<PAGE> 1
As filed with the Securities and Exchange Commission on October 31, 1996
REGISTRATION NO. 333-11801
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AETNA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3465 38-200-7550
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
24331 SHERWOOD AVENUE
P.O. BOX 3067
CENTERLINE, MICHIGAN 48015-0067
(810) 759-2200
(Address, including zip code, and telephone number, including area code, of
registrant's and co-registrants' principal executive offices)
HAROLD BROWN
CHIEF FINANCIAL OFFICER AND SECRETARY
AETNA INDUSTRIES, INC.
24331 SHERWOOD AVENUE
P.O. BOX 3067
CENTERLINE, MICHIGAN 48015-0067
(810) 759-2200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
WITH COPIES TO:
PHILIP H. WERNER, ESQ.
MORGAN, LEWIS & BOCKIUS LLP
101 PARK AVENUE
NEW YORK, N.Y. 10178-0060
(212) 309-6000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
11 7/8% Senior Notes due 2006.............. $85,000,000 100% $85,000,000 $29,311
- ---------------------------------------------------------------------------------------------------------------------
Guarantees of 11 7/8% Senior Notes due
2006..................................... (2) (2) (2) (2)
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated pursuant to Rule 457(f) solely for the purposes of calculating the
registration fee.
(2) Pursuant to Rule 457(n), no registration fee is required with respect to the
Guarantees of the Senior Notes registered hereby.
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
------------------------
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
I.R.S. EMPLOYEE PRIMARY STANDARD
EXACT NAME OF GUARANTOR REGISTRANT AS IDENTIFICATION INDUSTRIAL
SPECIFIED IN ITS CHARTER JURISDICTION OF INCORPORATION NO. CLASSIFICATION CODE NO.
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
MS Acquisition Corp..................... Delaware 13-3379803 3465
- ---------------------------------------------------------------------------------------------------------------------
Aetna Holdings, Inc..................... Delaware 38-3306448 3465
- ---------------------------------------------------------------------------------------------------------------------
Aetna Export Sales Corp................. United States Virgin Islands 66-0441945 3465
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
AETNA INDUSTRIES, INC.
CROSS-REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
------------------------------------------- -------------------------------------------
<S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus... Forepart of the Registration Statement;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front Cover Page of Prospectus;
Outside Back Cover Page of Prospectus
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............ Summary; Risk Factors; Summary Financial
Data
4. Terms of the Transaction................... The Exchange Offer; Description of Notes;
Certain Federal Income Tax
Considerations; Plan of Distribution
5. Pro Forma Financial Information............ Selected Financial Data
6. Material Contacts with the Company Being
Acquired................................. Not Applicable
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters....................... Not Applicable
8. Interests of Named Experts and Counsel..... Not Applicable
9. Disclosure of Commission Position on
Indemnification For Securities Act
Liabilities.............................. Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants.............................. Not Applicable
11. Incorporation of Certain Information by
Reference................................ Not Applicable
12. Information with Respect to S-2 or S-3
Registrants.............................. Not Applicable
13. Incorporation of Certain Information by
Reference................................ Not Applicable
14. Information with Respect to Registrants
Other than S-2 or S-3 Registrants........ Summary; Risk Factors; Capitalization;
Selected Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Capital Stock;
Certain Relationships and Transactions;
Description of Senior Revolving Credit
Facility; Financial Statements
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
------------------------------------------- -------------------------------------------
<S> <C>
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3
Companies................................ Not Applicable
16. Information with Respect to S-2 or S-3
Companies................................ Not Applicable
17. Information with Respect to Companies Other
than S-2 or S-3 Companies................ Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicitated..... Not Applicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited,
or in an Exchange Offer.................. The Exchange Offer; Management; Beneficial
Ownership of Capital Stock; Capital
Stock; Certain Relationships and
Transactions; Description of Senior
Revolving Credit Facility; Description of
Notes
</TABLE>
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED , 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 INDUSTRIES, INC. LOGO]
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON , 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 , 1996.
<PAGE> 5
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 are not necessarily complete. 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".
i
<PAGE> 6
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.
1
<PAGE> 7
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
2
<PAGE> 8
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> 9
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 , 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."
4
<PAGE> 10
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
5
<PAGE> 11
Holdings will initially conduct no business and
have no significant assets other than the
capital stock of Holdings and the Company,
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").
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.
