by law (the "Change of Control
Payment Date"). A Change of Control Offer shall remain open for a period of 20
business days or such longer period as may be required by law. Holders electing
to have a Note purchased pursuant to a Change of Control Offer will be required
to surrender the Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Note completed, to the paying agent for the
Notes at the address specified in the notice prior to the close of business on
the third business day prior to the Change of Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to the Company's obligation to make a Change of Control Offer.
Restrictions in the Indenture described herein on the ability of the Company and
the Restricted Subsidiaries to incur additional Indebtedness, to grant liens on
their property, to make Restricted Payments and to make Asset Sales may also
make more difficult or discourage a takeover of the Company, whether favored or
opposed by the management of the Company. Consummation of any such transaction
in certain circumstances may require repurchase of the Notes, and there can be
no assurance that the Company or the acquiring party will have sufficient
financial resources to effect such repurchase. Such restrictions and the
restrictions on transactions with Affiliates may, in certain circumstances, make
more difficult or discourage any leveraged buyout of the Company by the
management of the Company. While such restrictions cover a wide variety of
arrangements which have traditionally been used to effect highly leveraged
transactions, the Indenture may not afford the Holders of Notes protection in
all circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction. In addition, to
the extent that the phrase "all or substantially all of the assets" has not been
quantitatively defined under the law of the State of New York, which is the law
governing the Indenture, the Holders of the Notes may be unable to determine
with certainty whether a Change of Control has occurred as a matter of law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
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CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any of the Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable with
respect to, or otherwise become responsible for payment of (collectively,
"incur") any Indebtedness (other than Permitted Indebtedness); provided,
however, that if no Default or Event of Default shall have occurred and be
continuing at the time of or as a consequence of the incurrence of any such
Indebtedness, the Company or any Subsidiary Guarantor may incur Indebtedness
(including, without limitation, Acquired Indebtedness) and any Restricted
Subsidiary may incur Acquired Indebtedness, in each case, if on the date of the
incurrence of such Indebtedness, after giving effect to the incurrence thereof,
the Consolidated Fixed Charge Coverage Ratio of the Company is greater than (a)
2.0 to 1.0, if the date of such incurrence is on or prior to August 13, 1997 or
(b) 2.25 to 1.0, if the date of such incurrence is after August 13, 1997.
Indebtedness of a Person existing at the time such Person becomes a
Restricted Subsidiary or which is secured by a Lien on an asset acquired by the
Company or a Restricted Subsidiary (whether or not such Indebtedness is assumed
by the acquiring Person) shall be deemed incurred at the time the Person becomes
a Restricted Subsidiary or at the time of the asset acquisition, as the case may
be.
The Company will not, and will not permit any Subsidiary Guarantor to incur
any Indebtedness which by its terms (or by the terms of any agreement governing
such Indebtedness) is subordinated in right of payment to any other Indebtedness
of the Company or such Subsidiary Guarantor unless such Indebtedness is also by
its terms (or by the terms of any agreement governing such Indebtedness)
subordinated in right of payment to the Notes or the Subsidiary Guarantee of
such Subsidiary Guarantor, as the case may be, at least to the same extent and
in the same manner as such Indebtedness is subordinated to any such other
Indebtedness.
Limitation on Restricted Payments. The Company will not, and will not cause
or permit any of the Restricted Subsidiaries to, directly or indirectly, (a)
declare or pay any dividend or make any distribution (other than dividends or
distributions payable in Qualified Capital Stock of the Company) on or in
respect of shares of the Company's Capital Stock to holders of such Capital
Stock, (b) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company, Holdings or MS Acquisition or any warrants, rights or
options to purchase or acquire shares of any class of such Capital Stock, (c)
make any principal payment on, purchase, defease, redeem, prepay, decrease or
otherwise acquire or retire for value, prior to any scheduled final maturity,
scheduled repayment or scheduled sinking fund payment, any Indebtedness of the
Company or a Subsidiary Guarantor that is subordinate or junior in right of
payment to the Notes or such Subsidiary Guarantor's Subsidiary Guarantee, as the
case may be, or (d) make any Investment (other than a Permitted Investment)
(each of the foregoing actions set forth in clauses (a), (b) (c) and (d) being
referred to as a "Restricted Payment"), if at the time of such Restricted
Payment or immediately after giving effect thereto, (i) a Default or an Event of
Default shall have occurred and be continuing or (ii) the Company is not able to
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with the covenant described under "-- Limitation on
Incurrence of Additional Indebtedness" or (iii) the aggregate amount of
Restricted Payments (including such proposed Restricted Payment) made subsequent
to the Issue Date (the amount expended for such purposes, if other than in cash,
being the fair market value of such property as determined reasonably and in
good faith by the Board of Directors of the Company) shall exceed the sum of:
(w) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated
Net Income shall be a loss, minus 100% of such loss) of the Company earned
subsequent to the Issue Date and on or prior to the date the Restricted Payment
occurs (the "Reference Date") (treating such period as a single accounting
period); plus (x) 100% of the aggregate net cash proceeds received by the
Company from any Person (other than a Subsidiary of the Company) from the
issuance and sale subsequent to the Issue Date and on or prior to the Reference
Date of Qualified Capital Stock of the Company; plus (y) without duplication of
any amounts included in clause (iii)(x) above, 100% of the aggregate net cash
proceeds of any equity contribution received by the Company from a holder of the
Company's Capital Stock (excluding, in the case of clauses (iii)(x) and (y), any
net cash proceeds from a Public Equity Offering to the extent used to redeem the
Notes pursuant to the redemption provisions thereof); plus (z) an amount equal
to the
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consolidated net Investments on the date of Revocation made by the Company
and/or any of the Restricted Subsidiaries in any Subsidiary of the Company that
has been designated an Unrestricted Subsidiary after the Issue Date upon its
redesignation as a Restricted Subsidiary in accordance with the covenant
described under "-- Limitation on Designations of Unrestricted Subsidiaries."
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph shall not prohibit: (1) the payment of any dividend or
distribution within 60 days after the date of declaration of such dividend or
distribution if the dividend or distribution would have been permitted on the
date of declaration; (2) if no Default or Event of Default shall have occurred
and be continuing, the acquisition of any shares of Capital Stock of the
Company, either (A) solely in exchange for shares of Qualified Capital Stock of
the Company or (B) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of the Company) of shares
of Qualified Capital Stock of the Company; (3) if no Default or Event of Default
shall have occurred and be continuing, the acquisition of any Indebtedness of
the Company or a Subsidiary Guarantor that is subordinate or junior in right of
payment to the Notes or such Subsidiary Guarantor's Subsidiary Guarantee, as the
case may be, either (A) solely in exchange for shares of Qualified Capital Stock
of the Company, or (B) through the application of net proceeds of a
substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of (I) shares of Qualified Capital Stock of the Company or (II)
Refinancing Indebtedness; (4) the making of payments by the Company to MS
Acquisition or Holdings in an amount not in excess of the federal, state and
local income tax liability that the Company and its Subsidiaries would have been
liable for if the Company, together with its Subsidiaries, had filed its tax
return on a stand-alone basis; provided that such payments shall be made by the
Company no earlier than five days prior to the date on which MS Acquisition or
Holdings is required to make its payments to the Internal Revenue Service or
state or local taxing authorities, as the case may be; (5) if no Default or
Event of Default shall have occurred and be continuing, the making of payments
by the Company to MS Acquisition or Holdings to pay corporate overhead expenses
(including, without limitation, directors' fees and expenses), not to exceed
$250,000 in any fiscal year; (6) if no Default or Event of Default shall have
occurred and be continuing, the making of payments by the Company to MS
Acquisition or Holdings to repurchase Capital Stock of MS Acquisition or
Holdings beneficially owned by directors, officers and employees of the Company,
any of its Subsidiaries, MS Acquisition or Holdings pursuant to the terms of
employment contracts or employee benefit plans of the Company, any of its
Subsidiaries, MS Acquisition or Holdings not to exceed $500,000 in any fiscal
year; and (7) if no Default or Event of Default shall have occurred and be
continuing, the making of other Restricted Payments not to exceed $2.0 million
in the aggregate. In determining the aggregate amount of Restricted Payments
made subsequent to the Issue Date in accordance with clause (iii) of the
immediately preceding paragraph, amounts expended pursuant to clauses (1),
(2)(B), (3)(B)(I), (5), (6) and (7) shall be included in such calculation.
Limitation on Asset Sales. The Company will not, and will not permit any of
the Restricted Subsidiaries to, consummate an Asset Sale unless (a) the Company
or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (b) at least 75% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, from
such Asset Sale shall be in the form of cash or Cash Equivalents and is received
at the time of such disposition; and (c) upon the consummation of an Asset Sale,
the Company shall commit in writing to apply, or cause such Restricted
Subsidiary to commit in writing to apply, the Net Cash Proceeds relating to such
Asset Sale within 180 days of receipt thereof, and shall apply, or cause such
Restricted Subsidiary to apply, such Net Cash Proceeds within 270 days of
receipt thereof, either (i) to the extent the properties or assets that were the
subject to such Asset Sale secure Indebtedness incurred in accordance with the
Indenture pursuant to a Lien permitted by the Indenture, to prepay any such
Indebtedness, (ii) to make an investment in properties or assets that replace
the properties or assets that were the subject of such Asset Sale or in
properties or assets that will be used in the business of the Company and the
Restricted Subsidiaries as existing on the Issue Date or in businesses
reasonably related thereto ("Replacement Assets"), or (iii) a combination of
prepayment and investment permitted by the foregoing clauses (c)(i) and (c)(ii).
On the 271st day after an Asset Sale or such earlier date, if any, as the Board
of Directors of the Company determines not to apply the Net Cash Proceeds
relating to such Asset Sale as set forth in clauses (c)(i), (c)(ii) and
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(c)(iii) of the next preceding sentence (each, a "Net Proceeds Offer Trigger
Date"), such aggregate amount of Net Cash Proceeds which have not been applied
on or before such Net Proceeds Offer Trigger Date as permitted in clauses
(c)(i), (c)(ii) and (c)(iii) of the next preceding sentence (each a "Net
Proceeds Offer Amount") shall be applied by the Company or such Restricted
Subsidiary, as the case may be, to make an offer to purchase (a "Net Proceeds
Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor
more than 45 days following the applicable Net Proceeds Offer Trigger Date, from
all Holders on a pro rata basis, that principal amount of Notes equal to the Net
Proceeds Offer Amount at a price equal to 100% of the principal amount of the
Notes to be purchased, plus accrued and unpaid interest, if any, thereon to the
date of purchase; provided, however, that if at any time any non-cash
consideration received by the Company or any Restricted Subsidiary, as the case
may be, in connection with any Asset Sale is converted into or sold or otherwise
disposed of for cash, then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accordance with this covenant. The Company may defer the Net Proceeds
Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to
or in excess of $5.0 million resulting from one or more Asset Sales (at which
time, the entire unutilized Net Proceeds Offer Amount, and not just the amount
in excess of $5.0 million, shall be applied as required pursuant to this
paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and the Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "-- Merger, Consolidation
and Sale of Assets," the successor corporation shall be deemed to have sold the
properties and assets of the Company and the Restricted Subsidiaries not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
In addition, the fair market value of such properties and assets of the Company
or the Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash
Proceeds for purposes of this covenant.
Notwithstanding the two immediately preceding paragraphs, the Company and
the Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (a) at least 75% of the
consideration for such Asset Sale constitutes Replacement Assets and (b) such
Asset Sale is for fair market value; provided that any consideration not
constituting Replacement Assets received by the Company or any of the Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated under
this paragraph shall constitute Net Cash Proceeds subject to the provisions of
the two immediately preceding paragraphs.
Notice of each Net Proceeds Offer will be mailed to the record Holders as
shown on the register of Holders within 30 days following the Net Proceeds Offer
Trigger Date, with a copy to the Trustee, and shall comply with the procedures
set forth in the Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly tender
Notes with an aggregate principal amount exceeding the Net Proceeds Offer
Amount, Notes of tendering Holders will be purchased on a pro rata basis (based
on principal amounts tendered). A Net Proceeds Offer shall remain open for a
period of 20 business days or such longer period as may be required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue
thereof.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not cause or permit any of the
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions on or in respect of its Capital Stock; (b) make loans or advances
or to pay any Indebtedness or other obligation owed to the Company or any other
Restricted Subsidiary; or (c) transfer any of its property or assets to the
Company or any other Restricted Subsidiary, except for such encumbrances or
restrictions existing under or by reason of:
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(i) applicable law; (ii) the Indenture; (iii) customary non-assignment
provisions of any contract, licensing agreement or any lease governing a
leasehold interest of any Restricted Subsidiary; (iv) any instrument governing
Acquired Indebtedness, which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person or the
properties or assets of the Person so acquired; (v) agreements existing on the
Issue Date to the extent and in the manner such agreements are in effect on the
Issue Date; (vi) agreements of a Restricted Subsidiary existing at the time such
Person became a Subsidiary of the Company and not entered into in connection
with, or in anticipation or contemplation of, such Person becoming a Subsidiary
of the Company; (vii) restrictions contained in security, pledge or similar
agreements granting a Lien permitted by the covenant described under "--
Limitation on Liens" to the extent such agreements restrict the transfer of the
property subject to any such Lien; (viii) contracts for the sale of assets in a
transaction in compliance with the covenant described under "-- Limitation on
Asset Sales"; or (ix) an agreement governing Refinancing Indebtedness incurred
to Refinance the Indebtedness issued, assumed or incurred pursuant to an
agreement referred to in clause (ii), (iv), (v) or (vii) above; provided,
however, that the provisions relating to such encumbrance or restriction
contained in any such Refinancing Indebtedness are no less favorable to the
Holders in any material respect as determined by the Board of Directors of the
Company in their reasonable and good faith judgment than the provisions relating
to such encumbrance or restriction contained in the applicable agreement
referred to in such clause (ii), (iv), (v) or (vii).
Limitation on Preferred Stock of Restricted Subsidiaries. The Company will
not permit any of the Restricted Subsidiaries to issue any Preferred Stock
(other than to the Company or to a Wholly Owned Restricted Subsidiary) or permit
any Person (other than the Company or a Wholly Owned Restricted Subsidiary) to
own any Preferred Stock of any Restricted Subsidiary.
Limitation on Liens. The Company will not, and will not cause or permit any
of the Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or permit or suffer to exist any Liens of any kind against or upon any property
or assets of the Company or any of the Restricted Subsidiaries, whether owned on
the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or
assign or otherwise convey any right to receive income or profits therefrom
unless (a) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Notes or any Subsidiary
Guarantee, the Notes or such Subsidiary Guarantee, as the case may be, are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens and (b) in all other cases, the Notes and the Subsidiary
Guarantees are equally and ratably secured, except for (i) Liens existing as of
the Issue Date ; (ii) to the extent not included in clause (i), Liens securing
Indebtedness under the Revolving Credit Facility that do not extend to or cover
categories or types of property or assets not covered by Liens securing the
Revolving Credit Facility as of the Issue Date; (iii) Liens securing the Notes
and Subsidiary Guarantees; (iv) Liens of the Company or a Restricted Subsidiary
on assets of any Restricted Subsidiary; (v) Liens securing Refinancing
Indebtedness which is incurred to Refinance any Indebtedness which has been
secured by a Lien permitted under the Indenture and which has been incurred in
accordance with the provisions of the Indenture; provided, however, that such
Liens do not extend to or cover any property or assets of the Company or any of
the Restricted Subsidiaries not securing the Indebtedness so Refinanced; and
(vi) Permitted Liens.
Limitation on Sale and Leaseback Transactions. The Indenture provides that
the Company will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, enter into any Sale and Leaseback Transaction unless (a)
immediately after giving pro forma effect to such Sale and Leaseback Transaction
(the Attributable Value of such Sale and Leaseback Transaction being deemed to
be Indebtedness of the Company), the Company could incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) in compliance with
the covenant described under "-- Limitation on Incurrence of Additional
Indebtedness" (assuming a market rate of interest with respect to such
additional Indebtedness) and (b) such Sale and Leaseback Transaction complies
with the covenant described under "-- Limitation on Asset Sales."
Merger, Consolidation and Sale of Assets. The Company will not, in a single
transaction or series of related transactions, consolidate or merge with or into
any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or
cause or permit any Restricted Subsidiary to sell, assign, transfer, lease,
convey or otherwise dispose of) all or substantially all of the Company's assets
(determined on a consolidated basis for the Company and the Restricted
Subsidiaries), whether as an entirety or substantially as an entirety, to any
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Person unless: (a) either (i) the Company shall be the surviving or continuing
corporation or (ii) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which acquires
by sale, assignment, transfer, lease, conveyance or other disposition the
properties and assets of the Company and the Restricted Subsidiaries
substantially as an entirety (the "Surviving Entity") (x) shall be a corporation
organized and validly existing under the laws of the United States or any state
thereof or the District of Columbia and (y) shall expressly assume, by
supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, premium, if any, and interest on all of the Notes and the
performance of every covenant of the Notes, the Indenture and the Registration
Rights Agreement on the part of the Company to be performed or observed; (b)
immediately after giving effect to such transaction and the assumption
contemplated by clause (a)(ii)(y) above (including giving effect to any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction), the Company or such Surviving Entity, as the case
may be, (i) shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction and
(ii) shall be able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to the covenant described under "--
Limitation on Incurrence of Additional Indebtedness"; (c) immediately before and
immediately after giving effect to such transaction and the assumption
contemplated by clause (a)(ii)(y) above (including, without limitation, giving
effect to any Indebtedness incurred or anticipated to be incurred and any Lien
granted in connection with or in respect of the transaction), no Default or
Event of Default shall have occurred or be continuing; and (d) the Company or
the Surviving Entity, as the case may be, shall have delivered to the Trustee an
officers' certificate and an opinion of counsel, each stating that such
consolidation, merger, sale, assignment, transfer, lease, conveyance or other
disposition and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture comply with the applicable provisions
of the Indenture and that all conditions precedent in the Indenture relating to
such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.
Upon any such consolidation, combination or merger or any transfer of all
or substantially all of the assets of the Company in accordance with the
foregoing, in which the Company is not the continuing corporation, the successor
Person formed by such consolidation or into which the Company is merged or to
which such conveyance, lease or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture and the Notes with the same effect as if such surviving entity had
been named as such.
Each of MS Acquisition and Holdings will not, in a single transaction or
series of related transactions, consolidate or merge with or into any Person, or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its assets, whether as an entirety or substantially as an
entirety, to any Person unless: (a) either (i) MS Acquisition or Holdings, as
the case may be, shall be the surviving or continuing corporation or (ii) the
Person (if other than MS Acquisition or Holdings, as the case may be) formed by
such consolidation or into which MS Acquisition or Holdings, as the case may be,
is merged or the Person which acquires by sale, assignment, transfer, lease,
conveyance or other disposition the property and assets of MS Acquisition or
Holdings, as the case may be, substantially as an entirety (x) shall be a
corporation organized and validly existing under the laws of the United States
or any State thereof or the District of Columbia and (y) shall expressly assume,
by supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee all of the obligations of MS Acquisition
or Holdings, as the case may be, under its Guarantee and the Registration Rights
Agreement on the part of MS Acquisition or Holdings, as the case may be, to be
performed or observed; and (b) MS Acquisition, Holdings or such other Person, as
the case may be, shall have delivered to the Trustee an officers' certificate
and an opinion of counsel, each stating that such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition and, if a
supplemental indenture is required in connection with such transaction, such
supplemental
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indenture shall comply with the applicable provisions of the Indenture and that
all conditions precedent in the Indenture relating to such transactions have
been satisfied.
Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose
Subsidiary Guarantee is to be released in accordance with the terms of the
Subsidiary Guarantee and the Indenture in connection with any transaction
complying with the provisions of the Indenture described under "-- Limitation on
Asset Sales") will not, and the Company will not cause or permit any Subsidiary
Guarantor to, consolidate with or merge with or into any Person other than the
Company or another Subsidiary Guarantor unless: (a) the entity formed by or
surviving any such consolidation or merger (if other than the Subsidiary
Guarantor) is a corporation organized and existing under the laws of the United
States or any state thereof or the District of Columbia; (b) such entity assumes
by supplemental indenture all of the obligations of the Subsidiary Guarantor
under its Subsidiary Guarantee; (c) immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; and (d) immediately after giving effect to such transaction and the
use of any net proceeds therefrom on a pro forma basis, the Company could
satisfy the provisions of clause (b) of the first paragraph of this covenant.
Any merger or consolidation of a Subsidiary Guarantor with and into the Company
(with the Company being the surviving entity) or another Subsidiary Guarantor
need only comply with clause (d) of the first paragraph of this covenant.
Limitations on Transactions with Affiliates. (a) The Company will not, and
will not permit any of the Restricted Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any of
their respective Affiliates (each an "Affiliate Transaction"), other than (i)
Affiliate Transactions permitted under paragraph (b) of this covenant and (ii)
Affiliate Transactions on terms that are no less favorable to the Company or the
applicable Restricted Subsidiary than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of the Company or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate Transactions
which are similar or part of a common plan) involving aggregate payments or
other property with a fair market value in excess of $500,000 shall be approved
by the Board of Directors of the Company, such approval to be evidenced by a
Board Resolution stating that such Board of Directors has determined that such
transaction complies with the foregoing provisions. If the Company or any
Restricted Subsidiary enters into an Affiliate Transaction (or a series of
related Affiliate Transactions related to a common plan) that involves an
aggregate fair market value of more than $5.0 million, the Company shall, prior
to the consummation thereof, obtain a favorable opinion as to the fairness of
such transaction or series of related transactions to the Company or the
relevant Restricted Subsidiary, as the case may be, from a financial point of
view, from an Independent Financial Advisor and file the same with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary as determined in good faith by the Company's Board of Directors; (ii)
transactions exclusively between or among the Company and any of the Restricted
Subsidiaries or exclusively between or among such Restricted Subsidiaries,
provided such transactions are not otherwise prohibited by the Indenture; and
(iii) Restricted Payments permitted by the Indenture.
Additional Subsidiary Guarantees. If the Company or any of the Restricted
Subsidiaries transfers or causes to be transferred, in one transaction or a
series of related transactions, any property to any Restricted Subsidiary that
is not a Subsidiary Guarantor, or if the Company or any of the Restricted
Subsidiaries shall organize, acquire or otherwise invest in or hold an
Investment in another Restricted Subsidiary that is not a Subsidiary Guarantor
having total consolidated assets with a book value in excess of $500,000, then
such transferee or acquired or other Restricted Subsidiary that is not a
Subsidiary Guarantor shall (a) execute and deliver to the Trustee a supplemental
indenture in form reasonably satisfactory to the Trustee pursuant to which such
Restricted Subsidiary shall unconditionally guarantee all of the Company's
obligations under the Notes and the Indenture on the terms set forth in the
Indenture and (b) deliver to the Trustee an opinion of counsel that such
supplemental indenture has been duly authorized, executed and delivered by such
Restricted
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Subsidiary and constitutes a legal, valid, binding and enforceable obligation of
such Restricted Subsidiary. Thereafter, such Restricted Subsidiary shall be a
Subsidiary Guarantor for all purposes of the Indenture.
Reports to Holders. The Company will deliver to the Trustee within 15 days
after the filing of the same with the Commission, copies of the quarterly and
annual reports and of the information, documents and other reports, if any,
which the Company is required to file with the Commission pursuant to Section 13
or 15(d) of the Exchange Act. Notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company will file with the Commission, to the extent permitted, and
provide the Trustee and Holders with such annual reports and such information,
documents and other reports specified in Sections 13 and 15(d) of the Exchange
Act. The Company will also comply with the other provisions of sec. 314(a) of
the TIA.
Lines of Business. The Company shall not, and shall not permit any of the
Restricted Subsidiaries to, enter into any business, either directly or through
any Restricted Subsidiary, except (i) for those businesses in which the Company
and the Restricted Subsidiaries were engaged on the Issue Date or businesses
which, in the reasonable good faith judgment of the Board of Directors of the
Company, are related to the automotive industry and (ii) Permitted Investments.
Payments for Consent. Neither the Company nor any of its Subsidiaries
shall, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any holder of any Notes for or
as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture, the Notes, the Guarantees or any Subsidiary
Guarantee unless such consideration is offered to be paid or agreed to be paid
to all holders of the Notes who so consent, waive or agree to amend in the time
frame set forth in solicitation documents relating to such consent, waiver or
agreement.
Limitation on Designations of Unrestricted Subsidiaries. The Company may
designate any Subsidiary of the Company (other than a Subsidiary of the Company
which owns Capital Stock of a Restricted Subsidiary) as an "Unrestricted
Subsidiary" under the Indenture (a "Designation") only if:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation; and
(b) the Company would be permitted under the Indenture to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the sum of
(i) fair market value of the Capital Stock of such Subsidiary owned by the
Company and the Restricted Subsidiaries on such date and (ii) the aggregate
amount of other Investments of the Company and the Restricted Subsidiaries
in such Subsidiary on such date; and
(c) the Company would be permitted to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the covenant
described under "-- Limitation on Incurrence of Additional Indebtedness" at
the time of Designation (assuming the effectiveness of such Designation).
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment in the Designation Amount
pursuant to the covenant described under "-- Limitation on Restricted Payments"
for all purposes of the Indenture. The Indenture further provides that the
Company shall not, and shall not permit any Restricted Subsidiary to, at any
time (x) provide direct or indirect credit support for or a guarantee of any
Indebtedness of any Unrestricted Subsidiary (including of any undertaking,
agreement or instrument evidencing such Indebtedness), (y) be directly or
indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be
directly or indirectly liable for any Indebtedness which provides that the
holder thereof may (upon notice, lapse of time or both) declare a default
thereon or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary (including any right to take
enforcement action against such Unrestricted Subsidiary), except, in the case of
clause (x) or (y), to the extent permitted under the covenant described under
"-- Limitation on Restricted Payments."
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The Indenture further provides that the Company may revoke any Designation
of a Subsidiary as an Unrestricted Subsidiary (a "Revocation"), whereupon such
Subsidiary shall then constitute a Restricted Subsidiary, if:
(a) no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
Indenture.
All Designations and Revocations must be evidenced by Board Resolutions of
the Company delivered to the Trustee certifying compliance with the foregoing
provisions.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(a) the failure to pay interest on any Notes for a period of 30 days
after the same becomes due and payable;
(b) the failure to pay the principal on any Notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase Notes tendered
pursuant to a Change of Control Offer or a Net Proceeds Offer);
(c) a default in the observance or performance of any other covenant
or agreement contained in the Indenture which default continues for a
period of 30 days after the Company receives written notice specifying the
default (and demanding that such default be remedied) from the Trustee or
the Holders of at least 25% of the outstanding principal amount of the
Notes (except in the case of a default with respect to the covenant
described under "-- Certain Covenants -- Merger, Consolidation and Sale of
Assets", which will constitute an Event of Default with such notice
requirement but without such passage of time requirement);
(d) a default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness of the Company or of any Restricted Subsidiary (or the payment
of which is guaranteed by the Company or any Restricted Subsidiary),
whether such Indebtedness now exists or is created after the Issue Date,
which default (i) is caused by a failure to pay principal of or premium, if
any, on such Indebtedness after any applicable grace period provided in
such Indebtedness on the date of such default (a "principal payment
default") or (ii) results in the acceleration of such Indebtedness prior to
its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a principal payment default or the
maturity of which has been so accelerated, aggregates at least $5.0
million;
(e) one or more judgments in an aggregate amount in excess of $5.0
million shall have been rendered against the Company or any of the
Restricted Subsidiaries and such judgments remain undischarged, unpaid or
unstayed for a period of 60 days after such judgment or judgments become
final and non-appealable;
(f) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries; or
(g) any of the Guarantees or the Subsidiary Guarantees ceases to be in
full force and effect or any of the Guarantees or the Subsidiary Guarantees
is declared to be null and void and unenforceable or any of the Guarantees
or the Subsidiary Guarantees is found to be invalid or MS Acquisition,
Holdings or any of the Subsidiary Guarantors denies its liability under its
Guarantee or Subsidiary Guarantee, as the case may be (other than by reason
of release of a Subsidiary Guarantor in accordance with the terms of the
Indenture).
If an Event of Default (other than an Event of Default specified in clause
(f) above) shall occur and be continuing, the Trustee or the Holders of at least
25% in principal amount of outstanding Notes may declare the principal of,
premium, if any, and accrued and unpaid interest on all the Notes to be due and
payable by
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notice in writing to the Company and the Trustee specifying the respective Event
of Default and that it is a "notice of acceleration", and the same shall become
immediately due and payable. If an Event of Default specified in clause (f)
above occurs and is continuing, then all unpaid principal of, and premium, if
any, and accrued and unpaid interest on all of the outstanding Notes shall ipso
facto become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Holder.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes then outstanding may
rescind and cancel such declaration and its consequences (a) if the rescission
would not conflict with any judgment or decree, (b) if all existing Events of
Default have been cured or waived except nonpayment of principal or interest
that has become due solely because of the acceleration, (c) to the extent the
payment of such interest is lawful, interest on overdue installments of interest
and overdue principal, which has become due otherwise than by such declaration
of acceleration, has been paid, (d) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (e) in the event of the cure or waiver of an
Event of Default of the type described in clause (f) of the description of
Events of Default above, the Trustee shall have received an officers'
certificate and an opinion of counsel that such Event of Default has been cured
or waived. No such rescission shall affect any subsequent Default or impair any
right consequent thereto.
The Holders of a majority in principal amount of the Notes then outstanding
may waive any existing Default or Event of Default under the Indenture, and its
consequences, except a default in the payment of the principal of or interest on
any Notes.
Holders of the Notes may not enforce the Indenture, the Notes, the
Guarantees or any Subsidiary Guarantee except as provided in the Indenture and
under the TIA. Subject to the provisions of the Indenture relating to the duties
of the Trustee, the Trustee is under no obligation to exercise any of its rights
or powers under the Indenture, the Notes, the Guarantees or any Subsidiary
Guarantee at the request, order or direction of any of the Holders, unless such
Holders have offered to the Trustee reasonable indemnity. Subject to all
provisions of the Indenture and applicable law, the Holders of a majority in
aggregate principal amount of the then outstanding Notes have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of MS Acquisition, Holdings and all Subsidiary
Guarantors discharged with respect to the outstanding Notes ("Legal
Defeasance"). Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness represented by the outstanding
Notes, and satisfied all of its obligations with respect to the Notes, except
for (a) the rights of Holders to receive payments in respect of the principal
of, premium, if any, and interest on the Notes when such payments are due, (b)
the Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payments, (c) the rights, powers, trust,
duties and immunities of the Trustee and the Company's obligations in connection
therewith and (d) the Legal Defeasance provisions of the Indenture. In addition,
the Company may, at its option and at any time, elect to have the obligations of
the Company released with respect to certain covenants that are described in the
Indenture ("Covenant Defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, reorganization and insolvency
events) described under "-- Events of Default" will no longer constitute an
Event of Default with respect to the Notes.
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In order to exercise either Legal Defeasance or Covenant Defeasance, (a)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in United States dollars, non-callable United States
government obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the Notes
on the stated date for payment thereof or on the applicable redemption date, as
the case may be; (b) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (i) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (ii) since
the date of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the Holders will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (c) in the case of Covenant Defeasance, the Company
shall have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (d) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit or insofar as
Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 91st day after the date of deposit; (e) such
Legal Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under, the Indenture or any other
agreement or instrument to which MS Acquisition, Holdings, the Company or a
Subsidiary Guarantor is a party or by which MS Acquisition, Holdings, the
Company or a Subsidiary Guarantor is bound; (f) the Company shall have delivered
to the Trustee an officers' certificate stating that the deposit was not made by
the Company with the intent of preferring the Holders over any other creditors
of MS Acquisition, Holdings, the Company or a Subsidiary Guarantor or with the
intent of defeating, hindering, delaying or defrauding any other creditors of MS
Acquisition, Holdings, the Company or a Subsidiary Guarantor or others; (g) the
Company shall have delivered to the Trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent provided for or
relating to the Legal Defeasance or the Covenant Defeasance, as the case may be,
have been complied with; and (h) the Company shall have delivered to the Trustee
an opinion of counsel to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (a) either (i) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (ii) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (b)
the Company has paid all other sums payable under the Indenture by the Company;
and (c) the Company has delivered to the Trustee an officers' certificate and an
opinion of counsel stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with.
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MODIFICATION OF THE INDENTURE
From time to time, the Company, MS Acquisition, Holdings, the Subsidiary
Guarantor(s) and the Trustee, without the consent of the Holders, may amend the
Indenture, the Guarantees and any Subsidiary Guarantee for certain specified
purposes, including curing ambiguities, defects or inconsistencies, so long as
such change does not, in the opinion of the Trustee, adversely affect the rights
of any of the Holders in any material respect. In formulating its opinion on
such matters, the Trustee will be entitled to rely on such evidence as it deems
appropriate, including, without limitation, solely on an opinion of counsel.
Other modifications and amendments of the Indenture, the Guarantees and any
Subsidiary Guarantee may be made with the consent of the Holders of a majority
in principal amount of the then outstanding Notes issued under the Indenture,
except that, without the consent of each Holder affected thereby, no amendment
may: (a) reduce the amount of Notes whose Holders must consent to an amendment;
(b) reduce the rate of or change or have the effect of changing the time for
payment of interest, including defaulted interest, on any Notes; (c) reduce the
principal of or change or have the effect of changing the fixed maturity of any
Notes, or change the date on which any Notes may be subject to redemption or
repurchase, or reduce the redemption or repurchase price therefor; (d) make any
Notes payable in money other than that stated in the Notes; (e) make any change
in provisions of the Indenture protecting the right of each Holder to receive
payment of principal of and interest on such Note on or after the due date
thereof or to bring suit to enforce such payment, or permitting Holders of a
majority in principal amount of Notes to waive Defaults or Events of Default;
(f) amend, change or modify in any material respect the obligation of the
Company to make and consummate a Change of Control Offer in the event of a
Change of Control or make and consummate a Net Proceeds Offer with respect to
any Asset Sale that has been consummated or modify any of the provisions or
definitions with respect thereto; (g) modify or change any provision of the
Indenture or the related definitions affecting ranking of the Notes, the
Guarantees or any Subsidiary Guarantee in a manner which adversely affects the
Holders; and (h) release MS Acquisition, Holdings or any Subsidiary Guarantor
from any of its obligations under its Guarantee or its Subsidiary Guarantee, as
the case may be, or the Indenture otherwise than in accordance with the terms of
the Indenture.
GOVERNING LAW
The Indenture provides that the Indenture, the Notes, the Guarantees and
each Subsidiary Guarantee will be governed by, and construed in accordance with,
the laws of the State of New York but without 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.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, MS
Acquisition, Holdings or a Subsidiary Guarantor, to obtain payments of claims in
certain cases or to realize on certain property received in respect of any such
claim as security or otherwise. Subject to the TIA, the Trustee will be
permitted to engage in other transactions; provided that if the Trustee acquires
any conflicting interest as described in the TIA, it must eliminate such
conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the form of Indenture for the full definition of
all such terms, as well as any other terms used herein for which no definition
is provided.
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"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or
at the time it merges or consolidates with the Company or any of the Restricted
Subsidiaries or assumed by the Company or a Restricted Subsidiary in connection
with the acquisition of assets by such Person and in each case not incurred in
connection with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary or such acquisition, merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"Affiliate Transaction" has the meaning set forth under "-- Certain
Covenants -- Limitation on Transactions with Affiliates."
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary, or shall be merged with or into the Company or
any Restricted Subsidiary, or (b) the acquisition by the Company or any
Restricted Subsidiary of the assets of any Person (other than a Restricted
Subsidiary) which constitute all or substantially all of the assets of such
Person or comprises any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course of
business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
the Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Restricted Subsidiary of (a) any Capital
Stock of any Restricted Subsidiary; or (b) any other property or assets of the
Company or any Restricted Subsidiary other than in the ordinary course of
business; provided, however, that Asset Sales shall not include (i) a
transaction or series of related transactions for which the Company or the
Restricted Subsidiaries receive aggregate consideration of less than $250,000,
(ii) the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of the Company as permitted under "-- Certain
Covenants -- Merger, Consolidation and Sale of Assets", (iii) Investment made in
compliance with the covenant described under "-- Limitation on Restricted
Payments" and (iv) the sale, disposition or other transfer of obsolete, damaged,
materially worn or unusable equipment in the ordinary course of business.
"Attributable Value" means, as to any particular lease under which any
Person is at the time liable other than a Capitalized Lease Obligation, and at
any date as of which the amount thereof is to be determined, the total net
amount of rent required to be paid by such Person under such lease during the
remaining term thereof (whether or not such lease is terminable at the option of
the lessee prior to the end of such term), including any period for which such
lease has been, or may, at the option of the lessor, be extended, discounted
from the last date of such term to the date of determination at a rate per annum
equal to the discount rate which would be applicable to a Capitalized Lease
Obligation with a like term in accordance with GAAP. The net amount of rent
required to be paid under any lease for any such period shall be the aggregate
amount of rent payable by the lessee with respect to such period after excluding
amounts required to be paid on account of insurance, taxes, assessments,
utility, operating and labor costs and similar charges. "Attributable Value"
means, as to a Capitalized Lease Obligation under which any Person is at the
time liable and at any date as of which the amount thereof is to be determined,
the capitalized amount thereof that would appear on the face of a balance sheet
of such Person in accordance with GAAP.
"Berkshire" means, individually and collectively, The Berkshire Fund,
Berkshire Partners and each of their respective Permitted Transferees.
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
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"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP, and the amount of such obligations at
any date shall be the capitalized amount of such obligations at such date,
determined in accordance with GAAP.
"Capital Stock" means (a) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (b) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Cash Equivalents" means (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (b)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (c) commercial paper maturing no more than
one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (d)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any United States branch of a foreign bank having at the date of acquisition
thereof combined capital and surplus of not less than $250.0 million; (e)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (a) above entered into with any bank
meeting the qualifications specified in clause (d) above; and (f) investments in
money market funds which invest substantially all their assets in securities of
the types described in clauses (a) through (e) of this definition.
"Change of Control" means the occurrence of any of the following events:
(a) prior to the first public offering of Voting Stock of MS
Acquisition, Holdings or the Company, any person or group, as such terms
are used in Sections 13(d) and 14(d) of the Exchange Act, other than one or
more of the Permitted Holders, shall be entitled (by "beneficial ownership"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of Voting
Stock, by contract or otherwise) to designate for election directors of MS
Acquisition, Holdings or the Company having a majority of the total voting
power of the Board of Directors of MS Acquisition, Holdings or the Company,
as the case may be;
(b) prior to the first public offering of Voting Stock of the Company,
MS Acquisition shall cease to own 100% of the issued and outstanding Voting
Stock of Holdings or Holdings shall cease to own 100% of the Voting Stock
of the Company, whether as a result of the issuance of securities of
Holdings or the Company, any merger, consolidation, liquidation or
dissolution of Holdings or the Company, or any direct or indirect transfer
of securities by MS Acquisition or Holdings or otherwise, provided that
notwithstanding any other provision of the Indenture, including this clause
(b), to the contrary, Holdings may cease to exist, whether as a result of
merger, consolidation, liquidation, dissolution or by any other means, so
long as thereafter (but prior to the first public offering of Voting Stock
of the Company), MS Acquisition, Holdings owns 100% of the issued and
outstanding Voting Stock of the Company;
(c) after the first public offering of Voting Stock of MS Acquisition,
Holdings or the Company, any person or group (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), other than one or more of
the Permitted Holders, is or becomes the beneficial owner (as defined in
clause (a) above), directly or indirectly, of Voting Stock that represents
more than a majority of the aggregate ordinary voting power of all classes
of the Voting Stock of the Company, Holdings or MS Acquisition, voting
together as a single class;
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(d) after the first public offering of Voting Stock of MS Acquisition,
Holdings or the Company, during any period of not greater than two
consecutive years beginning after the Issue Date, individuals who at the
beginning of such period constituted the Board of Directors of the Company,
Holdings or MS Acquisition, as the case may be (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Company, Holdings or MS Acquisition, as
the case may be, was approved by a vote of a majority of the directors of
the Company, Holdings or MS Acquisition, as the case may be, 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 have a majority of the total voting power of the Board of
Directors of the Company, Holdings or MS Acquisition, as the case may be;
or
(e) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the assets
of the Company to any person or group (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act).
"Change of Control Offer" has the meaning set forth under "-- Change of
Control".
"Change of Control Payment Date" has the meaning set forth under "-- Change
of Control".
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Commission" means the Securities and Exchange Commission.
"Company" means Aetna Industries, Inc.