6
<PAGE> 12
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> 13
- ------------------------------
(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> 14
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> 15
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> 16
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> 17
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> 18
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> 19
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> 20
- ------------------------------
(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.
15
<PAGE> 21
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.
16
<PAGE> 22
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.
17
<PAGE> 23
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> 24
$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.
19
<PAGE> 25
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.
20
<PAGE> 26
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 , 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 , 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.
21
<PAGE> 27
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> 28
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,
23
<PAGE> 29
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 Registered or Certified
By Hand: 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
By Facsimile:
-----------------------------
Norwest Bank Minnesota,
National Association
Corporate Trust Operations
(612) 667-4927
Confirm by telephone:
(612) 667-9764
</TABLE>
DELIVERY OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
24
<PAGE> 30
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> 31
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> 32
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> 33
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> 34
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>
29
<PAGE> 35
<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.
30
<PAGE> 36
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.
31
<PAGE> 37
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> 38
$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> 39
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> 40
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> 41
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> 42
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> 43
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> 44
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> 45
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> 46
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%.
41
<PAGE> 47
(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.
42
<PAGE> 48
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
43
<PAGE> 49
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
44
<PAGE> 50
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.
45
<PAGE> 51
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.
46
<PAGE> 52
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
47
<PAGE> 53
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
48
<PAGE> 54
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.
49
<PAGE> 55
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
50
<PAGE> 56
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
51
<PAGE> 57
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.
52
<PAGE> 58
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
53
<PAGE> 59
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
54
<PAGE> 60
(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:
55
<PAGE> 61
(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
56
<PAGE> 62
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
57
<PAGE> 63
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
58
<PAGE> 64
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."
59
<PAGE> 65
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
60
<PAGE> 66
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.
61
<PAGE> 67
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.
62
<PAGE> 68
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.
63
<PAGE> 69
"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.
64
<PAGE> 70
"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;
65
<PAGE> 71
(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
66
<PAGE> 72
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.
67
<PAGE> 73
"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
68
<PAGE> 74
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".
69
<PAGE> 75
"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;
70
<PAGE> 76
(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;
71
<PAGE> 77
(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
72
<PAGE> 78
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
73
<PAGE> 79
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
74
<PAGE> 80
(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.
75
<PAGE> 81
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
76
<PAGE> 82
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 , 1996 (90 days after the
date of this Prospectus), all dealers effecting transactions in the New Notes
may be required to deliver a prospectus.
77
<PAGE> 83
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.
78
<PAGE> 84
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> 85
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> 86
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> 87
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> 88
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> 89
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> 90
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> 91
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>
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>
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> 92
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> 93
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> 94
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> 95
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> 96
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> 97
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> 98
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> 99
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> 100
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> 101
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> 102
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)
<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,
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> 103
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> 104
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> 105
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> 106
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> 107
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> 108
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> 109
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> 110
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> 111
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> 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, 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> 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>
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> 114
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> 115
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> 116
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> 117
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> 118
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> 119
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> 120
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> 121
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> 122
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> 123
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> 124
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> 125
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> 126
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> 127
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> 128
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> 129
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> 130
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> 131
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> 132
- ------------------------------------------------------
- ------------------------------------------------------
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 , 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 133
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a Delaware corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") (other than an action by or in the right of the corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his or her conduct was unlawful. A Delaware corporation may indemnify any person
under such section in connection with an action or suit by or in the right of
the corporation to procure judgment in its favor, against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit if such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
shall be made in respect thereof of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the corporation unless, and only
to the extent that, a court of competent jurisdiction determines upon
application that such person is fairly and reasonably entitled to indemnity for
such expenses as the court deems proper. A Delaware corporation must indemnify
any person against expenses (including attorneys' fees) actually and reasonably
incurred by such person who was successful on the merits or otherwise in defense
of any action, suit or proceeding or in defense of any claim, issue or matter
therein, by reason of the fact that such person is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. A Delaware corporation
may pay for the expenses (including attorneys' fees) incurred by an officer or
director in defending a proceeding in advance of the final disposition of such
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it ultimately shall be determined that he or she
is not entitled to be indemnified by the corporation.
The By-laws of Aetna Industries, Inc. (the "Company"), MS Acquisition
Corp., a co-registrant ("MS Acquisition"), and Aetna Holdings, Inc., a
co-registrant ("Holdings"), each of which is a Delaware corporation, provide for
indemnification of directors and officers consistent with that permitted by
Section 145 of the DGCL. The By-laws of Aetna Export Sales Corp., a
co-registrant and a U.S. Virgin Islands corporation, provides for
indemnification of directors and officers, substantially to the same extent and
under the same conditions that such indemnification is permitted under Section
145 of the DGCL.
Section 102(b)(7) of the DGCL provides that a Delaware corporation may in
its certificate of incorporation eliminate or limit the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director except for liability: for any breach of the
director's duty of loyalty to the corporation or its stockholders; for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; under Section 174 of the DGCL (pertaining to certain
prohibited acts including unlawful payment of dividends or unlawful purchase or
redemption of the corporation's capital stock); or for any transaction from
which the director derived an improper personal benefit. The Company's
Certificate of Incorporation and the Certificate of the Incorporation of
Holdings eliminate the liability of a director for monetary damages for breach
of fiduciary duty as a director unless such director is liable (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL,
or (iv) for any transaction from which the director derived an improper personal
benefit. Similarly, the Restated Certificate of Incorporation of MS Acquisition
provides
II-1
<PAGE> 134
that to the fullest extent permitted by the DGCL, as may be amended, the
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director will be eliminated.
The DGCL permits a Delaware corporation to purchase insurance on behalf of
directors and officers against any liability asserted against directors and
officers and incurred by such persons in such capacity, or arising out of their
status as such, whether or not the corporation would have the power to indemnify
directors and officers against such liability. Arrangements are currently being
finalized by each of the co-registrants to have such insurance in place as of
November 6, 1996.
The foregoing summaries of the DGCL and the charters and the by-laws of the
co-registrants are qualified in their entirety by reference to the relevant
provisions of the DGCL and by reference to the relevant provisions of the
charters (filed as Exhibits 3.1 to 3.4) and by-laws (filed as Exhibits 3.5 to
3.8) of the co-registrants.
See Item 22 for a statement of the co-registrants' undertaking as to the
Securities and Exchange Commission's position respecting indemnification for
liabilities arising under the Securities Act of 1933, as amended.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ ------------------------------------------------------------------------------------
<S> <C>
5 Opinion of Morgan, Lewis & Bockius LLP
8 Opinion of Morgan, Lewis & Bockius LLP regarding tax matters
10.1 Recapitalization and Stock Purchase Agreement dated as of August 13, 1996 among
Citicorp Venture Capital, Ltd., MS Acquisition and the stockholders listed therein
10.2 Stock Purchase Agreement dated as of August 13, 1996 among MS Acquisition, Holdings
and the stockholders and optionees listed therein
10.13 Agreement to Indemnify dated as of August 13, 1996 between the Company and each of
R. Epker, R. Small, J. Bakken, D. Thal and J. Singer
10.16 Form of Employment Agreement dated as of August 13, 1996 among the Company, MS
Acquisition and Ueli Spring
12 Statement of Ratio of Earnings to Fixed Charges
23.2 Consent of Price Waterhouse LLP for the Company
23.3 Consent of Price Waterhouse LLP for MS Acquisition
</TABLE>
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
II-2
<PAGE> 135
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b)(sec.230.424(b) of this chapter) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-3
<PAGE> 136
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 31st day of October, 1996.
AETNA INDUSTRIES, INC.
By: /s/ UELI SPRING
------------------------------------
Ueli Spring
President and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below appoints Ueli Spring and Harold
Brown, any of whom may act without the joinder of the other, as his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto
and all other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or their substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities at the above-named registrant and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------ -----------------
<C> <S> <C>
/s/ UELI SPRING Director, President and Chief October 31, 1996
- ------------------------------------- Executive Officer
Ueli Spring (principal executive officer)
/s/ HAROLD BROWN Director, Chief Financial Officer, October 31, 1996
- ------------------------------------- Vice President, Finance and
Harold Brown Secretary
(principal financial and accounting
officer)
/s/ MICHAEL DELANEY Director October 31, 1996
- -------------------------------------
Michael Delaney
/s/ DAVID HOWE Director October 31, 1996
- -------------------------------------
David Howe
/s/ JOHN WURSTER Director October 31, 1996
- -------------------------------------
John Wurster
</TABLE>
II-4
<PAGE> 137
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 31st day of October, 1996.
MS ACQUISITION CORP.