"Consolidated EBITDA" means, for any period, the sum (without duplication)
of (a) Consolidated Net Income and (b) to the extent Consolidated Net Income has
been reduced thereby, (i) all income taxes of the Company and the Restricted
Subsidiaries paid or accrued in accordance with GAAP for such period (other than
income taxes attributable to extraordinary, unusual or nonrecurring gains or
losses or taxes attributable to sales or dispositions outside the ordinary
course of business), (ii) Consolidated Interest Expense, (iii) Consolidated
Non-cash Charges, less any non-cash items increasing Consolidated Net Income for
such period, all as determined on a consolidated basis for the Company and the
Restricted Subsidiaries in accordance with GAAP, (iv) bonuses paid on the Issue
Date to officers and directors of MS Acquisition, Holdings and the Company not
to exceed $350,000 in the aggregate and (v) any prepayment penalty on
Indebtedness of the Company retired on the Issue Date.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to the
Company, the ratio of Consolidated EBITDA of the Company during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
the Company for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis for the period of such calculation to (a) the incurrence or
repayment of any Indebtedness of the Company or any of the Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period and (b) any Asset
Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of the
Company or one of the Restricted Subsidiaries (including any Person who becomes
a Restricted Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness and also including
any Consolidated EBITDA attributable to the assets which are the subject of the
Asset Acquisition or Asset Sale during the Four Quarter Period) occurring during
the Four Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transaction Date, as if such
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Asset Sale or Asset Acquisition (including the incurrence, assumption or
liability for any such Acquired Indebtedness) occurred on the first day of the
Four Quarter Period. If the Company or any of the Restricted Subsidiaries
directly or indirectly guarantees Indebtedness of a third Person, the preceding
sentence shall give effect to the incurrence of such guaranteed Indebtedness as
if the Company or the Restricted Subsidiary, as the case may be, had directly
incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in
calculating "Consolidated Fixed Charges" for purposes of determining the
denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage
Ratio," (i) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal to
the rate of interest on such Indebtedness in effect on the Transaction Date;
(ii) if interest on any Indebtedness actually incurred on the Transaction Date
may optionally be determined at an interest rate based upon a factor of a prime
or similar rate, a eurocurrency interbank offered rate, or other rates, then the
interest rate in effect on the Transaction Date will be deemed to have been in
effect during the Four Quarter Period; and (iii) notwithstanding clause (i)
above, interest on Indebtedness determined on a fluctuating basis, to the extent
such interest is covered by agreements relating to Obligations under Interest
Rate Agreements, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to the Company for any
period, the sum, without duplication, of (a) Consolidated Interest Expense
(including any premium or penalty paid in connection with redeeming or retiring
Indebtedness of the Company and the Restricted Subsidiaries prior to the stated
maturity thereof pursuant to the agreements governing such Indebtedness), plus
(b) the product of (i) the amount of all dividend payments on any series of
Preferred Stock of the Company (other than dividends paid in Qualified Capital
Stock) paid, accrued or scheduled to be paid or accrued during such period times
and (ii) a fraction, the numerator of which is one and the denominator of which
is one minus the then current effective consolidated federal, state and local
income tax rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to the Company for any
period, the sum of, without duplication: (a) the aggregate of the interest
expense of the Company and the Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (i) any amortization of original issue discount, (ii) Obligations
under Interest Rate Agreements, (iii) all capitalized interest and (iv) the
interest portion of any deferred payment obligation; and (b) the interest
component of Capitalized Lease Obligations paid, accrued and/or scheduled to be
paid or accrued by the Company and the Restricted Subsidiaries during such
period as determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to the Company for any
period, the aggregate net income (or loss) of the Company and the Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom (a) after-tax gains
from Asset Sales or abandonments or reserves relating thereto, (b) after-tax
items classified as extraordinary or nonrecurring gains, (c) the net income of
any Person acquired in a "pooling of interests" transaction accrued prior to the
date it becomes a Restricted Subsidiary or is merged or consolidated with the
Company or any Restricted Subsidiary, (d) the net income (but not loss) of any
Restricted Subsidiary to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income is restricted by a
contract, operation of law or otherwise, (e) the net income of any Person, other
than a Restricted Subsidiary, except to the extent of cash dividends or
distributions paid to the Company or to a Restricted Subsidiary by such Person,
(f) income or loss attributable to discontinued operations (including, without
limitation, operations disposed of during such period whether or not such
operations were classified as discontinued), and (g) in the case of a successor
to the Company by consolidation or merger or as a transferee of the Company's
assets, any net income (or loss) of the successor corporation prior to such
consolidation, merger or transfer of assets.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person.
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"Consolidated Non-cash Charges" means, with respect to the Company, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
the Company and the Restricted Subsidiaries reducing Consolidated Net Income of
the Company for such period, determined on a consolidated basis in accordance
with GAAP (excluding any such charges constituting an extraordinary item or loss
or any such charge which requires an accrual of or a reserve for cash charges
for any future period).
"Covenant Defeasance" has the meaning set forth under "-- Legal Defeasance
and Covenant Defeasance".
"CVC" means Citicorp Venture Capital, Ltd., a New York corporation.
"CVC Group" means CVC and its Permitted Transferees.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Designation" has the meaning set forth under "-- Certain Covenants --
Limitation on Designations of Unrestricted Subsidiaries".
"Designation Amount" has the meaning set forth under "-- Certain Covenants
- -- Limitation on Designations of Unrestricted Subsidiaries".
"Disqualified Capital Stock" means that portion of 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, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof on or prior to the final
maturity date of the Notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair market value shall be
determined by the Board of Directors of the Company acting reasonably and in
good faith and shall be evidenced by a Board Resolution of the Company delivered
to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Guarantees" means the unconditional guarantees by MS Acquisition and
Holdings, on a senior basis, to each Holder and the Trustee of the full and
prompt performance of the Company's obligations under the Indenture and the
Notes, including the payment of principal of and interest on the Notes.
"Holdings" has the meaning set forth under "-- Redemption -- Optional
Redemption upon Public Equity Offerings".
"incur" has the meaning set forth under "-- Certain Covenants -- Limitation
on Incurrence of Additional Indebtedness".
"Indebtedness" means with respect to any Person, without duplication, (a)
all Obligations of such Person for borrowed money, (b) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (c)
all Capitalized Lease Obligations of such Person, (d) all Obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business that are not overdue by 90 days or
more or are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted), (e) all Obligations for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (f) guarantees
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and other contingent obligations in respect of Indebtedness referred to in
clauses (a) through (e) above and clause (h) below, (g) all Obligations of any
other Person of the type referred to in clauses (a) through (f) above which are
secured by any Lien on any property or asset of such Person, the amount of such
Obligation being deemed to be the lesser of the fair market value of such
property or asset or the amount of the Obligation so secured, (h) all
Obligations under currency exchange agreements and Interest Rate Agreements of
such Person and (i) all Disqualified Capital Stock issued by such Person with
the amount of Indebtedness represented by such Disqualified Capital Stock being
equal to the greater of its voluntary or involuntary liquidation preference and
its maximum fixed repurchase price. For purposes hereof, the "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock as if such Disqualified Capital Stock were purchased
on any date on which Indebtedness shall be required to be determined pursuant to
the Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock such fair market value shall be
determined reasonably and in good faith by the Board of Directors of the
Company.
"Independent Financial Advisor" means a firm (a) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect material financial interest in the Company and (b) which, in the
judgment of the Board of Directors of the Company, is otherwise independent and
qualified to perform the task for which it is to be engaged.
"Initial Purchasers" means Smith Barney Inc., Schroder Wertheim & Co.
Incorporated and First Chicago Capital Markets, Inc.
"Interest Rate Agreement" means an agreement governing any interest rate
swap transaction, interest rate cap, collar or floor transaction, interest rate
future, any option on any of the above or any similar transaction.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of 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 by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and the Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. If the Company or any Restricted Subsidiary
sells or otherwise disposes of any Capital Stock of any Restricted Subsidiary
such that, after giving effect to any such sale or disposition, it ceases to be
a Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Capital Stock of such Restricted Subsidiary not sold or disposed
of. The amount of any Investment shall not be adjusted for increases or
decreases in value of write-ups or write-downs with respect to such Investment.
"Issue Date" means the date of original issuance of the Notes.
"Legal Defeasance" has the meaning set forth under "-- Legal Defeasance and
Covenant Defeasance".
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"Management" means, individually and collectively, any officer, director or
employee of the Company, Holdings, MS Acquisition or a Subsidiary of the Company
who acquires Voting Stock of the Company, Holdings or MS Acquisition on or after
the Issue Date and each of their respective Permitted Transferees.
"Michigan" means, individually and collectively, the State of Michigan, any
political subdivision thereof and any pension fund for employees of the State of
Michigan or any political subdivision thereof.
"MS Acquisition" has the meaning set forth under "-- Redemption -- Optional
Redemption upon Public Equity Offerings".
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"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Company or any of the Restricted Subsidiaries from such Asset Sale net of
(a) reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees,
underwriters or placement agent fees and commissions, brokerage, filing and
registration fees and trustee's fees), (b) taxes paid or payable after taking
into account any reduction in consolidated tax liability due to available tax
credits or deductions and any tax sharing arrangements, (c) repayment of
Indebtedness that is required to be repaid in connection with such Asset Sale
and (d) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale.
"Net Proceeds Offer" has the meaning set forth under "-- Certain Covenants
- -- Limitation on Asset Sales".
"Net Proceeds Offer Amount" has the meaning set forth under "-- Certain
Covenants -- Limitation on Asset Sales".
"Net Proceeds Offer Payment Date" has the meaning set forth under "--
Certain Covenants -- Limitation on Asset Sales".
"Net Proceeds Offer Trigger Date" has the meaning set forth under "--
Certain Covenants -- Limitation on Asset Sales".
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Permitted Holders" means Michigan, Berkshire, Prudential, Management and
the CVC Group; provided that Michigan, Berkshire, Prudential, Management and the
CVC Group (other than CVC, Citicorp or any direct or indirect Wholly Owned
Subsidiary of Citicorp, in each case, individually or on behalf of the CVC
Group, each of which may be a Permitted Holder irrespective of any such
entitlement), shall not be a Permitted Holder if it is entitled by "beneficial
ownership" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), by
contract or otherwise, to designate for election directors of MS Acquisition,
Holdings or the Company having a majority of the total voting power of the Board
of Directors of MS Acquisition, Holdings or the Company, as the case may be.
"Permitted Indebtedness" means, without duplication, each of the following:
(a) Indebtedness under the Notes, the Indenture, the Guarantees and
any Subsidiary Guarantee;
(b) Indebtedness incurred pursuant to the Revolving Credit Facility in
an aggregate principal amount at any time outstanding not to exceed the
greater of (a) the sum of (i) 85% of the net book value of accounts
receivable of the Company and the Restricted Subsidiaries and (ii) 60% of
the net book value of inventory of the Company and the Restricted
Subsidiaries and (b) $35.0 million, in each case reduced by any required
permanent repayments (which are accompanied by a corresponding permanent
commitment reduction) thereunder;
(c) Obligations under Interest Rate Agreements of the Company or a
Subsidiary Guarantor covering Indebtedness of the Company or any of the
Restricted Subsidiaries and Obligations under Interest Rate Agreements of
any Restricted Subsidiary (other than a Subsidiary Guarantor) covering
Indebtedness of such Restricted Subsidiary; provided, however, that such
Interest Rate Agreements are entered into to protect the Company and the
Restricted Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with the Indenture, to the extent the notional
amount (or, if applicable, contract amount) of such Obligation does not
exceed the principal amount of the Indebtedness to which such Obligation
relates;
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(d) Indebtedness of a Restricted Subsidiary to the Company or to
another Restricted Subsidiary for so long as such Indebtedness is held by
the Company or a Restricted Subsidiary, in each case subject to no Lien
held by a Person other than the Company or a Restricted Subsidiary;
provided that if as of any date any Person other than the Company or a
Restricted Subsidiary owns or holds any such Indebtedness or holds a Lien
in respect of such Indebtedness, such date shall be deemed the incurrence
of Indebtedness not constituting Permitted Indebtedness by the issuer of
such Indebtedness;
(e) Indebtedness of the Company to a Restricted Subsidiary for so long
as such Indebtedness is held by a Restricted Subsidiary, in each case
subject to no Lien; provided that (i) any Indebtedness of the Company to
any Restricted Subsidiary that is not a Subsidiary Guarantor is unsecured
and subordinated, pursuant to a written agreement, to the Company's
obligations under the Indenture and the Notes and (ii) if as of any date
any Person other than a Restricted Subsidiary owns or holds any such
Indebtedness or holds a Lien in respect of such Indebtedness, such date
shall be deemed the date of an incurrence of Indebtedness not constituting
Permitted Indebtedness by the Company;
(f) 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, however, that such
Indebtedness is extinguished within five business days of incurrence;
(g) Indebtedness of the Company or any of the Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business;
(h) Refinancing Indebtedness; and
(i) additional Indebtedness of the Company or any Subsidiary Guarantor
in an aggregate principal amount not to exceed $5.0 million at any one time
outstanding.
"Permitted Investments" means (a) Investments by the Company or any
Restricted Subsidiary in any Person that is or will become immediately after
such Investment a Restricted Subsidiary or that will merge or consolidate into
the Company or a Restricted Subsidiary; (b) Investments in the Company by any
Restricted Subsidiary; provided that any Indebtedness evidencing any such
Investment held by a Restricted Subsidiary that is not a Subsidiary Guarantor is
unsecured and subordinated, pursuant to a written agreement, to the Company's
obligations under the Notes and the Indenture; (c) investments in cash and Cash
Equivalents; (d) loans and advances to employees and officers of the Company or
any of the Restricted Subsidiaries in the ordinary course of business for bona
fide business purposes not in excess of $1.0 million at any one time
outstanding; (e) Obligations under Interest Rate Agreements, provided, however,
that such Interest Rate Agreements are entered into to protect the Company, or,
if applicable, Restricted Subsidiaries from fluctuations in interest rates on
Indebtedness incurred in accordance with the Indenture; (f) Investments in
Unrestricted Subsidiaries not to exceed $1.0 million at any one time
outstanding; (g) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers; (h) Investments
made by the Company or the Restricted Subsidiaries as a result of consideration
received in connection with an Asset Sale made in compliance with the covenant
described under "-- Certain Covenants -- Limitation on Asset Sales" covenant;
(i) Investments in the Notes; and (j) Investments not to exceed $1.0 million at
any one time outstanding in Persons a majority of whose revenues are derived
from businesses which, in the reasonable good faith judgment of the Board of
Directors of the Company, are related to the automotive industry.
"Permitted Liens" means the following types of Liens:
(a) Liens for taxes, assessments or governmental charges or claims
either (i) not delinquent or (ii) contested in good faith by appropriate
proceedings and as to which the Company or a Restricted Subsidiary, as the
case may be, shall have set aside on its books such reserves as may be
required pursuant to GAAP;
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(b) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(c) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(d) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(e) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of the Restricted Subsidiaries;
(f) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(g) Liens securing Purchase Money Indebtedness of the Company or any
Restricted Subsidiary; provided, however, that (i) the Purchase Money
Indebtedness shall not be secured by any property or assets of the Company
or any Restricted Subsidiary other than the property and assets so acquired
and (ii) the Lien securing such Indebtedness shall be created within 180
days of such acquisition;
(h) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(i) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of the Restricted Subsidiaries, including rights of offset and
set-off;
(j) Liens securing Obligations under Interest Rate Agreements, which
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture; and
(k) Liens securing Acquired Indebtedness incurred in accordance with
the covenant described under "-- Certain Covenants -- Limitation on
Incurrence of Additional Indebtedness;" provided that (i) such Liens
secured such Acquired Indebtedness at the time of and prior to the
incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary and were not granted in connection with, or in anticipation of,
the incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary and (ii) such Liens do not extend to or cover any property or
assets of the Company or of any of the Restricted Subsidiaries other than
the property or assets that secured the Acquired Indebtedness prior to the
time such Indebtedness became Acquired Indebtedness of the Company or a
Restricted Subsidiary.
"Permitted Transferee" means (a) with respect to CVC, (i) Citicorp, any
direct or indirect Wholly Owned Subsidiary of Citicorp and any officer, director
or employee of CVC, Citicorp or any Wholly Owned Subsidiary of Citicorp, (ii)
any spouse or lineal descendent (including by adoption and stepchildren) of the
officers, directors and employees referred to in clause (a)(i) above, (iii) any
trust, corporation or partnership 100% in interest of the beneficiaries,
stockholders or partners of which consists of one or more of the Persons
described in clause (a)(i) or (ii) above; (b) with respect to the Berkshire
Fund, Berkshire Partners, Prudential Insurance Co. and Pruco Life Insurance Co.,
each of their respective direct or indirect Wholly
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Owned Subsidiaries; and (c) with respect to each officer, director and employee
of the Company, Holdings, MS Acquisition or a Subsidiary of the Company, (i) any
spouse or lineal descendent (including by adoption and stepchildren) of such
officer, director or employee and (ii) any trust, corporation or partnership
100% in interest of the beneficiaries, stockholders or partners of which
consists of one or more of any such officer, director or employee or any of the
persons described in clause (c)(i) above.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Prudential" means, individually and collectively, Prudential Insurance
Co., Pruco Life Insurance Co. and each of their respective Permitted
Transferees.
"Public Equity Offering" has the meaning set forth under "-- Redemption --
Optional Redemption upon Public Equity Offerings".
"Purchase Money Indebtedness" means Indebtedness the net proceeds of which
are used for the purchase of property or assets acquired in the normal course of
business by the Person incurring such Indebtedness.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Reference Date" has the meaning set forth under "-- Certain Covenants --
Limitation on Restricted Payments".
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, replace, repay, prepay, redeem, defease or
retire, or to issue a security or Indebtedness in exchange or replacement for,
such security or Indebtedness in whole or in part. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred in accordance with
the covenant described under "-- Certain Covenants -- Limitation on Incurrence
of Additional Indebtedness" covenant (other than pursuant to clause (b), (c),
(d), (e), (f), (g) or (i) of the definition of Permitted Indebtedness), in each
case that does not (i) result in an increase in the aggregate principal amount
of Indebtedness of such Person as of the date of such proposed Refinancing (plus
the amount of any premium required to be paid under the terms of the instrument
governing such Indebtedness and plus the amount of reasonable expenses incurred
by the Company and the Restricted Subsidiaries in connection with such
Refinancing) or (ii) create Indebtedness with (x) a Weighted Average Life to
Maturity that is less than the Weighted Average Life to Maturity of the
Indebtedness being Refinanced or (y) a final maturity earlier than the final
maturity of the Indebtedness being Refinanced; provided that (1) if such
Indebtedness being Refinanced is Indebtedness of the Company or a Subsidiary
Guarantor, then such Refinancing Indebtedness shall be Indebtedness solely of
the Company and/or such Subsidiary Guarantor and (2) if such Indebtedness being
Refinanced is subordinate or junior to the Notes or a Subsidiary Guarantee, then
such Refinancing Indebtedness shall be subordinate to the Notes or such
Subsidiary Guarantee, as the case may be, at least to the same extent and in the
same manner as the Indebtedness being Refinanced.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of the Issue Date among the Company, MS Acquisition, Holdings, the
Subsidiary Guarantor and the Initial Purchasers.
"Replacement Assets" has the meaning set forth under "-- Certain Covenants
- -- Limitation on Asset Sales".
"Restricted Payment" has the meaning set forth under "-- Certain Covenants
- -- Limitation on Restricted Payments".
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a Board Resolution
delivered to the Trustee, as an Unrestricted Subsidiary
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pursuant to and in compliance with the covenant described under "-- Certain
Covenants -- Limitation on Designations of Unrestricted Subsidiaries." Any such
Designation may be revoked by a Board Resolution of the Company delivered to the
Trustee, subject to the provisions of such covenant.
"Revocation" has the meaning set forth under "-- Certain Covenants --
Limitation on Designations of Unrestricted Subsidiaries".
"Revolving Credit Facility" means the Credit Agreement dated as of May 2,
1996, as amended by the First Amendment thereto dated as of August 13, 1996,
among the Company, MS Acquisition, Holdings, the Subsidiary Guarantor and NBD,
together with the related documents thereto (including, without limitation, any
guarantee agreements and security documents), in each case as such agreements
may be amended or further amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including increasing the amount of available borrowings
thereunder (provided that such increase in borrowings is permitted by the
covenant described under "-- Certain Covenants -- Limitation on Incurrence of
Additional Indebtedness") or adding Subsidiaries of the Company as additional
borrowers or guarantors thereunder) all or any portion of the Indebtedness under
such agreement or any successor or replacement agreement and whether by the same
or any other agent, lender or group of lenders.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such property.
"Significant Subsidiary" shall have the meaning set forth in Rule 1.02(v)
of Regulation S-X under the Securities Act.
"Subsidiary", with respect to any Person, means (a) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (b) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Subsidiary Guarantee" means the unconditional guarantee by a Subsidiary
Guarantor, on a senior basis, to each Holder and the Trustee of the full and
prompt performance of the Company's obligations under the Indenture and the
Notes, including the payment of principal of and interest on the Notes.
"Subsidiary Guarantor" means (a) the Company's Subsidiary as of the Issue
Date and (b) each of the Company's Subsidiaries that in the future executes a
supplemental indenture in which such Subsidiary agrees to be bound by the terms
of the Indenture as a Subsidiary Guarantor; provided that any Person
constituting a Subsidiary Guarantor as described above shall cease to constitute
a Subsidiary Guarantor when its Subsidiary Guarantee is released in accordance
with the terms of the Indenture.
"Surviving Entity" has the meaning set forth under "-- Certain Covenants --
Merger, Consolidation and Sale of Assets".
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to and in compliance with the covenant described under "-- Certain
Covenants -- Limitation on Designations of Unrestricted Subsidiaries." Any such
designation may be revoked by a Board Resolution of the Company delivered to the
Trustee, subject to the provisions of such covenant.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
the directors of such corporation.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into
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(b) the sum of the total of the products obtained by multiplying (i) the amount
of each then remaining installment, sinking fund, serial maturity or other
required payment of principal, including payment at final maturity, in respect
thereof, by (ii) the number of years (calculated to the nearest one-twelfth)
which will elapse between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of
which all the outstanding voting securities (other than in the case of a foreign
Restricted Subsidiary, directors' qualifying shares or an immaterial amount of
shares required to be owned by other Persons pursuant to applicable law) are
owned by the Company or another Wholly Owned Restricted Subsidiary.
"Wholly Owned Subsidiary" of any Person means a corporation of which all
the outstanding voting securities (other than in the case of a foreign
corporation, director's qualifying shares or an immaterial amount of shares
required to be owned by other Persons pursuant to applicable laws) are owned by
such Person or a Wholly Owned Subsidiary of such Person.
BOOK ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the New Notes initially will be
represented by a single, permanent global certificate in definitive, fully
registered form (the "Global Note"). The Global Note will be deposited with, or
on behalf of, DTC and registered in the name of a nominee of DTC. The Global
Note will be subject to certain restrictions on transfer set forth therein and
will bear the legend regarding such restrictions set forth under the heading
"Transfer Restrictions" herein.
THE GLOBAL NOTE
The Company expects that pursuant to procedures established by DTC (i) upon
the issuance of the Global Note, DTC or its custodian will credit, on its
internal system, the principal amount of New Notes of the individual beneficial
interest represented by such Global Note to the respective accounts for persons
who have accounts with DTC and (ii) ownership of beneficial interest in the
Global Note will be shown on, and the transfer of such ownership will be
effected only through, records maintained by DTC or its nominee (with respect to
interests of persons who have accounts with DTC ("Participants")) and the
records of Participants (with respect to interests of persons other than
Participants). Such accounts initially will be designated by or on behalf of the
Initial Purchasers and ownership of beneficial interests in the Global Note will
be limited to Participants or persons who hold interest through Participants.
So long as DTC or its nominee is the registered owner or holder of the
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the New Notes represented by such Global Note for all
purposes under the Indenture. No beneficial owner of an interest in the Global
Note will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture.
Payments of the principal of, premium, if any, and interest (including
Additional Interest) on, the Global Note will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Company, the
Trustee or any paying agent of the Trustee will 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 or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest (including Additional Interest) in
respect of the Global Note, will credit Participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of the Global Note as shown on the records of DTC or its nominee. The
Company also expects that payments by Participants to owners of beneficial
interest in the Global Note held through such Participants will be governed by
standing instructions and customary practice, as is now the case with securities
held for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such Participants.
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Transfers between Participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in clearinghouse funds. If a
holder requires physical delivery of a New Note issued in registered
certificated form (a "Certificated Note") for any reason, including to sell New
Notes to persons in states which required physical delivery of the Certificated
Notes, or to pledge such securities, such holder must transfer its interest in
the Global Note in accordance with the normal procedures of DTC and with the
procedures set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of New Notes (including the presentation of New Notes for
exchange as described below) only at the direction of one or more Participants
to whose account the DTC interests in the Global Note are credited and only in
respect of such portion of the aggregate principal amount of New Notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the Indenture, DTC will exchange
the Global Note for Certificated Notes, which it will distribute to its
Participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
Participants and facilitate the clearance and settlement of securities
transactions between Participants through electronic book entry changes in
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among Participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. None of the Company, the Initial Purchasers or the
Trustee will have any responsibility for the performance by DTC or its
Participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Note and a successor depositary is not appointed by the Company
within 90 days, Certificated Notes will be issued in exchange for the Global
Note.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Morgan, Lewis & Bockius LLP, counsel to the Company, the
following discussion summarizes the material United States federal income tax
consequences of the Exchange Offer to a holder of Old Notes that is an
individual citizen or resident of the United States or a United States
corporation that purchased the Old Notes pursuant to their original issue (a
"U.S. Holder"). It is based on the Internal Revenue Code of 1986, as amended to
the date hereof (the "Code"), existing and proposed Treasury regulations, and
judicial and administrative determinations, all of which are subject to change
at any time, possibly on a retroactive basis. The following relates only to the
Old Notes, and the New Notes received therefor, that are held as "capital
assets" within the meaning of Section 1221 of the Code by U.S. Holders. It does
not discuss state, local, or foreign tax consequences, nor does it discuss tax
consequences to categories of holders that are subject to special rules, such as
foreign persons, tax-exempt organizations, insurance companies, banks, and
dealers in stocks and securities. Tax consequences may vary depending on the
particular status of an investor. No rulings will be sought from the Internal
Revenue Service with respect to the federal income tax consequences of the
Exchange Offer.
THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO
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EXCHANGE OLD NOTES FOR NEW NOTES. EACH INVESTOR SHOULD CONSULT WITH ITS
OWN TAX ADVISOR CONCERNING THE APPLICATION OF THE FEDERAL INCOME TAX LAWS AND
OTHER TAX LAWS TO ITS PARTICULAR SITUATION BEFORE DETERMINING WHETHER TO
EXCHANGE OLD NOTES FOR NEW NOTES.
THE EXCHANGE OFFER
The exchange of Old Notes pursuant to the Exchange Offer should be treated
as a continuation of the corresponding Old Notes because the terms of the New
Notes are not materially different from the terms of the Old Notes. Accordingly,
such exchange should not constitute a taxable event to U.S. Holders and,
therefore, (i) no gain or loss should be realized by a U.S. Holder upon receipt
of a New Note, (ii) the holding period of the New Note should include the
holding period of the Old Note exchanged therefor and (iii) the adjusted tax
basis of the New Note should be the same as the adjusted tax basis of the Old
Note exchanged therefor immediately before the exchange.
STATED INTEREST
Stated interest on a Note will be taxable to a U.S. Holder as ordinary
interest income at the time that such interest accrues or is received, in
accordance with the U.S. Holder's regular method of accounting for federal
income tax purposes. The Notes are not considered to have been issued with
original issue discount for federal income tax purposes.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
A U.S. Holder's tax basis in a Note generally will be its cost. A U.S.
Holder generally will recognize gain or loss on the sale, exchange or retirement
of a Note in an amount equal to the difference between the amount realized on
the sale, exchange or retirement and the tax basis of the Note. Gain or loss
recognized on the sale, exchange or retirement of a Note (excluding amounts
received in respect of accrued interest, which will be taxable as ordinary
interest income) generally 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.
BACKUP WITHHOLDING
Under certain circumstances, a U.S. Holder of a Note may be subject to
"backup withholding" at a 31% rate with respect to payments of interest thereon
or the gross proceeds from the disposition thereof. This withholding generally
applies if the U.S. Holder fails to furnish his or her social security number or
other taxpayer identification number in the specified manner and in certain
other circumstances. Any amount withheld from a payment to a U.S. Holder under
the backup withholding rules is allowable as a credit against such U.S. Holder's
federal income tax liability, provided that the required information is
furnished to the IRS. Corporations and certain other entities described in the
Code and Treasury regulations are exempt from backup withholding if their exempt
status is properly established.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. Each of the Company and the Guarantors has agreed that, for
a period of 180 days after the Effective Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until February 6, 1997 (90 days after the
date of this Prospectus), all dealers effecting transactions in the New Notes
may be required to deliver a prospectus.
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Neither the Company nor any of the Guarantors will receive any proceeds
from any sale of New Notes by broker-dealers. New Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the New Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such New Notes.
Any broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that, by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company and each of the Guarantors has jointly
and severally agreed to pay all expenses incident to the Exchange Offer
(including the expenses of one counsel for the holders of the Old Notes) other
than commissions or concessions of any brokers or dealers and will indemnify the
holders of the Old Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by Morgan, Lewis & Bockius LLP, New York, New York.
EXPERTS
The financial statements of the Company and MS Acquisition as of December
31, 1994 and 1995 and for each of the three years in the period ended December
31, 1995 included in this Prospectus have been so included in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AETNA INDUSTRIES, INC.
Report of Independent Accountants.................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995
and June 30, 1996 (unaudited)...................................................... F-3
Consolidated Statements of Operations for the three years ended December 31, 1995
and the six months ended June 30, 1995 and 1996 (unaudited)........................ F-4
Consolidated Statements of Cash Flows for the three years ended December 31, 1995
and six months ended June 30, 1995 and 1996 (unaudited)............................ F-5
Notes to Consolidated Financial Statements for the three years ended December 31,
1995
and the six months ended June 30, 1995 and 1996.................................... F-6
MS ACQUISITION CORP.
Report of Independent Accountants.................................................... F-15
Consolidated Balance Sheets as of December 31, 1994 and 1995
and June 30, 1996 (unaudited)...................................................... F-16
Consolidated Statements of Operations for the three years ended December 31, 1995
and the six months ended June 30, 1995 and 1996 (unaudited)........................ F-17
Consolidated Statements of Cash Flows for the three years ended December 31, 1995
and six months ended June 30, 1995 and 1996 (unaudited)............................ F-18
Notes to Consolidated Financial Statements for the three years ended December 31,
1995
and the six months ended June 30, 1995 and 1996.................................... F-19
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL DATA
AETNA INDUSTRIES, INC.
Pro Forma Unaudited Condensed Consolidated Statement of Operations Data.............. F-38
Notes to the Pro Forma Unaudited Condensed Consolidated Statement of Operations
Data............................................................................... F-39
Pro Forma Unaudited Consolidated Balance Sheet at June 30, 1996...................... F-40
Notes to the Pro Forma Unaudited Consolidated Balance Sheet.......................... F-41
MS ACQUISITION CORP.
Pro Forma Unaudited Condensed Consolidated Statement of Operations Data.............. F-42
Notes to the Pro Forma Unaudited Condensed Consolidated Statement of Operations...... F-43
Pro Forma Unaudited Consolidated Balance Sheet at June 30, 1996...................... F-44
Notes to the Pro Forma Unaudited Consolidated Balance Sheet.......................... F-45
AETNA HOLDINGS, INC.
Pro Forma Unaudited Condensed Consolidated Statement of Operations Data.............. F-47
Pro Forma Unaudited Consolidated Balance Sheet at June 30, 1996...................... F-47
Note to the Pro Forma Statements..................................................... F-48
</TABLE>
F-1
<PAGE> 82
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholder of
Aetna Industries, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and of cash flows present fairly,
in all material respects, the financial position of Aetna Industries, Inc. and
its subsidiary at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 9 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in the year ended
December 31, 1993.
Price Waterhouse LLP
Detroit, Michigan
February 12, 1996, except for
Notes 11 and 12 which are as of May 2, 1996
and August 13, 1996, respectively
F-2
<PAGE> 83
AETNA INDUSTRIES, INC.
(A WHOLLY OWNED SUBSIDIARY OF MS ACQUISITION CORP.)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash........................................................ $ 163 $ 291 $ 311
Accounts receivable (less allowance for doubtful accounts of
$158, $240 and $265, respectively)....................... 28,638 28,522 33,960
Inventories................................................. 9,410 8,659 9,795
Tooling..................................................... 869 2,658 1,579
Prepaid income taxes........................................ 359 360
Prepaid expenses............................................ 196 142 373
Deferred income taxes....................................... 277 518 759
-------- -------- --------
Total current assets................................... 39,912 41,150 46,777
-------- -------- --------
Property, plant and equipment
Land........................................................ 1,652 1,652 1,588
Buildings and improvements.................................. 11,386 11,082 10,831
Machinery and equipment..................................... 50,417 54,480 61,690
Construction-in-progress.................................... 3,090 9,434 4,832
-------- -------- --------
Total property, plant and equipment.................... 66,545 76,648 78,941
Less -- accumulated depreciation............................ (22,862) (27,775) (30,383)
-------- -------- --------
Net property, plant and equipment...................... 43,683 48,873 48,558
-------- -------- --------
Other assets
Deferred costs and other assets............................. 2,359 1,644 1,375
Cost in excess of net assets acquired....................... 27,377 26,575 26,175
-------- -------- --------
Total other assets..................................... 29,736 28,219 27,550
-------- -------- --------
$113,331 $118,242 $ 122,885
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable............................................ $ 28,612 $ 31,566 $ 31,095
Accrued expenses............................................ 9,205 10,109 10,876
Current portion of long-term debt........................... 5,400 2,500
-------- -------- --------
Total current liabilities.............................. 43,217 44,175 41,971
-------- -------- --------
Long-term debt, less current portion.......................... 17,083 15,799 18,976
-------- -------- --------
Subordinated debt............................................. 40,661 41,942 42,743
-------- -------- --------
Deferred income taxes......................................... 9,543 8,924 8,987
-------- -------- --------
Commitments and contingencies (Note 10)
Stockholder's equity
Common stock -- $.01 par value; 1,000 issued and
outstanding, respectively
Contributed capital......................................... 9,024 9,024 9,024
Retained earnings (accumulated deficit)..................... (6,197) (1,622) 1,184
-------- -------- --------
2,827 7,402 10,208
-------- -------- --------
$113,331 $118,242 $ 122,885
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 84
AETNA INDUSTRIES, INC.
(A WHOLLY OWNED SUBSIDIARY OF MS ACQUISITION CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- --------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................. $162,908 $204,850 $211,905 $119,111 $114,944
Cost of sales............................. 139,499 172,428 183,542 100,321 98,472
Selling, general and administrative
expenses................................ 12,544 12,898 13,331 6,835 7,371
--------- --------- --------- --------- ---------
Operating income.......................... 10,865 19,524 15,032 11,955 9,101
--------- --------- --------- --------- ---------
Interest expense, net..................... 9,020 8,929 8,579 4,246 4,132
--------- --------- --------- --------- ---------
Income before cumulative effect of
change in method of accounting and
income taxes......................... 1,845 10,595 6,453 7,709 4,969
Income tax provision...................... 930 4,000 1,877 2,243 2,163
--------- --------- --------- --------- ---------
Income before cumulative effect of
change in method of accounting....... 915 6,595 4,576 5,466 2,806
Cumulative effect of change in method of
accounting for income taxes............. (4,771)
--------- --------- --------- --------- ---------
Net income (loss)....................... $ (3,856) $ 6,595 $ 4,576 $ 5,466 $ 2,806
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 85
AETNA INDUSTRIES, INC.
(A WHOLLY OWNED SUBSIDIARY OF MS ACQUISITION CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOW
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ ------------------
1993 1994 1995 1995 1996
------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)............................. $(3,856) $ 6,595 $ 4,576 $ 5,466 $ 2,806
Adjustments to reconcile net income (loss) to
net cash provided by operating activities --
Depreciation and amortization............... 6,009 6,150 6,579 3,426 3,558
Deferred interest........................... 3,249 2,995 1,281 (65) 801
Deferred income taxes....................... 7,129 748 (860) 178
Other....................................... (2,116)
Changes in assets and liabilities
Accounts receivable...................... (1,148) (6,159) 116 (4,967) (5,438)
Inventories.............................. (3,538) (503) 750 881 (1,136)
Tooling.................................. 3,830 (1,790) (470) 1,079
Income taxes refundable.................. (360)
Prepaid expenses......................... (119) 38 54 29 (231)
Income taxes payable..................... 305 (761) (530)
Accounts payable......................... 5,118 9,073 2,954 2,214 (471)
Accrued expenses......................... 2,483 394 904 (172) 767
------- ------- -------- ------- -------
NET CASH PROVIDED BY OPERATING
ACTIVITIES.......................... 13,516 22,040 14,564 5,812 1,913
------- ------- -------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment,
net......................................... (3,474) (6,125) (10,103) (4,966) (2,732)
Other, net.................................... (863) (329) (149) 162
------- ------- -------- ------- -------
NET CASH USED FOR INVESTING
ACTIVITIES.......................... (4,337) (6,454) (10,252) (4,966) (2,570)
------- ------- -------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt.......... (9,344) (15,727) (5,400) (2,900) (7,250)
Net change in line of credit.................. (57) 294 1,216 2,396 7,927
------- ------- -------- ------- -------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES................ (9,401) (15,433) (4,184) (504) 677
------- ------- -------- ------- -------
Net increase (decrease) in cash............... (222) 153 128 342 20
Cash -- beginning of year..................... 232 10 163 163 291
------- ------- -------- ------- -------
Cash -- end of period......................... $ 10 $ 163 $ 291 $ 505 $ 311
======= ======= ======== ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for interest...... $ 5,850 $12,027 $ 4,480
======= ======= ========
Cash paid during the period for income
taxes....................................... $ 788 $ 4,350 $ 2,750
======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 86
AETNA INDUSTRIES, INC.
(A WHOLLY OWNED SUBSIDIARY OF MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
Aetna Industries, Inc. (Aetna or the Company) is a wholly owned subsidiary
of MS Acquisition Corp. (MS Acquisition). MS Acquisition was formed for the sole
purpose of purchasing Aetna and does not have any significant assets or
liabilities, other than all of the outstanding common stock of Aetna and two
series of mandatorily redeemable preferred stock discussed below.
The preferred stock referred to in Note 7 of the consolidated financial
statements of MS Acquisition has not been included in the accompanying Aetna
balance sheet. The carrying value of the Company's assets and liabilities other
than the redeemable preferred stock is that of its parent, MS Acquisition.
2. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Description of operations and major customers
The Company's primary business operations are the manufacture of automotive
stampings and assemblies used as original equipment components by North American
automotive manufacturers in the production of sport utility vehicles, mini-vans,
other light trucks and passenger cars.
The Company's financial condition and results of operations depend
significantly on two major automotive manufacturers, Chrysler Corporation
(Chrysler) and General Motors Corporation (GM). Following is a summary of net
production sales to such key customers, as a percentage of net production sales:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------ --------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Chrysler.............................................. 59 % 62 % 60 % 63 % 59 %
GM.................................................... 39 35 36 33 36
Other................................................. 2 3 4 4 5
--- --- --- --- ---
100 % 100 % 100 % 100 % 100 %
=== === === === ===
</TABLE>
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and a foreign sales corporation which is a wholly owned subsidiary of Aetna. The
financial condition and results of operations of the Company's foreign sales
corporation are not significant. All significant intercompany transactions and
account balances have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers cash on hand, deposits in banks and short-term
marketable securities with maturities of 90 days or less as cash and cash
equivalents for the purpose of the statement of cash flows.
F-6
<PAGE> 87
AETNA INDUSTRIES, INC.
(A WHOLLY OWNED SUBSIDIARY OF MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
2. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial instruments
With the exception of long-term debt and stockholder's equity, the Company
records all financial instruments, including accounts receivable and accounts
payable, at cost, which approximates market value.
Revenue recognition
Revenue from sales and the corresponding receivables are recorded upon
shipment of product to the customer.
Inventories
Inventories of stampings and assemblies are valued at the lower of cost,
determined by the last-in, first-out (LIFO) method, or market. Inventories of
purchased parts and purchased labor are valued at the lower of cost, as
determined by the first-in, first-out (FIFO) method, or market.
Property, plant and equipment
Property, plant and equipment are stated at cost. The Company provides for
depreciation principally using the straight-line method over the following
estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements............................................ 20-30
Machinery and equipment............................................... 5-15
</TABLE>
Upon retirement or disposal, the asset cost and related accumulated
depreciation is removed from the accounts and the net amount, less proceeds, is
charged or credited to income. Expenditures for renewals and betterments are
capitalized. Expenditures for maintenance and repairs are charged against income
as incurred.
Cost in excess of net assets acquired
Cost in excess of net assets acquired is being amortized over forty years
using the straight-line method. Accumulated amortization aggregated $4,674,
$5,475 and $5,875 at December 31, 1994 and 1995 and June 30, 1996, respectively.
The Company periodically evaluates the eventual recoverability of the cost in
excess of net assets acquired based on estimated future operating results and
cash flows.
Start-up and preoperating expenses
Incremental costs incurred relating to the start-up of a new production
facility have been capitalized as deferred costs and are being amortized over a
five-year period commencing January 1992. Accumulated amortization aggregated
$1,271, $1,694 and $1,906 at December 31, 1994 and 1995 and June 30, 1996,
respectively.
Income taxes
Income tax provisions are based upon Statement of Financial Accounting
Standards No. 109, (FAS 109), "Accounting for Income Taxes". Deferred tax assets
and liabilities are provided for the expected future tax consequence of
temporary differences between the carrying amounts and the tax basis of the
Company's assets and liabilities. Prior to January 1, 1993, the Company utilized
the provisions of Accounting
F-7
<PAGE> 88
AETNA INDUSTRIES, INC.
(A WHOLLY OWNED SUBSIDIARY OF MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
2. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Principles Bulletin No. 11, "Accounting for Income Taxes" and provided deferred
taxes on nonpermanent differences between financial statement and taxable
income.
Interim financial information
The accompanying unaudited interim consolidated financial statements do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company, all adjustments, consisting of only normal, recurring adjustments,
necessary to present the financial position of the Company at June 30, 1996 and
the results of its operations and its cash flows for the six months ended June
30, 1995 and 1996 have been included. Operating results for the interim periods
are not necessarily indicative of results that may be expected for the year
ending December 31, 1996.
3. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Inventories valued at LIFO
Raw materials.................................................. $3,516 $2,034 $ 2,355
Work-in-process................................................ 2,624 2,989 3,607
Finished goods................................................. 1,818 2,273 2,151
------ ------ ------
7,958 7,296 8,113
LIFO reserve................................................... (240) (240) (240)
------ ------ ------
7,718 7,056 7,873
------ ------ ------
Inventories valued at FIFO
Purchased parts and purchased labor............................ 1,692 1,603 1,922
------ ------ ------
Total inventories................................................ $9,410 $8,659 $ 9,795
====== ====== ======
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses are comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, 1996
----------------- -----------
1994 1995
------ ------- (UNAUDITED)
<S> <C> <C> <C>
Accrued workers' compensation expense........................... $2,666 $ 2,618 $ 3,024
Other........................................................... 6,539 7,491 7,852
------ ------- -------
$9,205 $10,109 $10,876
====== ======= =======
</TABLE>
5. SUBORDINATED DEBT
Subordinated debt at December 31, 1994 and 1995 and June 30, 1996 consists
of $30,500 of principal and $10,161, $11,442 and $12,243 of deferred interest,
respectively. The principal of $30,500 consists of two 14.0% notes payable by
the Company in two annual aggregate principal payments of $6,100 commencing
March 1,
F-8
<PAGE> 89
AETNA INDUSTRIES, INC.
(A WHOLLY OWNED SUBSIDIARY OF MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
5. SUBORDINATED DEBT (CONTINUED)
1997 with a final payment of $18,300 on March 1, 1999. Payments of interest
accrued from 1990 to 1995 were deferred until the Company has available cash
flows as defined in the agreements. As a result, $2,995 and $1,281 of interest
expense on subordinated debt incurred during 1994 and 1995, respectively, have
been included with subordinated debt as a noncurrent liability. The deferred
interest bears interest at a rate of 14.0%. Based upon quoted market prices for
similar debt, the fair value of the subordinated debt approximated $45,000 at
December 31, 1995.
The subordinated debt agreements contain, among other provisions, covenants
relating to the levels of operating income and net worth and the ratio of
operating income to interest expense.
Unamortized commitment and legal fees of $267 and $203 at December 31, 1994
and 1995, respectively, relating to the subordinated debt have been deferred and
are being amortized over the term of the debt agreements using the interest
method.
6. RELATED PARTY TRANSACTIONS
The Company leases certain real property from a stockholder at less than
fair market value rates under lease agreements expiring in 2006. Approximately
$2,425, which represents the present value at the date of acquisition of the
favorable lease terms using a 13.0% interest rate, has been recorded as
property, plant and equipment and is being amortized on a straight-line basis
over the lease terms. Rent expense under these lease agreements aggregated $879,
$919 and $965 during 1993, 1994 and 1995, respectively. Future minimum rental
payments due under these lease agreements are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
--------------------------------------------------------------------
<S> <C>
1996.............................................................. $ 1,018
1997.............................................................. 892
1998.............................................................. 937
1999.............................................................. 984
2000.............................................................. 1,033
Thereafter........................................................ 7,378
--------
$12,242
========
</TABLE>
The Company has a management agreement with a related party whereby it is
charged an annual fee of $250 for management services. The management fees for
the years ended December 31, 1994 and 1995 were recorded and paid during the
year. Due to reaching selected thresholds and other measurements, the Company
recorded management fees aggregating $750, including $500 for 1991 and 1992,
during the year ended December 31, 1993.
F-9
<PAGE> 90
AETNA INDUSTRIES, INC.
(A WHOLLY OWNED SUBSIDIARY OF MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
7. STOCKHOLDER'S EQUITY
The changes in stockholder's equity were as follows:
<TABLE>
<CAPTION>
RETAINED
EARNINGS TOTAL
CONTRIBUTED (ACCUMULATED STOCKHOLDER'S
CAPITAL DEFICIT) EQUITY
----------- ------------ --------------
<S> <C> <C> <C>
Balance at January 1, 1993............................... $ 9,024 $ (8,936) $ 88
Net loss............................................... (3,856) (3,856)
------ -------- --------
Balance at December 31, 1993............................. 9,024 (12,792) (3,768)
------ -------- --------
Net income............................................. 6,595 6,595
------ -------- --------
Balance at December 31, 1994............................. 9,024 (6,197) 2,827
------ -------- --------
Net income............................................. 4,576 4,576
------ -------- --------
Balance at December 31, 1995............................. 9,024 (1,622) 7,402
------ -------- --------
(unaudited)
Net income............................................. 2,806 2,806
------ -------- --------
Balance at June 30, 1996................................. $ 9,024 $ 1,184 $ 10,208
====== ======== ========
</TABLE>
Certain stockholders of the MS Acquisition were also stockholders of the
predecessor company prior to the acquisition by MS Acquisition. Due to this
partial continuation of control, the acquisition was recorded by the Company
using a combination of (1) the historical basis to the extent of continuing
ownership and (2) the purchase method of accounting for the remaining portion of
assets and liabilities. The purchase method requires that assets and the
liabilities be recorded at their estimated fair market value. The amount by
which the fair market value exceeded this historical cost of the net assets
acquired attributable to the stockholders with continuing interests of $7,276 is
recorded as a reduction of contributed capital in the accompanying consolidated
balance sheets.
8. EMPLOYEE BENEFIT PLANS
The Company has four defined benefit pension plans covering the majority of
its hourly employees. The Company's funding policy is to fund costs as required
under the Employee Retirement Income Security Act of 1974, as amended. The
plans' assets are invested in a master trust.
F-10
<PAGE> 91
AETNA INDUSTRIES, INC.
(A WHOLLY OWNED SUBSIDIARY OF MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated balance sheets at December 31, 1994 and
1995:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ --------------------------
ASSETS ASSETS ACCUMULATED
EXCEED EXCEED BENEFITS
ACCUMULATED ACCUMULATED EXCEED
BENEFITS BENEFITS ASSETS
------------ ----------- -----------
<S> <C> <C> <C>
Actuarial present value of benefit obligations
Accumulated benefit obligation, including vested benefits
of $1,068, $278 and $1,063, respectively............... $1,138 $ 1,145 $ 287
====== ==== ======
Plan assets at fair value................................ $1,171 $ 1,157 $ 277
Projected benefit obligation for service rendered to
date................................................... 1,138 1,145 287
------ ---- ------
Plan assets in excess of (less than) projected benefit
obligation............................................. 33 12 (10)
Unrecognized loss from prior experience.................. 521 426 142
------ ---- ------
Prepaid pension cost included in deferred costs and other
assets................................................. $ 554 $ 438 $ 132
====== ==== ======
Weighted average discount rate......................... 8.75% 7.00% 7.00%
====== ==== ======
Estimated long-term rate of return on assets........... 9.50% 9.50% 9.50%
====== ==== ======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1993 1994 1995
---- ----- -----
<S> <C> <C> <C>
Pension costs include:
Service cost..................................................... $ 97 $ 116 $ 102
Interest cost.................................................... 80 92 88
Actual return on assets.......................................... (3) 126 262
Net amortization................................................. (94) (233) (360)
--- ---- ----
$ 80 $ 101 $ 92
=== ==== ====
</TABLE>
The Company also maintains a 401(k) plan for all eligible nonunion
employees, and a 401(k) plan for certain union employees not covered by the
defined benefit plans above. During the years ended December 31, 1993, 1994 and
1995, the Company incurred $37, $101 and $130, respectively, of expense related
to 401(k) plans.
9. INCOME TAXES
The Company is included in the consolidated United States federal income
tax return filed by MS Acquisition. Accordingly, the provision for federal
income taxes and the related payments or refunds of tax are determined on a
consolidated basis. The Company's income tax provisions compiled on a separate
return basis would have been consistent with those recorded in its financial
statements.
F-11
<PAGE> 92
AETNA INDUSTRIES, INC.
(A WHOLLY OWNED SUBSIDIARY OF MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
9. INCOME TAXES (CONTINUED)
The income tax provision (benefit) comprises the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Current income taxes payable...................... $1,201 $3,252 $2,782
Deferred income taxes............................. (271) 748 (905)
------ ------ ------
$ 930 $4,000 $1,877
====== ====== ======
</TABLE>
Deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995
------ ------
<S> <C> <C>
DEFERRED TAX ASSETS
Workers' compensation........................................ $1,145 $1,105
Other........................................................ 699 727
------ ------
Gross deferred tax assets.................................. 1,844 1,832
------ ------
DEFERRED TAX LIABILITIES
Depreciation................................................. 9,135 8,494
Inventory.................................................... 1,243 1,225
Deferred costs and other..................................... 732 519
------ ------
Gross deferred tax liabilities............................. 11,110 10,238
------ ------
Net deferred tax liability................................... $9,266 $8,406
====== ======
</TABLE>
Effective January 1, 1993, the Company prospectively adopted the provisions
of FAS 109. The impact of adoption of this standard was to reduce retained
earnings by $4,771.
A reconciliation of the U.S. federal statutory rate to the Company's
effective rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory rate.............................. 35.0% 35.0% 35.0%
Effect of graduated rates................................ (1.0) (1.0)
Non-deductible goodwill.................................. 14.8 2.7 4.2
Reversal of tax reserves no longer required.............. (2.9) (2.7)
Effect of 1% increase (decrease) in federal rate on
deferred tax balances.................................. 2.5 (3.9)
Other.................................................... 1.6 0.5 (2.6)
---- ---- ----
50.4% 37.8% 29.0%
==== ==== ====
</TABLE>
10. CONTINGENCIES AND LEASE COMMITMENT
The Company leases a production facility under a lease agreement accounted
for as an operating lease. The lease agreement calls for annual rent of
approximately $594 through December 1997 and provides for three five-year
renewal options. Additionally, the Company leases certain machinery and
equipment under
F-12
<PAGE> 93
AETNA INDUSTRIES, INC.
(A WHOLLY OWNED SUBSIDIARY OF MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
10. CONTINGENCIES AND LEASE COMMITMENT (CONTINUED)
operating leases. Future minimum rental payments on the machinery and equipment
are as follows: 1996 -- $151; 1997 -- $134; 1998 -- $73; 1999 -- $12.
11. LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
------- -------
<S> <C> <C>
Note payable to bank in quarterly principal installments of
$1,250 and a final payment of $3,500 originally due
October 31, 1996, refinanced on May 2, 1996. The note
bears interest at the prime rate (8.5% at December 31,
1995) plus 2.0%.......................................... $12,250 $ 7,250
Note payable to bank under an equipment loan facility
payable in quarterly principal installments of $336 and a
final payment of $64 due on June 30, 1995................ 400
Note payable to bank under a revolving line of credit
facility. The note bears interest at the prime rate (8.5%
at December 31, 1995) plus 1.5%.......................... 9,833 11,049
------- -------
22,483 18,299
Less -- current portion.................................... (5,400) (2,500)
------- -------
$17,083 $15,799
======= =======
</TABLE>
At December 31, 1995 and 1994, the Company had $9,799 and $9,833,
respectively, outstanding under a revolving line of credit facility whereby it
may borrow, based upon available collateral, up to $25,000. The Company is
charged a monthly fee equal to 0.5% per annum of the average daily unused credit
facility. All assets of the Company are pledged as collateral for the debt
agreements. As part of this credit facility, the Company had available a $1,500
letter of credit facility from the same bank. At December 31, 1995, $1,370 of
letters of credit were outstanding which, if exercised, bear interest at 1.5%
over the bank's prime rate.
On May 2, 1996, the Company executed a new credit agreement relating to a
working capital facility. Under this new credit agreement, the Company may
borrow, based upon available collateral as defined in the agreement (principally
inventory, tooling and accounts receivable), up to $35,000 at either (i) a
Floating Rate, defined as the greater of the Prime Rate or the sum of 1.0% plus
the Federal Funds Rate, or (ii) a Eurodollar Rate plus a margin agreed to by the
banks. The Company is also charged a monthly fee equal to 0.5% per annum of the
daily average unused amount of the credit agreement.
As part of the new credit agreement discussed above, the Company has
available at May 2, 1996, a $3,000 letter of credit facility under which the
bank will issue irrevocable standby letters of credit. Such irrevocable standby
letters of credit, if exercised, bear interest at either the Floating Rate or
the Eurodollar Rate, as defined above. The credit facility is due to expire on
May 2, 1997, but may be extended by the consent of both parties.
In connection with the execution of this credit agreement, the Company
repaid the remaining note payable to bank due October 31, 1996 and the note
payable to bank under a revolving line of credit facility which aggregated
$29,054 on May 2, 1996, with the borrowings under its new credit agreement. As a
result of
F-13
<PAGE> 94
AETNA INDUSTRIES, INC.
(A WHOLLY OWNED SUBSIDIARY OF MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
11. LONG-TERM DEBT (CONTINUED)
the new credit agreement, amounts outstanding at December 31, 1995 under the
prior credit agreement and revolving line of credit have been classified as
long-term.
The new credit agreement contains, among other provisions, covenants
relating to the ratios of (i) debt to earnings before income taxes, interest and
depreciation and amortization (EBITDA) and (ii) interest expense to EBITDA.
Unamortized commitment and legal fees of $315 and $692 at December 31, 1995
and 1994, respectively, relating to the long-term debt have been deferred and
are being amortized over the term of the debt agreements using the interest
method. As a result of the execution of the new credit agreement, the remaining
unamortized commitment and legal fees were charged to expense in 1996.
12. THE TRANSACTIONS
On August 13, 1996, the Company's parent, MS Acquisition completed a
recapitalization. MS Acquisition amended its charter to provide for the
reclassification of its capital stock into two new classes of common stock
(voting and non-voting) (together, New Common) and a new class of preferred
stock (New Preferred). Existing MS Acquisition stockholders exchanged their
existing MS Acquisition shares, pro rata, for New Common and New Preferred.
Citicorp Venture Capital, Ltd. and related parties purchased shares of New
Preferred and New Common for $10,000 in cash from the existing MS Acquisition
stockholders. MS Acquisition formed Aetna Holdings, Inc. (Holdings) and
contributed to Holdings all of the capital stock to the Company. Holdings then
purchased from existing stockholders approximately 61% of their existing MS
Acquisition stock in exchange for (i) $11,064 in cash and (ii) $8,731 in
principal amount of 11.0% junior subordinated debentures of Holdings due in
2007. In addition, MS Acquisition paid approximately (i) $651 in cash to
terminate certain employee options. The former stockholders retained (i) $2.36
million in stated value of New Preferred and (ii) shares of New Common
representing 20.6% of the New Common on a fully diluted basis.
In connection with this recapitalization, the MS Acquisition, the Company
and NBD Bank amended and restated the Company's existing working capital
facility with NBD Bank. The covenants described in Note 11 remained
substantially unchanged.
F-14
<PAGE> 95
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
MS Acquisition Corp.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and of cash flows present fairly,
in all material respects, the financial position of MS Acquisition Corp. and its
subsidiaries at December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 9 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in the year ended
December 31, 1993.
Price Waterhouse LLP
Detroit, Michigan
February 12, 1996, except for
Notes 12 and 13 which are as of May 2, 1996
and August 13, 1996, respectively
F-15
<PAGE> 96
MS ACQUISITION CORP.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash.................................................................. $ 163 $ 291 $ 311
Accounts receivable (less allowance for doubtful accounts of $158,
$240 and $265, respectively)........................................ 28,638 28,522 33,960
Inventories........................................................... 9,410 8,659 9,795
Tooling............................................................... 869 2,658 1,579
Prepaid income taxes.................................................. 359 360
Prepaid expenses...................................................... 196 142 373
Deferred income taxes................................................. 277 518 759
-------- -------- --------
Total current assets.............................................. 39,912 41,150 46,777
-------- -------- --------
Property, plant and equipment
Land.................................................................. 1,652 1,652 1,588
Buildings and improvements............................................ 11,386 11,082 10,831
Machinery and equipment............................................... 50,417 54,480 61,690
Construction-in-progress.............................................. 3,090 9,434 4,832
-------- -------- --------
Total property, plant and equipment............................... 66,545 76,648 78,941
Less -- accumulated depreciation...................................... (22,862) (27,775) (30,383)
-------- -------- --------
Net property, plant and equipment................................. 43,683 48,873 48,558
-------- -------- --------
Other assets
Deferred costs and other assets....................................... 2,359 1,644 1,375
Cost in excess of net assets acquired................................. 27,377 26,575 26,175
-------- -------- --------
Total other assets................................................ 29,736 28,219 27,550
-------- -------- --------
$113,331 $118,242 $ 122,885
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable...................................................... $ 28,612 $ 31,566 $ 31,095
Accrued expenses...................................................... 9,205 10,109 10,876
Current portion of long-term debt..................................... 5,400 2,500
-------- -------- --------
Total current liabilities......................................... 43,217 44,175 41,971
-------- -------- --------
Long-term debt, less current portion.................................... 17,083 15,799 18,976
-------- -------- --------
Subordinated debt....................................................... 40,661 41,942 42,743
-------- -------- --------
Deferred income taxes................................................... 9,543 8,924 8,987
-------- -------- --------
Commitments and contingencies (Note 10)
Redeemable preferred stock
Series A, -- $.01 par value; 80,168 shares authorized, issued and
outstanding......................................................... 1 1 1
Series B, -- $.01 par value; 250,000 shares authorized; 49,251,
68,341, and 78,917 shares issued and outstanding, respectively...... 1 1
Additional paid-in capital............................................ 2,097 2,407 2,578
Stockholders' equity
Class A, common stock -- $.01 par value; 1,040,000 shares authorized;
525,000 shares issued and outstanding............................... 5 5 5
Class B, common stock -- $.01 par value; 1,040,000 shares authorized,
400,000 shares issued and outstanding............................... 4 4 4
Additional paid-in capital............................................ 14,991 14,991 14,991
Accumulated deficit................................................... (6,996) (2,730) (96)
Fair market value in excess of historical cost of net assets acquired
from entities partially under common control........................ (7,276) (7,276) (7,276)
-------- -------- --------
728 4,994 7,628
-------- -------- --------
$113,331 $118,242 $ 122,885
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE> 97
MS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- --------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................. $162,908.. $204,850 $211,905 $119,111 $114,944
Cost of sales............................. 139,499.. 172,428 183,542 100,321 98,472
Selling, general and administrative
expenses................................ 12,544 12,898 13,331 6,835 7,371
-------- -------- -------- -------- --------
Operating income.......................... 10,865 19,524 15,032 11,955 9,101
-------- -------- -------- -------- --------
Interest expense, net..................... 9,020 8,929 8,579 4,246 4,132
-------- -------- -------- -------- --------
Income before cumulative effect of
change in method of accounting and
income taxes......................... 1,845 10,595 6,453 7,709 4,969
Income tax provision...................... 930 4,000 1,877 2,243 2,163
-------- -------- -------- -------- --------
Income before cumulative effect of
change in method of accounting....... 915 6,595 4,576 5,466 2,806
Cumulative effect of change in method of
accounting for income taxes............. (4,771)
-------- -------- -------- -------- --------
Net income (loss)....................... $ (3,856) $ 6,595 $ 4,576 $ 5,466 $ 2,806
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE> 98
MS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF CASH FLOW
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- ------------------
1993 1994 1995 1995 1996
------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)............................ $(3,856) $ 6,595 $ 4,576 $ 5,466 $ 2,806
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
--
Depreciation and amortization.............. 6,009 6,150 6,579 3,426 3,558
Deferred interest.......................... 3,249 2,995 1,281 (65) 801
Deferred income taxes...................... 7,129 748 (860) 178
Other...................................... (2,116)
Changes in assets and liabilities
Accounts receivable..................... (1,148) (6,159) 116 (4,967) (5,438)
Inventories............................. (3,538) (503) 750 881 (1,136)
Tooling................................. 3,830 (1,790) (470) 1,079
Income taxes refundable................. (360)
Prepaid expenses........................ (119) 38 54 29 (231)
Income taxes payable.................... 305 (761) (530)
Accounts payable........................ 5,118 9,073 2,954 2,214 (471)
Accrued expenses........................ 2,483 394 904 (172) 767
-------- -------- -------- -------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES......................... 13,516 22,040 14,564 5,812 1,913
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment,
net........................................ (3,474) (6,125) (10,103) (4,966) (2,732)
Other, net................................... (863) (329) (149) 162
-------- -------- -------- -------- --------
NET CASH USED FOR INVESTING
ACTIVITIES......................... (4,337) (6,454) (10,252) (4,966) (2,570)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt......... (9,344) (15,727) (5,400) (2,900) (7,250)
Net change in line of credit................. (57) 294 1,216 2,396 7,927
-------- -------- -------- -------- --------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES............... (9,401) (15,433) (4,184) (504) 677
-------- -------- -------- -------- --------
Net increase (decrease) in cash.............. (222) 153 128 342 20
Cash -- beginning of year.................... 232 10 163 163 291
-------- -------- -------- -------- --------
Cash -- end of period........................ $ 10 $ 163 $ 291 $ 505 $ 311
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for interest....... $ 5,850 $ 12,027 $ 4,480
======== ======== ========
Cash paid during the year for income taxes... $ 788 $ 4,350 $ 2,750
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE> 99
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Description of operations and major customers
MS Acquisition Corp. (MS Acquisition or the Company) was formed for the
sole purpose of purchasing Aetna Industries, Inc. (Aetna) and does not have any
significant assets or liabilities, other than all of the outstanding common
stock of Aetna and two series of mandatorily redeemable preferred stock
described in Note 7 below.