By: /s/ UELI SPRING
------------------------------------
Ueli Spring
President and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below appoints Ueli Spring and Harold
Brown, any of whom may act without the joinder of the other, as his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto
and all other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or their substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities at the above-named registrant and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ---------------------------------- -------------------
<C> <S> <C>
/s/ UELI SPRING Director, President and Chief October 31, 1996
- ------------------------------------- Executive Officer
Ueli Spring (principal executive officer)
/s/ HAROLD BROWN Director, Chief Financial Officer, October 31, 1996
- ------------------------------------- Vice President, Finance and
Harold Brown Secretary
(principal financial and
accounting officer)
/s/ MICHAEL DELANEY Director October 31, 1996
- -------------------------------------
Michael Delaney
/s/ DAVID HOWE Director October 31, 1996
- -------------------------------------
David Howe
/s/ JOHN WURSTER Director October 31, 1996
- -------------------------------------
John Wurster
</TABLE>
II-5
<PAGE> 138
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 31st day of October, 1996.
AETNA HOLDINGS, INC.
By: /s/ UELI SPRING
------------------------------------
Ueli Spring
President and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below appoints Ueli Spring and Harold
Brown, any of whom may act without the joinder of the other, as his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto
and all other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or their substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities at the above-named registrant and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------ -----------------
<C> <S> <C>
/s/ UELI SPRING Director, President and Chief October 31, 1996
- ------------------------------------- Executive Officer
Ueli Spring (principal executive officer)
/s/ HAROLD BROWN Director, Chief Financial Officer, October 31, 1996
- ------------------------------------- Vice President, Finance and
Harold Brown Secretary
(principal financial and accounting
officer)
/s/ MICHAEL DELANEY Director October 31, 1996
- -------------------------------------
Michael Delaney
/s/ DAVID HOWE Director October 31, 1996
- -------------------------------------
David Howe
/s/ JOHN WURSTER Director October 31, 1996
- -------------------------------------
John Wurster
</TABLE>
II-6
<PAGE> 139
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on the 31st day of October, 1996.
AETNA EXPORT SALES CORP.
By: /s/ UELI SPRING
------------------------------------
Ueli Spring
President
POWER OF ATTORNEY
Each person whose signature appears below appoints Ueli Spring and Harold
Brown, any of whom may act without the joinder of the other, as his true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto
and all other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or their substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities at the above-named registrant and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------ -----------------
<C> <S> <C>
/s/ UELI SPRING Director and President October 31, 1996
- ------------------------------------- (principal executive officer)
Ueli Spring
/s/ HAROLD BROWN Director, Treasurer and Secretary October 31, 1996
- ------------------------------------- (principal financial and accounting
Harold Brown officer)
/s/ EDWARD J. ROGERS Director October 31, 1996
- -------------------------------------
Edward J. Rogers
/s/ GRAHAM J. DUNN Director October 31, 1996
- -------------------------------------
Graham J. Dunn
</TABLE>
II-7
<PAGE> 140
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ ------------------------------------------------------------------------------------
<S> <C>
5 Opinion of Morgan, Lewis & Bockius LLP
8 Opinion of Morgan, Lewis & Bockius LLP regarding tax matters
10.1 Recapitalization and Stock Purchase Agreement dated as of August 13, 1996 among
Citicorp Venture Capital, Ltd., MS Acquisition and the stockholders listed therein
10.2 Stock Purchase Agreement dated as of August 13, 1996 among MS Acquisition, Holdings
and the stockholders and optionees listed therein
10.13 Agreement to Indemnify dated as of August 13, 1996 between the Company and each of
R. Epker, R. Small, J. Bakken, D. Thal and J. Singer
10.16 Form of Employment Agreement dated as of August 13, 1996 among the Company, MS
Acquisition and Ueli Spring
12 Statement of Ratio of Earnings to Fixed Charges
23.2 Consent of Price Waterhouse LLP for the Company
23.3 Consent of Price Waterhouse LLP for MS Acquisition
</TABLE>
II-8
<PAGE> 1
EXHIBIT 5
November __, 1996
Aetna Industries, Inc. Aetna Holdings, Inc.
24331 Sherwood Avenue 24331 Sherwood Avenue
P.O. Box 3067 P.O. Box 3067
Centerline, MI 48015-0067 Centerline, MI 48015-0067
MS Acquisition Corp. Aetna Export Sales Corp.