The Company's primary business operations are, through its wholly owned
subsidiary Aetna, the manufacture of automotive stampings and assemblies used as
original equipment components by North American automotive manufacturers in the
production of sport utility vehicles, mini-vans, other light trucks and
passenger cars.
The Company's financial condition and results of operations depend
significantly on two major automotive manufacturers, Chrysler Corporation
(Chrysler) and General Motors Corporation (GM). Following is a summary of net
production sales to such key customers, as a percentage of net production sales:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------ --------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(UNAUDITED)
<C> <C> <C> <C> <C>
Chrysler.............................................. 59 % 62 % 60 % 63 % 59 %
GM.................................................... 39 35 36 33 36
Other................................................. 2 3 4 4 5
---- ---- ---- ---- ----
100 % 100 % 100 % 100 % 100 %
==== ==== ==== ==== ====
</TABLE>
Principles of consolidation
The consolidated financial statements include the accounts of the Company,
Aetna and a foreign sales corporation which is a wholly owned subsidiary of
Aetna. The financial condition and results of operations of the foreign sales
corporation are not significant. All significant intercompany transactions and
account balances have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers cash on hand, deposits in banks and short-term
marketable securities with maturities of 90 days or less as cash and cash
equivalents for the purpose of the statement of cash flows.
Financial instruments
With the exception of long-term debt and stockholders' equity, the Company
records all financial instruments, including accounts receivable and accounts
payable, at cost, which approximates market value.
F-19
<PAGE> 100
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue recognition
Revenue from sales and the corresponding receivables are recorded upon
shipment of product to the customer.
Inventories
Inventories of stampings and assemblies are valued at the lower of cost,
determined by the last-in, first-out (LIFO) method, or market. Inventories of
purchased parts and purchased labor are valued at the lower of cost, as
determined by the first-in, first-out (FIFO) method, or market.
Property, plant and equipment
Property, plant and equipment are stated at cost. The Company provides for
depreciation principally using the straight-line method over the following
estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Buildings and improvements........................................... 20 - 30
Machinery and equipment.............................................. 5 - 15
</TABLE>
Upon retirement or disposal, the asset cost and related accumulated
depreciation is removed from the accounts and the net amount, less proceeds, is
charged or credited to income. Expenditures for renewals and betterments are
capitalized. Expenditures for maintenance and repairs are charged against income
as incurred.
Cost in excess of net assets acquired
Cost in excess of net assets acquired is being amortized over forty years
using the straight-line method. Accumulated amortization aggregated $4,674,
$5,475 and $5,875 at December 31, 1994 and 1995 and June 30, 1996, respectively.
The Company periodically evaluates the eventual recoverability of the cost in
excess of net assets acquired based on estimated future operating results and
cash flows.
Start-up and preoperating expenses
Incremental costs incurred relating to the start-up of a new production
facility have been capitalized as deferred costs and are being amortized over a
five-year period commencing January 1992. Accumulated amortization aggregated
$1,271, $1,694 and $1,906 at December 31, 1994 and 1995 and June 30, 1996,
respectively.
Income taxes
Income tax provisions are based upon Statement of Financial Accounting
Standards No. 109, (FAS 109), "Accounting for Income Taxes". Deferred tax assets
and liabilities are provided for the expected future tax consequence of
temporary differences between the carrying amounts and the tax basis of the
Company's assets and liabilities. Prior to January 1, 1993, the Company utilized
the provisions of Accounting Principles Bulletin No. 11, "Accounting for Income
Taxes" and provided deferred taxes on nonpermanent differences between financial
statement and taxable income.
Interim financial information
The accompanying unaudited interim consolidated financial statements do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
F-20
<PAGE> 101
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
opinion of the Company, all adjustments, consisting of only normal, recurring
adjustments, necessary to present the financial position of the Company at June
30, 1996 and the results of its operations and its cash flows for the six months
ended June 30, 1995 and 1996 have been included. Operating results for the
interim periods are not necessarily indicative of results that may be expected
for the year ending December 31, 1996.
2. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Inventories valued at LIFO
Raw materials................................... $3,516 $ 2,034 $ 2,355
Work-in-process................................. 2,624 2,989 3,607
Finished goods.................................. 1,818 2,273 2,151
------- ------- -------
7,958 7,296 8,113
LIFO reserve.................................... (240) (240) (240)
------- ------- -------
7,718 7,056 7,873
------- ------- -------
Inventories valued at FIFO
Purchased parts and purchased labor............. 1,692 1,603 1,922
------- ------- -------
Total inventories................................. $9,410 $ 8,659 $ 9,795
======= ======= =======
</TABLE>
3. ACCRUED EXPENSES
Accrued expenses are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1994 1995 1996
------ ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued workers' compensation expense............. $2,666 $ 2,618 $ 3,024
Other............................................. 6,539 7,491 7,852
------- -------- --------
$9,205 $10,109 $10,876
======= ======== ========
</TABLE>
4. SUBORDINATED DEBT
Subordinated debt at December 31, 1994 and 1995 and June 30, 1996 consists
of $30,500 of principal and $10,161, $11,442 and $12,243 of deferred interest,
respectively. The principal of $30,500 consists of two 14.0% notes payable by
the Company in two annual aggregate principal payments of $6,100 commencing
March 1, 1997 with a final payment of $18,300 on March 1, 1999. Payments of
interest accrued from 1990 to 1995 were deferred until the Company has available
cash flows as defined in the agreements. As a result, $2,995 and $1,281 of
interest expense on subordinated debt incurred during 1994 and 1995,
respectively, have been included with subordinated debt as a noncurrent
liability. The deferred interest bears interest at a rate of 14.0%. Based upon
quoted market prices for similar debt, the fair value of the subordinated debt
approximated $45,000 at December 31, 1995.
F-21
<PAGE> 102
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
SUBORDINATED DEBT (CONTINUED)
The subordinated debt agreements contain, among other provisions, covenants
relating to the levels of operating income and net worth and the ratio of
operating income to interest expense.
Unamortized commitment and legal fees of $267 and $203 at December 31, 1994
and 1995, respectively, relating to the subordinated debt have been deferred and
are being amortized over the term of the debt agreements using the interest
method.
5. RELATED PARTY TRANSACTIONS
The Company leases certain real property from a stockholder at less than
fair market value rates under lease agreements expiring in 2006. Approximately
$2,425, which represents the present value at the date of acquisition of the
favorable lease terms using a 13.0% interest rate, has been recorded as
property, plant and equipment and is being amortized on a straight-line basis
over the lease terms. Rent expense under these lease agreements aggregated $879,
$919 and $965 during 1993, 1994 and 1995, respectively. Future minimum rental
payments due under these lease agreements are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-----------------------------------------------------------
<S> <C>
1996....................................................... $ 1,018
1997....................................................... 892
1998....................................................... 937
1999....................................................... 984
2000....................................................... 1,033
Thereafter................................................. 7,378
-------
$12,242
=======
</TABLE>
The Company has a management agreement with a related party whereby it is
charged an annual fee of $250 for management services. The management fees for
the years ended December 31, 1994 and 1995 were recorded and paid during the
year. Due to reaching selected thresholds and other measurements, the Company
recorded management fees aggregating $750 including $500 for 1991 and 1992,
during the year ended December 31, 1993.
6. REDEEMABLE PREFERRED STOCK
During 1991, the Company issued shares of Series A preferred stock for
$1,300. Series A shares of preferred stock have full voting rights with
cumulative dividends payable at 14.0% in the form of cash or shares of Series B
preferred stock. Series B shares of preferred stock are nonvoting with
cumulative dividends payable at 14.0%. Stock dividends of Series B preferred
stock, valued at $235, $270, $310 and $172, were declared and issued to the
Series A and Series B preferred stockholders during 1993, 1994, 1995 and the six
months ended June 30, 1996, respectively. In addition, preferred stockholders
would receive additional dividends per share equal to any common stock dividends
declared.
Shares of Series A and Series B preferred stock are redeemable, at the
option of the preferred stockholders, at $16.2162 per share plus accrued
dividends provided that such redemption is permitted under the Company's
long-term debt and subordinated debt agreements. All shares of Series B
preferred stock must be redeemed before any shares of Series A preferred stock
can be redeemed. Shares of Series A and Series B preferred stock have
liquidation preferences on $16.2162 per share plus accrued dividends.
The Company's ability to pay dividends is solely dependent upon the results
of operations and financial condition of Aetna.
F-22
<PAGE> 103
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
7. STOCKHOLDERS' EQUITY
The changes in stockholders' equity were as follows:
<TABLE>
<CAPTION>
FAIR MARKET
VALUE IN
CLASS CLASS RETAINED EXCESS OF
A B CAPITAL EARNINGS HISTORICAL TOTAL
COMMON COMMON IN EXCESS (ACCUMULATED COST OF STOCKHOLDERS'
STOCK STOCK OF PAR DEFICIT) NET ASSETS EQUITY
------ ------ --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993........ $5 $4 $ 14,991 $ (9,230) $(7,276) $ (1,506)
-- --
------- -------- ------- -------
Net loss..................... (3,856) (3,856)
Preferred dividends.......... (235) (235)
-- --
------- -------- ------- -------
Balance at December 31, 1993...... 5 4 14,991 (13,321) (7,276) (5,597)
-- --
------- -------- ------- -------
Net income................... 6,595 6,595
Preferred dividends.......... (270) (270)
-- --
------- -------- ------- -------
Balance at December 31, 1994...... 5 4 14,991 (6,996) (7,276) 728
-- --
------- -------- ------- -------
Net income................... 4,576 4,576
Preferred dividends.......... (310) (310)
-- --
------- -------- ------- -------
Balance at December 31, 1995...... 5 4 14,991 (2,730) (7,276) 4,994
-- --
------- -------- ------- -------
(Unaudited)
Net income................... 2,806 2,806
Preferred dividends.......... (172) (172)
-- --
------- -------- ------- -------
Balance at June 30, 1996..... $5 $4 $ 14,991 $ (96) $(7,276) $ 7,628
== == ======= ======== ======= =======
</TABLE>
The shares of Class A common stock have full voting rights. The shares of
Class B common stock are nonvoting and are convertible into shares of Class A
common stock at the option of the holder on a one-for-one basis. Dividends
cannot be declared on shares of Class A or Class B common stock until all
accrued dividends on preferred stock have been paid.
The Company has a stock option plan under which options for a maximum of
115,000 shares of Class A common stock may be issued. As of December 31, 1995,
96,000 options have been granted at a per share price of $16.2162 of which
70,450 options are exercisable and none have been exercised.
The Company has agreements with each of its management stockholders whereby
the Company has an option to purchase the shares of common stock owned by the
management stockholder upon the management stockholder's death, disability or
other termination of employment at a specified purchase price, as defined in the
agreements. In addition, the management stockholders have the right, commencing
April 1994, to put their shares to the Company whereby the purchase price is the
greater of a formula based on the Company's earnings or stockholders' equity
book value, as defined in the agreements.
Certain stockholders of the Company were also stockholders of the
predecessor company prior to the acquisition by MS Acquisition Corp. Due to this
partial continuation of control, the acquisition was recorded by the Company
using a combination of (1) the historical basis to the extent of continuing
ownership and (2) the purchase method of accounting for the remaining portion of
assets and liabilities. The purchase method requires that assets and the
liabilities be recorded at their estimated fair market value. The amount by
which the fair market value exceeded this historical cost of the net assets
acquired attributable to the stockholders with continuing interests of $7,276 is
recorded as a reduction of stockholders' equity in the accompanying consolidated
balance sheets.
F-23
<PAGE> 104
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
8. EMPLOYEE BENEFIT PLANS
The Company has four defined benefit pension plans covering the majority of
its hourly employees. The Company's funding policy is to fund costs as required
under the Employee Retirement Income Security Act of 1974, as amended. The
plans' assets are invested in a master trust.
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated balance sheets at December 31, 1994 and
1995:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ --------------------------
ASSETS ASSETS ACCUMULATED
EXCEED EXCEED BENEFITS
ACCUMULATED ACCUMULATED EXCEED
BENEFITS BENEFITS ASSETS
------------ ----------- -----------
<S> <C> <C> <C>
Actuarial present value of benefit obligations
Accumulated benefit obligation, including vested benefits
of $1,068, $278 and $1,063, respectively............... $1,138 $ 1,145 $ 287
====== ==== ======
Plan assets at fair value................................ $1,171 $ 1,157 $ 277
Projected benefit obligation for service rendered to
date................................................... 1,138 1,145 287
------ ---- ------
Plan assets in excess of (less than) projected benefit
obligation............................................. 33 12 (10)
Unrecognized loss from prior experience.................. 521 426 142
------ ---- ------
Prepaid pension cost included in deferred costs and other
assets................................................. $ 554 $ 438 $ 132
====== ==== ======
Weighted average discount rate...................... 8.75% 7.00% 7.00%
====== ==== ======
Estimated long-term rate of return on assets........ 9.50% 9.50% 9.50%
====== ==== ======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1993 1994 1995
---- ----- -----
<S> <C> <C> <C>
Pension costs include:
Service cost........................................................ $ 97 $ 116 $ 102
Interest cost....................................................... 80 92 88
Actual return on assets............................................. (3) 126 262
Net amortization.................................................... (94) (233) (360)
----- ------ ------
$ 80 $ 101 $ 92
===== ====== ======
</TABLE>
The Company also maintains a 401(k) plan for all eligible nonunion
employees, and a 401(k) plan for certain union employees not covered by the
defined benefit plans above. During the years ended December 31, 1993, 1994 and
1995, the Company incurred $37, $101 and $130, respectively, of expense related
to 401(k) plans.
F-24
<PAGE> 105
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
9. INCOME TAXES
The income tax provision (benefit) comprises the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1993 1995 1994
------ ------ ------
<S> <C> <C> <C>
Current income taxes payable........................................ $1,201 $3,252 $2,782
Deferred income taxes............................................... (271) 748 (905)
------- ------- -------
$ 930 $4,000 $1,877
======= ======= =======
</TABLE>
Deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
DEFERRED TAX ASSETS
Workers' compensation................................................ $ 1,145 $ 1,105
Other................................................................ 699 727
------- -------
Gross deferred tax assets.......................................... 1,844 1,832
------- -------
DEFERRED TAX LIABILITIES
Depreciation......................................................... 9,135 8,494
Inventory............................................................ 1,243 1,225
Deferred costs and other............................................. 732 519
------- -------
Gross deferred tax liabilities..................................... 11,110 10,238
------- -------
Net deferred tax liability........................................... $ 9,266 $ 8,406
======= =======
</TABLE>
Effective January 1, 1993, the Company prospectively adopted the provisions
of FAS 109. The impact of adoption of this standard was to reduce retained
earnings by $4,771.
A reconciliation of the U.S. federal statutory rate to the Company's
effective rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory rate......................................... 35.0% 35.0% 35.0%
Effect of graduated rates........................................... (1.0) (1.0)
Non-deductible goodwill............................................. 14.8 2.7 4.2
Reversal of tax reserves no longer required......................... (2.9) (2.7)
Effect of 1% increase (decrease) in federal rate on deferred tax
balances.......................................................... 2.5 (3.9)
Other............................................................... 1.6 0.5 (2.6)
---- ---- ----
50.4% 37.8% 29.0%
==== ==== ====
</TABLE>
10. CONTINGENCIES AND LEASE COMMITMENT
The Company leases a production facility under a lease agreement accounted
for as an operating lease. The lease agreement calls for annual rent of
approximately $594 through December 1997 and provides for three five-year
renewal options. Additionally, the Company leases certain machinery and
equipment under operating leases. Future minimum rental payments on the
machinery and equipment are as follows: 1996 -- $151; 1997 -- $134; 1998 -- $73;
1999 -- $12.