24331 Sherwood Avenue Citibank Building
P.O. Box 3067 Veterans Drive
Centerline, MI 48015-0067 Charlotte Amalie
St. Thomas, U.S. Virgin Islands
Re: 11 7/8% Senior Notes Due 2006
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form S-4 (the
"Registration Statement") of Aetna Industries, Inc., a Delaware corporation
(the "Company"), which the Company has filed with the Securities and Exchange
Commission (the "Commission") in connection with the registration under the
Securities Act of 1933, as amended (the "Securities Act"), of up to $85,000,000
aggregate principal amount of the Company's 11 7/8% Senior Notes due 2006 (the
"New Notes"). The New Notes are to be issued in exchange for an equal
aggregate principal amount of the Company's outstanding 11 7/8% Senior Notes due
2006 (the "Old Notes") pursuant to the Exchange and Registration Rights
Agreement dated as of August 13, 1996 among the Company, MS Acquisition Corp.,
Aetna Holdings, Inc., Aetna Export Sales Corp. and the Initial Purchasers (as
defined therein). The New Notes are to be issued by the Company pursuant to
the terms of an Indenture dated as of August 1, 1996 (the "Indenture") among
the Company, MS Acquisition Corp., Aetna Holdings, Inc., Aetna Export Sales
Corp. and Norwest Bank Minnesota, National Association, as trustee (the
"Trustee").
We have examined the proceedings taken or proposed to be taken by the Company
in connection with the issuance of the New Notes. In arriving at the following
opinion, we have relied, among other things, upon our examination of such
corporate records of the Company and such certificates of public officials and
of officers of the Company as we have deemed appropriate for
<PAGE> 2
purposes of rendering this opinion. We have assumed with your permission that
the terms of the Old Notes and the New Notes have been established in
accordance with the terms of the Indenture, and that their issuance and sale
(i) did not and will not violate any applicable law or result in a default
under or breach of any agreement or instrument binding upon the Company and
(ii) complied and will comply with any requirement or restriction imposed by
any court or governmental body having jurisdiction over the Company. In
addition, we have assumed that the Indenture has been duly authorized,
executed and delivered by the Trustee and constitutes a legal, valid and
binding agreement of the Trustee.
Based upon the foregoing examination and assumptions and in reliance thereon,
and subject to the completion prior to the issuance of the New Notes of such
proceedings now contemplated by the Company, and subject to the issuance by the
Commission of an order declaring the Registration Statement effective, it is
our opinion that the New Notes, when issued in accordance with the terms of the
Indenture, duly executed by the Company, duly authenticated by the Trustee and
issued and delivered against exchange of the Old Notes in accordance with the
terms set forth in the prospectus that forms a part of the Registration
Statement, will constitute valid and binding obligations of the Company.
Our opinion is subject to: (i) the effect of applicable bankruptcy,
reorganization, insolvency, moratorium, arrangement and other laws affecting
creditors' rights, including, without limitation, the effect of statutory or
other laws regarding fraudulent conveyances, fraudulent transfers and
preferential transfers and (ii) the limitations imposed by general principles
of equity (regardless of whether such enforceability is considered in a
proceeding at law or in equity).
This opinion is limited to the effect of the present state of the laws of the
United States of America and the State of New York. The opinions expressed
herein are based upon the law and circumstances as they are in effect or exist
on the date hereof, and we assume no obligation to revise or supplement this
letter in the event of future changes in the law or interpretation thereof with
respect to circumstances or events that may occur subsequent to the date
hereof. We express no opinion as to the effect of the laws of any other
jurisdiction.
We consent to the filing of this opinion as an exhibit to the Registration
Statement, and we further consent to the use of our name under the caption
"Legal Matters" in the Registration Statement and the prospectus which forms a
part thereof. In giving this consent, we do not admit that we are within the
category of persons whose consent is required under Section 7 of the Securities
Act or the Rules and Regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
MORGAN, LEWIS & BOCKIUS LLP
<PAGE> 1
EXHIBIT 8
November __, 1996
Aetna Industries, Inc. Aetna Holdings, Inc.
24331 Sherwood Avenue 24331 Sherwood Avenue
P.O. Box 3067 P.O. Box 3067
Centerline, MI 48015-0067 Centerline, MI 48015-0067
MS Acquisition Corp. Aetna Export Sales Corp.
24331 Sherwood Avenue Citibank Building
P.O. Box 3067 Veterans Drive
Centerline, MI 48015-0067 Charlotte Amalie
St. Thomas, U.S. Virgin Islands
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as United States counsel to Aetna Industries, Inc. (the "Company")
in connection with the registration under the United States Securities Act of
1933, as amended (the "Securities Act"), of up to $85,000,000 aggregate
principal amount of 11 7/8% Senior Notes due 2006 (the "New Notes") and the
exchange (the "Exchange") of the New Notes for a like principal amount of
11 7/8% Senior Notes due 2006.