F-25
<PAGE> 106
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
11. CONSOLIDATING FINANCIAL INFORMATION
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET AT
DECEMBER 31, 1994
---------------------------------------------------
MS
AETNA ACQUISITION ELIMINATIONS TOTAL
-------- ----------- ------------ --------
<S> <C> <C> <C> <C>
ASSETS
Cash............................................... $ 163 $ -- $ -- $ 163
Accounts receivable................................ 28,638 28,638
Inventories........................................ 9,410 9,410
Tooling............................................ 869 869
Prepaid income taxes............................... 359 359
Prepaid expenses................................... 196 196
Deferred income taxes.............................. 277 277
-------- ------- ------- --------
Total current assets............................. 39,912 39,912
-------- ------- ------- --------
Property, plant and equipment
Land............................................. 1,652 1,652
Buildings and improvements....................... 11,386 11,386
Machinery and equipment.......................... 50,417 50,417
Construction-in-progress......................... 3,090 3,090
-------- ------- ------- --------
Total property, plant and equipment.............. 66,545 66,545
-------- ------- ------- --------
Less -- accumulated depreciation................. (22,862) (22,862)
-------- ------- ------- --------
Net property, plant and equipment................ 43,683 43,683
-------- ------- ------- --------
Other assets
Deferred costs and other assets.................. 2,359 2,359
Cost in excess of net assets acquired............ 27,377 27,377
-------- ------- ------- --------
Total other assets............................... 29,736 29,736
-------- ------- ------- --------
$113,331 $ -- $ -- $113,331
======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................................. $ 28,612 $ -- $ -- $ 28,612
Accrued expenses................................. 9,205 9,205
Current portion of long-term debt................ 5,400 5,400
-------- ------- ------- --------
Total current liabilities........................ 43,217 43,217
-------- ------- ------- --------
Long-term debt, less current portion............... 17,083 17,083
Subordinated debt.................................. 40,661 40,661
Deferred income taxes.............................. 9,543 9,543
Preferred stock.................................... 2 2
Additional paid in capital -- preferred stock...... 2,097 2,097
Common stock -- Aetna
Class A common stock -- MS Acquisition............. 5 5
Class B common stock -- MS Acquisition............. 4 4
Additional paid in capital......................... 14,991 14,991
Contributed capital................................ 9,024 (9,024)
Retained earnings (accumulated deficit)............ (6,197) (799) (6,996)
Fair market value in excess of historical cost of
net assets acquired from entities partially under
common control................................... (7,276) (7,276)
-------- ------- ------- --------
2,827 6,925 (9,024) 728
-------- ------- ------- --------
$113,331 $ 9,024 $ (9,024) $113,331
======== ======= ======= ========
</TABLE>
F-26
<PAGE> 107
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
11. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET AT
DECEMBER 31, 1995
---------------------------------------------------
MS
AETNA ACQUISITION ELIMINATIONS TOTAL
-------- ----------- ------------ --------
<S> <C> <C> <C> <C>
Cash............................................... $ 291 $-- $ -- $ 291
Accounts receivable................................ 28,522 28,522
Inventories........................................ 8,659 8,659
Tooling............................................ 2,658 2,658
Prepaid income taxes............................... 360 360
Prepaid expenses................................... 142 142
Deferred income taxes.............................. 518 518
-------- ------- ------- --------
Total current assets.......................... 41,150 41,150
-------- ------- ------- --------
Property, plant and equipment
Land............................................. 1,652 1,652
Buildings and improvements....................... 11,082 11,082
Machinery and equipment.......................... 54,480 54,480
Construction-in-progress......................... 9,434 9,434
-------- ------- ------- --------
Total property, plant and equipment.............. 76,648 76,648
-------- ------- ------- --------
Less -- accumulated depreciation................. (27,775) (27,775)
-------- ------- ------- --------
Net property, plant and equipment................ 48,873 48,873
-------- ------- ------- --------
Other assets
Deferred costs and other assets.................. 1,644 1,644
Cost in excess of net assets acquired............ 26,575 26,575
-------- ------- ------- --------
Total other assets............................... 28,219 28,219
-------- ------- ------- --------
$118,242 $-- $ -- $118,242
-------- ------- ------- --------
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable................................. $ 31,566 $-- $ -- $ 31,566
Accrued expenses................................. 10,109 10,109
Current portion of long-term debt................ 2,500 2,500
-------- ------- ------- --------
Total current liabilities..................... 44,175 44,175
-------- ------- ------- --------
Long term debt, less current portion............... 15,799 15,799
Subordinated debt.................................. 41,942 41,942
Deferred income taxes.............................. 8,924 8,924
Preferred stock.................................... 1 1
Additional paid in capital -- preferred stock...... 2,407 2,407
Common stock -- Aetna
Class A common stock -- MS Acquisition............. 5 5
Class B common stock -- MS Acquisition............. 4 4
Additional paid in capital......................... 14,991 14,991
Contributed capital................................ 9,024 (9,024)
Retained earnings (accumulated deficit)............ (1,622) (1,108) (2,730)
Fair market value in excess of historical cost of
net assets acquired from entities partially under
common control................................... (7,276) (7,276)
-------- ------- ------- --------
7,402 6,616 (9,024) 4,994
-------- ------- ------- --------
$118,242 $ 9,024 $ (9,024) $118,242
======== ======= ======= ========
</TABLE>
F-27
<PAGE> 108
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
11. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET AT
JUNE 30, 1996
---------------------------------------------------
MS
AETNA ACQUISITION ELIMINATIONS TOTAL
-------- ----------- ------------ --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash............................................... $ 311 $-- $ -- $ 311
Accounts receivable................................ 33,960 33,960
Inventories........................................ 9,795 9,795
Tooling............................................ 1,579 1,579
Prepaid expenses................................... 373 373
Deferred income taxes.............................. 759 759
-------- ------- ------- --------
Total current assets.......................... 46,777 46,777
-------- ------- ------- --------
Property, plant and equipment
Land............................................. 1,588 1,588
Buildings and improvements....................... 10,831 10,831
Machinery and equipment.......................... 61,690 61,690
Construction-in-progress......................... 4,832 4,832
-------- ------- ------- --------
Total property, plant and equipment.............. 78,941 78,941
-------- ------- ------- --------
Less -- accumulated depreciation................. (30,383) (30,383)
-------- ------- ------- --------
Net property, plant and equipment................ 48,558 48,558
-------- ------- ------- --------
Other assets
Deferred costs and other assets.................. 1,375 1,375
Cost in excess of net assets acquired............ 26,175 26,175
-------- ------- ------- --------
Total other assets............................ 27,550 27,550
-------- ------- ------- --------
$122,885 $-- $ -- $122,885
-------- ------- ------- --------
Liabilities and Stockholder's Equity
Current liabilities
Accounts payable................................. $ 31,095 $-- $ -- $ 31,095
Accrued expenses................................. 10,876 10,876
-------- ------- ------- --------
Total current liabilities..................... 41,971 41,971
-------- ------- ------- --------
Long term debt, less current portion............... 18,976 18,976
Subordinated debt.................................. 42,743 42,743
Deferred income taxes.............................. 8,987 8,987
Preferred stock.................................... 2 2
Additional paid in capital -- preferred stock...... 2,578 2,578
Common stock -- Aetna
Class A common stock -- MS Acquisition............. 5 5
Class B common stock -- MS Acquisition............. 4 4
Additional paid in capital......................... 14,991 14,991
Contributed capital................................ 9,024 (9,024)
Retained earnings (accumulated deficit)............ 1,184 (1,280) (96)
Fair market value in excess of historical cost of
net assets acquired from entities partially under
common control................................... (7,276) (7,276)
-------- ------- ------- --------
10,208 6,444 (9,024) 7,628
-------- ------- ------- --------
$122,885 $ 9,024 $ (9,024) $122,885
======== ======= ======= ========
</TABLE>
F-28
<PAGE> 109
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
11. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
---------------------------------------------------
MS
AETNA ACQUISITION ELIMINATIONS TOTAL
-------- ----------- ------------ --------
<S> <C> <C> <C> <C>
Net sales.......................................... $162,908 $ 500 $ (500) $162,908
Cost of sales...................................... 139,499 139,499
Selling, general, and administrative expenses...... 12,544 12,544
-------- ---- ----- --------
Operating income................................... 10,865 500 (500) 10,865
-------- ---- ----- --------
Interest expense, net.............................. 9,020 9,020
-------- ---- ----- --------
Income before cumulative effect of change in method
of accounting and income taxes................... 1,845 500 (500) 1,845
-------- ---- ----- --------
Income tax provision............................... 930 252 (252) 930
-------- ---- ----- --------
Income before cumulative effect of change in method
of accounting.................................... 915 248 (248) 915
-------- ---- ----- --------
Cumulative effect of change in method of accounting
for income taxes................................. (4,771) (4,771)
-------- ---- ----- --------
Net loss........................................... $ (3,856) $ 248 $ (248) $ (3,856)
======== ==== ===== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
---------------------------------------------------
MS
AETNA ACQUISITION ELIMINATIONS TOTAL
-------- ----------- ------------ --------
<S> <C> <C> <C> <C>
Net sales.......................................... $204,850 $ 250 $ (250) $204,850
Cost of sales...................................... 172,428 172,428
Selling, general, and administrative expenses...... 12,898 12,898
-------- ---- ----- --------
Operating income................................... 19,524 250 (250) 19,524
-------- ---- ----- --------
Interest expense, net.............................. 8,929 8,929
-------- ---- ----- --------
Income before income taxes......................... 10,595 250 (250) 10,595
-------- ---- ----- --------
Income tax provision............................... 4,000 94 (94) 4,000
-------- ---- ----- --------
Net income (loss)................................ $ 6,595 $ 156 $ (156) $ 6,595
======== ==== ===== ========
</TABLE>
F-29
<PAGE> 110
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
11. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------
MS
AETNA ACQUISITION ELIMINATIONS TOTAL
-------- ----------- ------------ --------
<S> <C> <C> <C> <C>
Net sales.......................................... $211,905 $ 250 $ (250) $211,905
Cost of sales...................................... 183,542 183,542
Selling, general, and administrative expenses...... 13,331 13,331
-------- ---- ----- --------
Operating income................................... 15,032 250 (250) 15,032
-------- ---- ----- --------
Interest expense, net.............................. 8,579 8,579
-------- ---- ----- --------
Income before income taxes......................... 6,453 250 (250) 6,453
-------- ---- ----- --------
Income tax provision............................... 1,877 73 (73) 1,877
-------- ---- ----- --------
Net income (loss)................................ $ 4,576 $ 177 $ (177) $ 4,576
======== ==== ===== ========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1995
----------------------------------------------------
MS
AETNA ACQUISITION ELIMINATIONS TOTAL
-------- ----------- ------------ ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales.......................................... $119,111 $ 125 $ (125) $119,111
Cost of sales...................................... 100,321 100,321
Selling, general, and administrative expenses...... 6,835 6,835
-------- ---- ----- --------
Operating income................................... 11,955 125 (125) 11,955
-------- ---- ----- --------
Interest expense, net.............................. 4,246 4,246
-------- ---- ----- --------
Income before income taxes......................... 7,709 125 (125) 7,709
Income tax provision............................... 2,243 36 (36) 2,243
======== ==== ===== ========
Net income (loss).................................. $ 5,466 $ 89 $ (89) $5,466
======== ==== ===== ========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
---------------------------------------------------
MS
AETNA ACQUISITION ELIMINATIONS TOTAL
-------- ----------- ------------ --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales.......................................... $114,944 $ 125 $ (125) $114,944
Cost of sales...................................... 98,472 98,472
Selling, general, and administrative expenses...... 7,371 7,371
-------- ---- ----- --------
Operating income................................... 9,101 125 (125) 9,101
-------- ---- ----- --------
Interest expense, net.............................. 4,132 4,132
-------- ---- ----- --------
Income before income taxes......................... 4,969 125 (125) 4,969
-------- ---- ----- --------
Income tax provision............................... 2,163 54 (54) 2,163
-------- ---- ----- --------
Net income (loss).................................. $ 2,806 $ 71 $ (71) $ 2,806
======== ==== ===== ========
</TABLE>
F-30
<PAGE> 111
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
11. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
-------------------------------------------------
MS
AETNA ACQUISITION ELIMINATIONS TOTAL
------- ----------- ------------ -------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................... $(3,856) $ 248 $ (248) $(3,856)
Adjustments to reconcile net income (loss) to cash
provided by operating activities
Depreciation and amortization...................... 6,009 6,009
Deferred interest.................................. 3,249 3,249
Deferred income taxes.............................. 7,129 7,129
Other.............................................. (2,116) (2,116)
Changes in assets and liabilities
Accounts receivable............................. (1,148) (1,148)
Inventories..................................... (3,538) (3,538)
Prepaid expenses................................ (119) (119)
Income taxes payable............................ 305 305
Accounts payable................................ 5,118 5,118
Accrued expenses................................ 2,483 2,483
------- ---- ----- -------
NET CASH PROVIDED BY OPERATING
ACTIVITIES............................... 13,516 248 (248) 13,516
======= ==== ===== =======
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment........... (3,474) (3,474)
Other, net........................................... (863) (863)
------- ---- ----- -------
NET CASH USED FOR INVESTING ACTIVITIES..... (4,337) (4,337)
======= ==== ===== =======
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt................. (9,344) (9,344)
Net change in line of credit......................... (57) (57)
------- ---- ----- -------
NET CASH PROVIDED BY (USED FOR) FINANCING
ACTIVITIES............................... (9,401) (9,401)
======= ==== ===== =======
NET INCREASE (DECREASE) IN CASH...................... (222) 248 (248) (222)
Cash -- beginning of year............................ 232 232
Cash -- end of period................................ $ 10 $ 248 $ (248) $ 10
</TABLE>
F-31
<PAGE> 112
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
11. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
---------------------------------------------------
MS
AETNA ACQUISITION ELIMINATIONS TOTAL
-------- ----------- ------------ --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................. $ 6,595 $ 156 $ (156) $ 6,595
Adjustments to reconcile net income (loss) to cash
provided by operating activities.................
Depreciation and amortization.................... 6,150 6,150
Deferred interest................................ 2,995 2,995
Deferred income taxes............................ 748 748
Changes in assets and liabilities
Accounts receivable........................... (6,159) (6,159)
Inventories................................... (503) (503)
Tooling....................................... 3,830 3,830
Income taxes refundable....................... (360) (360)
Prepaid expenses.............................. 38 38
Income taxes payable.......................... (761) (761)
Accounts payable.............................. 9,073 9,073
Accrued expenses.............................. 394 394
-------- ---- ----- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES............................. 22,040 156 (156) 22,040
-------- ---- ----- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment......... (6,125) (6,125)
Other, net......................................... (329) (329)
-------- ---- ----- --------
NET CASH USED FOR INVESTING ACTIVITIES... (6,454) (6,454)
-------- ---- ----- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt............... (15,727) (15,727)
Net change in line of credit....................... 294 294
-------- ---- ----- --------
NET CASH PROVIDED BY (USED FOR) FINANCING
ACTIVITIES............................. (15,433) (15,433)
-------- ---- ----- --------
Net increase (decrease) in cash.................... 153 156 (156) 153
Cash -- beginning of year.......................... 10 10
Cash -- end of period.............................. $ 163 $ 156 $ (156) $ 163
</TABLE>
F-32
<PAGE> 113
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
11. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------
MS
AETNA ACQUISITION ELIMINATIONS TOTAL
-------- ----------- ------------ --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................. $ 4,576 $ 177 $ (177) $ 4,576
Adjustments to reconcile net income (loss) to cash
provided by operating activities
Depreciation and amortization.................... 6,579 6,579
Deferred interest................................ 1,281 1,281
Deferred income taxes............................ (860) (860)
Change in assets and liabilities
Accounts receivable........................... 116 116
Inventories................................... 750 750
Tooling....................................... (1,790) (1,790)
Prepaid expenses................................. 54 54
Accounts payable................................. 2,954 2,954
Accrued expenses................................. 904 904
-------- ---- ----- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES..... 14,564 177 (177) 14,564
-------- ---- ----- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment......... (10,103) (10,103)
Other, net......................................... (149) (149)
-------- ---- ----- --------
NET CASH USED FOR INVESTING ACTIVITIES........ (10,252) (10,252)
-------- ---- ----- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt............... (5,400) (5,400)
Net change in line of credit....................... 1,216 1,216
-------- ---- ----- --------
NET CASH PROVIDED BY (USED FOR) FINANCING
ACTIVITIES.................................. (4,184) (4,184)
-------- ---- ----- --------
Net increase (decrease) in cash.................... 128 177 (177) 128
Cash -- beginning of year.......................... 163 163
Cash -- end of period.............................. $ 291 $ 177 $ (177) $ 291
</TABLE>
F-33
<PAGE> 114
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
11. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1995
-------------------------------------------------
MS
AETNA ACQUISITION ELIMINATIONS TOTAL
------- ----------- ------------ -------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................... $ 5,466 $89 $(89) $ 5,466
Adjustments to reconcile net income (loss) to cash
provided by operating activities
Depreciation and amortization...................... 3,426 3,426
Deferred interest.................................. (65) (65)
Changes in assets and liabilities
Accounts receivable............................. (4,967) (4,967)
Inventories..................................... 881 881
Tooling......................................... (470) (470)
Prepaid expenses................................... 29 29
Income taxes payable............................ (530) (530)
Accounts payable................................... 2,214 2,214
Accrued expenses................................... (172) (172)
------- --- ---- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES..... 5,812 89 (89) 5,812
------- --- ---- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment........... (4,966) (4,966)
------- --- ---- -------
NET CASH USED FOR INVESTING ACTIVITIES........ (4,966) (4,966)
------- --- ---- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt................. (2,900) (2,900)
Net change in line of credit......................... 2,396 2,396
------- --- ---- -------
NET CASH PROVIDED BY (USED FOR) FINANCING
ACTIVITIES................................. (504) (504)
------- --- ---- -------
Net increase (decrease) in cash...................... 342 89 (89) 342
Cash -- beginning of year............................ 163 163
Cash -- end of period................................ $ 505 $89 $(89) $ 505
</TABLE>
F-34
<PAGE> 115
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
11. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
-------------------------------------------------
MS
AETNA ACQUISITION ELIMINATIONS TOTAL
------- ----------- ------------ -------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................... $ 2,806 $71 $(71) $ 2,806
Adjustments to reconcile net income (loss) to cash
provided by operating activities
Depreciation and amortization...................... 3,558 3,558
Deferred interest.................................. 801 801
Deferred income taxes.............................. 178 178
Changes in assets and liabilities
Accounts receivable................................ (5,438) (5,438)
Inventories........................................ (1,136) (1,136)
Tooling............................................ 1,079 1,079
Prepaid expenses................................... (231) (231)
Accounts payable................................... (471) (471)
Accrued expenses................................... 767 767
------- --- ---- -------
NET CASH PROVIDED BY OPERATING
ACTIVITIES............................... 1,913 71 (71) 1,913
------- --- ---- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment........... (2,732) (2,732)
Other, net........................................... 162 162
------- --- ---- -------
NET CASH USED FOR INVESTING ACTIVITIES..... (2,570) (2,570)
------- --- ---- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt................. (7,250) (7,250)
Net change in line of credit......................... 7,927 7,927
------- --- ---- -------
NET CASH PROVIDED BY (USED FOR) FINANCING
ACTIVITIES............................... 677 677
Net increase (decrease) in cash...................... 20 71 (71) 20
Cash -- beginning of year............................ 291 291
Cash -- end of period................................ $ 311 $71 $(71) $ 311
</TABLE>
F-35
<PAGE> 116
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
12. LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
------- -------
<S> <C> <C>
Note payable to bank in quarterly principal installments of $1,250 and a
final payment of $3,500 originally due October 31, 1996, refinanced on
May 2, 1996. The note bears interest at the prime rate (8.5% at December
31, 1995) plus 2.0%. ................................................... $12,250 $ 7,250
Note payable to bank under an equipment loan facility payable in quarterly
principal installments of $336 and a final payment of $64 due on June
30, 1995. .............................................................. 400
Note payable to bank under a revolving line of credit facility. The note
bears interest at the prime rate (8.5% at December 31, 1995) plus
1.5%. .................................................................. 9,833 11,049
-------- --------
22,483 18,299
Less -- current portion................................................... (5,400) (2,500)
-------- --------
$17,083 $15,799
======== ========
</TABLE>
At December 31, 1995 and 1994, the Company had $9,799 and $9,833,
respectively, outstanding under a revolving line of credit facility whereby it
may borrow, based upon available collateral up to $25,000. The Company is
charged a monthly fee equal to 0.5% per annum of the average daily unused credit
facility. All assets of the Company are pledged as collateral for the debt
agreements. As part of this credit facility, the Company had available a $1,500
letter of credit facility from the same bank. At December 31, 1995, $1,370 of
letters of credit were outstanding which, if exercised, bear interest at 1.5%
over the bank's prime rate.
On May 2, 1996, the Company executed a new credit agreement relating to a
working capital facility. Under this new credit agreement, the Company may
borrow, based upon available collateral as defined in the agreement (principally
inventory, tooling and accounts receivable), up to $35,000 at either (i) a
Floating Rate, defined as the greater of the Prime Rate or the sum of 1.0% plus
the Federal Funds Rate, or (ii) a Eurodollar Rate plus a margin agreed to by the
banks. The Company is also charged a monthly fee equal to 0.5% per annum of the
daily average unused amount of the credit agreement.
As part of the new credit agreement discussed above, the Company has
available at May 2, 1996, a $3,000 letter of credit facility under which the
bank will issue irrevocable standby letters of credit. Such irrevocable standby
letters of credit, if exercised, bear interest at either the Floating Rate or
the Eurodollar Rate, as defined above. The credit facility is due to expire on
May 2, 1997, but may be extended by the consent of both parties.
In connection with the execution of this credit agreement, the Company
repaid the remaining note payable to bank due October 31, 1996 and the note
payable to bank under a revolving line of credit facility which aggregated
$29,054 on May 2, 1996, with the borrowings under its new credit agreement. As a
result of the new credit agreement, amounts outstanding at December 31, 1995
under the prior credit agreement and revolving line of credit have been
classified as long-term.
The new credit agreement contains, among other provisions, covenants
relating to the ratios of (i) debt to earnings before income taxes, interest and
depreciation and amortization (EBITDA) and (ii) interest expense to EBITDA.
Unamortized commitment and legal fees of $315 and $692 at December 31, 1995
and 1994, respectively, relating to the long-term debt have been deferred and
are being amortized over the term of the debt
F-36
<PAGE> 117
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
12. LONG-TERM DEBT (CONTINUED)
agreements using the interest method. As a result of the execution of the new
credit agreement, the remaining unamortized commitment and legal fees will be
charged to expense in 1996.
13. THE TRANSACTIONS
On August 13, 1996, the Company completed a recapitalization. The Company
amended its charter to provide for the reclassification of its capital stock
into two classes of common stock (voting and non-voting) (together, New Common)
and a new class of preferred stock (New Preferred). Existing stockholders
exchanged their existing MS Acquisition shares, pro rata, for New Common and New
Preferred. Citicorp Venture Capital, Ltd. and related parties purchased shares
of New Preferred and New Common for $10,000 in cash from the existing
stockholders. MS Acquisition formed Aetna Holdings, Inc. (Holdings) and
contributed to Holdings all of the capital stock of Aetna. Holdings then
purchased from existing stockholders approximately 61% of their existing capital
stock of the Company in exchange for (i) $11,064 in cash and (ii) $8,731 in
principal amount of 11.0% junior subordinated debentures of Newco due in 2007.
In addition, the Company paid approximately $651 in cash to terminate certain
employee options. The former stockholders retained (i) $2.36 million in stated
value of New Preferred and (ii) shares of New Common representing 20.6% of the
New Common on a fully diluted basis.
In connection with this recapitalization, the Company and NBD Bank will
amend and restate the Company's existing working capital facility with NBD Bank.
The covenants described in Note 12 above remained substantially unchanged.
F-37
<PAGE> 118
AETNA INDUSTRIES, INC.
(AMOUNTS IN THOUSANDS)
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated financial information
(the "Pro Forma Statements") is based upon the historical financial statements
of the Company for the year ended December 31, 1995 and the six months ended
June 30, 1996 included elsewhere in this Prospectus adjusted to give effect to
the Transactions, including (i) the Offering and (ii) the Recapitalization. The
Pro Forma Unaudited Condensed Consolidated Statement of Operations Data give
effect to the Transactions as if they had occurred as of January 1, 1995 and the
Pro Forma Unaudited Consolidated Balance Sheet Data give effect to the
Transactions as if they had occurred as of June 30, 1996. The Transactions and
the related adjustments are described in the accompanying notes. The pro forma
adjustments are based upon available information and certain assumptions that
management believes are reasonable. The Pro Forma Statements do not purport to
represent what the Company's results of operations or financial condition would
actually have been had the Transactions in fact occurred on such dates or to
project the Company's results of operations or financial condition for any
future period or date. The Pro Forma Statements should be read in conjunction
with the historical consolidated financial statements of the Company included
elsewhere in this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------
ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- ---------
<S> <C> <C> <C>
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales.................................................. $211,905 $ -- $ 211,905
Cost of sales.............................................. 183,542 183,542
Selling, general and administrative expenses............... 13,331 (128)(a) 13,203
-------- ----- --------
Operating profit........................................... 15,032 (128) 15,160
-------- ----- --------
Interest expense, net...................................... 8,579 1,515(b) 10,094
-------- ----- --------
Income (loss) before income taxes.......................... 6,453 1,387 5,066
-------- ----- --------
Income tax provision (benefit)........................... 1,877 485(c) 1,392
-------- ----- --------
Net income............................................ $ 4,576 $ 902 $ 3,674
-------- ----- --------
Dividends paid to Holdings............................ 1,015(d) 1,015
-------- ----- --------
Net increase in retained earnings..................... $ 4,576 $ 1,917 $ 2,659
======== ===== ========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------
ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- ---------
<S> <C> <C> <C>
Net sales.................................................. $114,944 $ -- $ 114,944
Cost of sales.............................................. 98,472 98,472
Selling, general and administrative expenses............... 7,371 (64)(a) 7,307
-------- ----- --------
Operating profit........................................... 9,101 (64) 9,165
-------- ----- --------
Interest expense, net...................................... 4,132 915(b) 5,047
-------- ----- --------
Income (loss) before income taxes.......................... 4,969 851 4,118
-------- ----- --------
Income tax provision (benefit)........................... 2,163 298(c) 1,865
-------- ----- --------
Net income............................................ $ 2,806 $ 553 $ 2,253
-------- ----- --------
Dividends paid to Holdings............................ 508(d) 508
-------- ----- --------
Net increase in retained earnings..................... $ 2,806 $ 1,061 $ 1,745
======== ===== ========
</TABLE>
See notes to the pro forma unaudited condensed consolidated statement of
operations.
F-38
<PAGE> 119
NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS DATA
(a) The pro forma adjustments to selling, general and administrative
expenses reflect the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------
<S> <C> <C>
Elimination of the management fees(i)......... $(250) $ (125)
Elimination of amortization on prior debt
issuance costs.............................. (378) (189)
Amortization associated with the estimated
debt issuance costs related to the Offering
(estimated)................................. 500 250
------- ------
$(128) $ (64)
======= ======
</TABLE>
(i) Any management fees associated with the new management agreement
are not expected to be significant.
(b) The pro forma adjustments to interest expense reflect the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------
<S> <C> <C>
Elimination of historical interest expense on
existing borrowings.......................... $(8,579) $ (4,132)
Interest on the Notes at an interest rate of
11 7/8%...................................... 10,094 5,047
------- ------
$ 1,515 $ 915
======= ======
</TABLE>
(c) The pro forma adjustments to income taxes reflect the effect of the
transactions discussed above using a 35% income tax rate.
(d) The pro forma adjustments to dividends reflects the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------
<S> <C> <C>
Dividend to Holdings to fund cash interest on
the Junior Subordinated Debentures and
unfunded contractual obligations (ii)........ $ 1,015 $ 508
======= ======
</TABLE>
(ii) To the extent dividends by the Company to Holdings to fund cash
interest payments on the Junior Subordinated Debentures and cash
payments on the unfunded contractual obligations to former option
holders are permitted under the Indenture and the Senior
Revolving Credit Facility, interest on the Junior Subordinated
Debentures and the contractual obligations will be funded by cash
dividends by the Company to Holdings.
F-39
<PAGE> 120
PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
AT JUNE 30, 1996
-----------------------------------------------------------
PRO
ACTUAL OFFERING RECAPITALIZATION FORMA
-------- -------- ---------------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash.................................... $ 311 $ 80,000(a) $(11,715)(g)
(63,142)(c) $ 2,891
(1,747)(d)
(816)(e)
Accounts receivable, net................ 33,960 33,960
Inventories............................. 9,795 9,795
Tooling................................. 1,579 1,579
Prepaid expenses........................ 373 373
Deferred income taxes................... 759 759
---------- -------- ---------- ----------
Total current assets.................... 46,777 14,295 (11,715) 49,357
---------- -------- ---------- ----------
Property, plant and equipment, net...... 48,558 48,558
Other assets............................ 27,550 5,000(a)
(335)(b) 32,215
---------- -------- ---------- ----------
Total assets............................ $122,885 $ 18,960 $(11,715) $130,130
========== ======== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable and accrued expenses... $ 41,971 $ (118)(b) $ -- $ 39,068
(1,423)(c)
(611)(d)
(588)(e)
(163)(f)
---------- -------- ---------- ----------
Total current liabilities............... 41,971 (2,903) 39,068
---------- -------- ---------- ----------
Long-term debt:
Notes................................... 85,000(a) 85,000
Senior Revolving Credit Facility........ 18,976 (18,976)(c)
Subordinated debt....................... 42,743 (42,743)(c)
Deferred income taxes................... 8,987 8,987
---------- -------- ---------- ----------
Total liabilities....................... 112,677 20,378 133,055
---------- -------- ---------- ----------
Stockholder's equity
Contributed capital..................... 9,024 9,024
Retained earnings (accumulated
deficit)............................. 1,184 (217)(b) (11,715)(g)(h) (11,949)
(1,136)(d)
(228)(e)
163(f)
---------- -------- ---------- ----------
10,208 (1,418) (11,715) (2,925)
---------- -------- ---------- ----------
$122,885 $ 18,960 $(11,715) $130,130
========== ======== ========== ==========
</TABLE>
See notes to the pro forma unaudited consolidated balance sheet.
F-40
<PAGE> 121
AETNA INDUSTRIES, INC.
NOTES TO THE PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS)
OFFERING
(a) To reflect the issuance of the Notes as follows:
<TABLE>
<S> <C>
Estimated net proceeds............................................. $ 80,000
Estimated debt issuance costs...................................... 5,000
-------
Notes.............................................................. $ 85,000
=======
</TABLE>
(b) To writeoff the unamortized debt issuance costs relating to prior debt
issuances, net of applicable income taxes at 35%:
<TABLE>
<S> <C>
Debt issuance costs (other assets)................................. $ 335
Accounts payable and accrued expenses.............................. (118)
Retained earnings (accumulated deficit)............................ (217)
</TABLE>
(c) To reflect the repayments on existing debt from the proceeds of the
Offering:
<TABLE>
<S> <C>
Subordinated debt.................................................. $ 42,743
Interest on subordinated debt...................................... 1,423
Senior Revolving Credit Facility................................... 18,976
--------
$ 63,142
========
</TABLE>
(d) To reflect the prepayment penalty associated with early retirement of
the subordinated debt, net of applicable income taxes at 35%.
<TABLE>
<S> <C>
Cash................................................................ $ 1,747
Accounts payable and accrued expenses............................... $ (611)
Retained earnings (accumulated deficit)............................. $(1,136)
</TABLE>
(e) To reflect the payment of certain one time costs associated with the
Offering:
<TABLE>
<S> <C>
Cash................................................................. $(816)
Accounts payable and accrued expenses................................ 588
Retained earnings (accumulated deficit).............................. 228
</TABLE>
(f) To reflect the reversal of management fees previously accrued which
will be forgiven, net of applicable income taxes at 35%.
<TABLE>
<S> <C>
Accounts payable and accrued expenses................................ $(163)
Retained earnings (accumulated deficit).............................. 163
</TABLE>
The pro forma statement of operations data above excludes the effect of
non-recurring charges of $1,744, net of applicable taxes, relating to the
transactions discussed in (b), (d), (e) and (f).
RECAPITALIZATION
(g) To reflect the dividend paid to Holdings to fund the cash portion of
the Holdings Consideration:
<TABLE>
<S> <C>
Dividend to Newco.................................................. $ 11,715
Retained earnings (accumulated deficit)............................ $(11,715)
</TABLE>
(h) Up to $2.5 million in aggregate principal amount of the Junior
Subordinated Debentures will be required to be redeemed by Holdings
from time to time, to the extent that cash dividends from the Company
to fund such redemptions are permitted to be paid by the Indenture and
Senior Revolving Credit Facility. The pro forma unaudited consolidated
balance sheet data does not include the potential dividends payable of
$2.5 million.
F-41
<PAGE> 122
MS ACQUISITION CORP.
(AMOUNTS IN THOUSANDS)
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated financial information
(the "Pro Forma Statements") is based upon the historical financial statements
of MS Acquisition for the year ended December 31, 1995 and the six months ended
June 30, 1996 included elsewhere in this Prospectus adjusted to give effect to
the Transactions, including (i) the Offering and (ii) the Recapitalization. The
Pro Forma Unaudited Condensed Consolidated Statement of Operations Data give
effect to the Transactions as if they had occurred as of January 1, 1995 and the
Pro Forma Unaudited Consolidated Balance Sheet Data give effect to the
Transactions as if they had occurred as of June 30, 1996. The Transactions and
the related adjustments are described in the accompanying notes. The pro forma
adjustments are based upon available information and certain assumptions that
management believes are reasonable. The Pro Forma Statements do not purport to
represent what MS Acquisition's results of operations or financial condition
would actually have been had the Transactions in fact occurred on such dates or
to project MS Acquisition's results of operations or financial condition for any
future period or date. The Pro Forma Statements should be read in conjunction
with the historical consolidated financial statements of MS Acquisition included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------
ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- ---------
<S> <C> <C> <C>
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales.................................................. $211,905 $ -- $ 211,905
Cost of sales.............................................. 183,542 183,542
Selling, general and administrative expenses............... 13,331 (128)(a) 13,203
-------- ------- ---------
Operating profit........................................... 15,032 (128) 15,160
-------- ------- ---------
Interest expense, net...................................... 8,579 2,530(b) 11,109
-------- ------- ---------
Income (loss) before income taxes.......................... 6,453 2,402 4,051
-------- ------- ---------
Income tax provision (benefit)........................... 1,877 841(c) 1,036
-------- ------- ---------
Net income............................................ $ 4,576 $ 1,561 $ 3,015
-------- ------- ---------
Preferred dividends................................... 310 955(d) 1,265
-------- ------- ---------
Net income attributable to common stockholders........ $ 4,266 $ 2,516 $ 1,750
======== ======= =========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------
ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- ---------
<S> <C> <C> <C>
Net sales.................................................. $114,944 $ -- $ 114,944
Cost of sales.............................................. 98,472 98,472
Selling, general and administrative expenses............... 7,371 (64)(a) 7,307
-------- ------- ---------
Operating profit........................................... 9,101 (64) 9,165
-------- ------- ---------
Interest expense, net...................................... 4,132 1,423(b) 5,555
-------- ------- ---------
Income (loss) before income taxes.......................... 4,969 1,359 3,610
-------- ------- ---------
Income tax provision (benefit)........................... 2,163 476(c) 1,687
-------- ------- ---------
Net income............................................ $ 2,806 $ 883 $ 1,923
-------- ------- ---------
Preferred dividends................................... 172 461(d) 633
-------- ------- ---------
Net income attributable to common stockholders........ $ 2,634 $ 1,344 $ 1,290
======== ======= =========
</TABLE>
See notes to the pro forma unaudited condensed consolidated statement of
operations.
F-42
<PAGE> 123
NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS DATA
(a) The pro forma adjustments to selling, general and administrative
expenses reflect the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------
<S> <C> <C>
Elimination of the management fees(i)......... $(250) $ (125)
Elimination of amortization on prior debt
issuance costs.............................. (378) (189)
Amortization associated with the estimated
debt issuance costs related to the Offering
(estimated)................................. 500 250
------ --------
$(128) $ (64)
====== ========
</TABLE>
(i) Any management fees associated with the new management agreement
are not expected to be significant.
(b) The pro forma adjustments to interest expense reflect the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------
<S> <C> <C>
Elimination of historical interest expense on
existing borrowings.......................... $(8,579) $ (4,132)
Interest on the Notes at an interest rate of
11 7/8%...................................... 10,094 5,047
Interest on Junior Subordinated Debentures and
unfunded contractual obligations............. 1,015 508
------- --------
$ 2,530 $ 1,423
======= ========
</TABLE>
(c) The pro forma adjustments to income taxes reflect the effect of the
transactions discussed above using a 35% income tax rate.
(d) The pro forma adjustments to preferred dividends reflect the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- ----------------
<S> <C> <C>
Elimination of historical preferred dividends
to Series A and Series B preferred
stockholders................................. $ (310) $ (172)
Preferred dividends associated with New
Preferred Stock.............................. 1,265 633
------- ------
$ 955 $ 461
======= ======
</TABLE>
F-43
<PAGE> 124
MS ACQUISITION CORP.
PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
AT JUNE 30, 1996
-----------------------------------------------------------
PRO
ACTUAL OFFERING RECAPITALIZATION FORMA
-------- -------- ---------------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash.................................... $ 311 $ 80,000(a) $(11,715)(g)
(63,142)(c) 10,000(h)
(1,747)(d) (10,000)(i)
(816)(e) $ 2,891
Accounts receivable, net................ 33,960 33,960
Inventories............................. 9,795 9,795
Tooling................................. 1,579 1,579
Prepaid expenses........................ 373 373
Deferred income taxes................... 759 759
---------- -------- ---------- ----------
Total current assets.................... 46,777 14,295 (11,715) 49,357
---------- -------- ---------- ----------
Property, plant and equipment, net...... 48,558 48,558
Other assets............................ 27,550 5,000(a)
(335)(b) 32,215
---------- -------- ---------- ----------
Total assets............................ $122,885 $ 18,960 $(11,715) $130,130
========== ======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses... $ 41,971 $ (118)(b) $ 498(i) $ 39,566
(1,423)(c)
(611)(d)
(588)(e)
(163)(f)
---------- -------- ---------- ----------
Total current liabilities............... 41,971 (2,903) 498 39,566
---------- -------- ---------- ----------
Long-term debt:
Notes................................... 85,000(a) 85,000
Senior Revolving Credit Facility........ 18,976 (18,976)(c)
Subordinated debt....................... 42,743 (42,743)(c)
Junior Subordinated Debentures.......... 8,731(i) 8,731
Deferred income taxes................... 8,987 8,987
---------- -------- ---------- ----------
Total liabilities....................... 112,677 20,378 9,229 142,284
---------- -------- ---------- ----------
Redeemable preferred stock................ 2,580
9,000(h) 11,496
2,496(i)
(2,580)(j)
Stockholders' equity
Common stock............................ 10 1,000(h)
268(i) 1,278
14,990
Additional paid in capital.............. 14,990
Fair market value in excess of
historical cost...................... (7,276) (7,276)
Accumulated deficit..................... (96) (217)(b) (11,715)(g) (32,642)
(1,136)(d) (21,993)(i)
(228)(e) 2,580(j)
163(f)
---------- -------- ---------- ----------
7,628 (1,418) (29,860) (23,650)
---------- -------- ---------- ----------
$122,885 $ 18,960 $(11,715) $130,130
========== ======== ========== ==========
</TABLE>
See notes to the pro forma unaudited consolidated balance sheet.
F-44
<PAGE> 125
MS ACQUISITION CORP.
NOTES TO THE PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS)
OFFERING
(a) To reflect the issuance of the Notes as follows:
<TABLE>
<S> <C>
Estimated net proceeds............................................. $ 80,000
Estimated debt issuance costs...................................... 5,000
-------
Notes.............................................................. $ 85,000
=======
</TABLE>
(b) To writeoff the unamortized debt issuance costs relating to prior debt
issuances, net of applicable income taxes at 35%:
<TABLE>
<S> <C>
Debt issuance costs (other assets)................................. $ 335
Accounts payable and accrued expenses.............................. (118)
Retained earnings (accumulated deficit)............................ (217)
</TABLE>
(c) To reflect the repayments on existing debt from the proceeds of the
Offering:
<TABLE>
<S> <C>
Subordinated debt.................................................. $ 42,743
Interest on subordinated debt...................................... 1,423
Senior Revolving Credit Facility................................... 18,976
--------
$ 63,142
========
</TABLE>
(d) To reflect the prepayment penalty associated with early retirement of
the subordinated debt, net of applicable income taxes at 35%.
<TABLE>
<S> <C>
Cash............................................................... $ 1,747
Accounts payable and accrued expenses.............................. $ (611)
Retained earnings (accumulated deficit)............................ $ (1,136)
</TABLE>
(e) To reflect the payment of certain one time costs associated with the
Offering:
<TABLE>
<S> <C>
Cash............................................................... $ (816)
Accounts payable and accrued expenses.............................. 588
Retained earnings (accumulated deficit)............................ 228
</TABLE>
(f) To reflect the reversal of management fees previously accrued which
will be forgiven, net of applicable income taxes at 35%.
<TABLE>
<S> <C>
Accounts payable and accrued expenses.............................. $ (163)
Retained earnings (accumulated deficit)............................ 163
</TABLE>
The pro forma statement of operations data above excludes the effect of
non-recurring charges of $1,744, net of applicable taxes, relating to the
transactions discussed in (b), (d), (e) and (f).
RECAPITALIZATION
(g) To reflect the dividend paid to Holdings to fund the cash portion of
the Holdings Consideration:
<TABLE>
<S> <C>
Dividend to Newco.................................................. $ 11,715
Retained earnings (accumulated deficit)............................ $(11,715)
</TABLE>
(h) To reflect the capital contribution by CVC:
<TABLE>
<S> <C>
Redeemable preferred stock......................................... $ (9,000)
Common stock....................................................... (1,000)
--------
Cash............................................................... $(10,000)
========
</TABLE>
F-45
<PAGE> 126
MS ACQUISITION CORP.
NOTES TO THE PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET (CONTINUED)
(AMOUNTS IN THOUSANDS)
(i) To reflect the merger consideration provided to existing stockholders:
<TABLE>
<S> <C>
Cash................................................................ $10,000
Junior Subordinated Notes due 2007.................................. 8,731
Unfunded promise to pay............................................. 498
New Preferred Stock to existing stockholders........................ 2,496
New Common Stock to existing stockholders, net...................... 268
-------
Paid-in capital..................................................... $21,993
=======
</TABLE>
(j) To reflect the retirement of the existing MS Acquisition preferred
stock:
<TABLE>
<S> <C>
Preferred stock..................................................... $(2,578)
=======
Additional paid-in capital.......................................... $ 2,578
=======
</TABLE>
F-46
<PAGE> 127
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 SIX MONTHS ENDED JUNE 30, 1996
---------------------------------- ----------------------------------
AETNA AETNA
INDUSTRIES HOLDINGS TOTAL INDUSTRIES HOLDINGS TOTAL
---------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales.......................... $ 211,905 $ -- $211,905 $ 114,944 $ -- $114,944
Cost of sales...................... 183,542 183,542 98,472 98,472
Selling, general and administrative
expenses......................... 13,203 13,203 7,307 7,307
-------- ------- -------- -------- ----- --------
Operating profit................... 15,160 15,160 9,165 9,165
-------- ------- -------- -------- ----- --------
Interest expense, net.............. 10,094 1,015 11,109 5,047 508 5,555
-------- ------- -------- -------- ----- --------
Income (loss) before income
taxes............................ 5,066 (1,015) 4,051 4,118 (508) 3,610
-------- ------- -------- -------- ----- --------
Income tax provision............... 1,392 (356) 1,038 1,885 (178) 1,687
-------- ------- -------- -------- ----- --------
Net income (loss)................ $ 3,674 $ (659) $ 3,015 $ 2,253 $ (330) $ 1,923
======== ======= ======== ======== ===== ========
</TABLE>
AETNA HOLDINGS
PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET DATA
JUNE 30, 1996
<TABLE>
<CAPTION>
AETNA
INDUSTRIES HOLDINGS TOTAL
---------- -------- --------
<S> <C> <C> <C>
ASSETS
Cash........................................................... $ 2,891 $ -- $ 2,891
Accounts receivable............................................ 33,960 33,960
Inventories.................................................... 9,795 9,795
Tooling........................................................ 1,579 1,579
Prepaid expenses............................................... 373 373
Deferred income taxes.......................................... 759 759
-------- ------- --------
Total current assets........................................... 49,357 49,357
-------- ------- --------
Property, plant, and equipment................................. 48,558 48,558
Other assets................................................... 32,215 32,215
-------- ------- --------
$ 130,130 $ -- $130,130
======== ======= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable and accrued expenses.......................... $ 39,566 $ 39,566
Long-term debt:
Notes.......................................................... 85,000 85,000
Junior subordinated debentures................................. 8,731 8,731
Deferred income taxes.......................................... 8,987 8,987
Total liabilities............................................ 133,553 8,731 142,284
Stockholder's equity
Common stock................................................. 1,000 1,000
Contributed capital.......................................... 9,024 (1,000) 8,024
Retained earnings............................................ (12,447) (8,731) (21,178)
======== ======= ========
(3,423) (8,731) (12,154)
======== ======= ========
$ 130,130 $ -- $130,130
======== ======= ========
</TABLE>
See note to the pro forma condensed consolidated financial data.
F-47
<PAGE> 128
1. BASIS OF PRESENTATION
The accompanying financial statements give effect to the Transactions,
including the Offering and the Recapitalization as described in elsewhere in
this Prospectus. The pro forma unaudited statements of operations data give
effect to the Transactions as if they had occurred as of January 1, 1995 and the
pro forma consolidated balance sheet data give effect to the Transactions as if
they occurred as of June 30, 1996. The pro forma statements do not purport to
represent what Holdings' results of operations or financial condition would
actually have been had the Transactions in fact occurred on such dates or to
project Holdings' results of operations or financial condition for any future
period or dates.
F-48
<PAGE> 129
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED
HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY INITIAL PURCHASER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER
THAN THOSE TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. i
Summary............................... 1
Risk Factors.......................... 9
Use of Proceeds....................... 13
Capitalization........................ 13
Selected Financial Data............... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
The Exchange Offer.................... 21
Business.............................. 27
Management............................ 36
Beneficial Ownership of Capital
Stock............................... 41
Capital Stock......................... 42
Certain Relationships and
Transactions........................ 47
Description of Senior Revolving Credit
Facility............................ 48
Description of Notes.................. 50
Book Entry; Delivery and Form......... 75
Certain Federal Income Tax
Consequences........................ 76
Plan of Distribution.................. 77
Legal Matters......................... 78
Experts............................... 78
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$85,000,000
AETNA LOGO
11 7/8% SENIOR NOTES DUE 2006
------------
PROSPECTUS
------------
OFFER TO EXCHANGE 11 7/8%
SENIOR NOTES DUE 2006
FOR 11 7/8% SENIOR NOTES
DUE 2006
NOVEMBER 8, 1996
- ------------------------------------------------------
- ------------------------------------------------------