We are giving this opinion in connection with the Registration Statement on
Form S-4 (Registration No. 333-11801), and any amendments thereto, relating to
the registration by the Company of the New Notes to be offered in the Exchange,
filed by the Company with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Act and the rules and regulations of
the Commission promulgated thereunder.
Capitalized terms used herein and not otherwise defined herein have the
respective meanings ascribed to them in the Registration Statement.
In arriving at the opinion expressed below, we have examined and relied upon
the following documents:
(a) the Registration Statement;
(b) the form of the Notes;
<PAGE> 2
Aetna Industries, Inc.
MS Acquisition Corp.
Aetna Holdings, Inc.
Aetna Export Sales Corp.
November __, 1996
(c) the form of Indenture between the Company, Aetna Holdings,
Inc., MS Acquisition Corp., Aetna Export Sales Corp. and Norwest
Bank Minnesota, National Association; and
(d) the form of Registration Rights Agreement.
We have also read and relied upon originals or copies, certified or otherwise
identified to our satisfaction, of such records of the Company and such
certificates and representations of officers and representatives of the Company
and we have made such investigations of law as we have deemed appropriate as a
basis for the opinion expressed below. In our examination, we have assumed the
authenticity of original documents, the accuracy of copies and the genuineness
of signatures. We understand and assume that (i) each agreement referred to in
clauses (a) through (d) above represents the valid and binding obligation of
the respective parties thereto, enforceable in accordance with its respective
terms, and the entire agreement between the parties with respect to the subject
matter thereof, (ii) the parties to each agreement have complied, and will
comply, with all of their respective covenants, agreements and undertakings
contained therein and (iii) the transactions provided for by each agreement
were and will be carried out in accordance with their terms.
Our opinion is based upon existing United States federal income tax laws,
regulations, administrative pronouncements and judicial decisions. All such
authorities are subject to change, either prospectively or retroactively. No
assurance can be provided as to the effect of any such change upon our opinion.
The opinion set forth herein has no binding effect on the United States
Internal Revenue Service or the courts of the United States. No assurance can
be given that, if the matter were contested, a court would agree with the
opinion set forth herein.
We have advised the Company in connection with the description of the material
United States federal income tax consequences to U.S. Holders that appears in
the Registration Statement under the caption "Certain Federal Income Tax
Consequences" and confirm that, in our opinion, such discussion, to the extent
that it relates to matters of United States federal income tax law, is accurate
in all material respects. While such description discusses the material
anticipated federal income tax consequences applicable to certain U.S. Holders,
it does not purport to discuss all United States tax consequences and our
opinion is limited to those United States tax consequences specifically
discussed therein.
In giving the foregoing opinion, we express no opinion other than as to the
federal income tax law of the United States of America.
<PAGE> 3
Aetna Industries, Inc.
MS Acquisition Corp.
Aetna Holdings, Inc.
Aetna Export Sales Corp.
November __, 1996
We are furnishing this letter in our capacity as United States counsel to the
Company and this letter is solely for the Company's benefit. This letter is
not to be used, circulated, quoted or otherwise referred to for any other
purpose, except as set forth below.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and we further consent to the use of our name under the
captions "Legal Matters" and "Certain Federal Income Tax Consequences" in the
Registration Statement. In giving this consent, we do not thereby admit that
we are within the category of persons whose consent is required to be filed
with the Registration Statement under the provisions of the Securities Act or
the rules and regulations promulgated thereunder.
Very truly yours,
/s/ Morgn, Lewis & Bockius LLP
MORGAN, LEWIS & BOCKIUS LLP
<PAGE> 1
EXHIBIT 10.1
RECAPITALIZATION AND STOCK PURCHASE AGREEMENT
by and among
MS ACQUISITION CORP., the Company,
the STOCKHOLDERS of the Company,
and
CITICORP VENTURE CAPITAL, LTD., Buyer
Dated as of August 13, 1996
<PAGE> 2
RECAPITALIZATION AND STOCK PURCHASE AGREEMENT
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1. THE RECAPITALIZATION................................................... 2
1.1 The Recapitalization Closing........................................... 2
1.2 Certificate of Incorporation........................................... 2
SECTION 2. SALE OF THE STOCK PURCHASE SHARES...................................... 3
2.1 Transfer of the Stock Purchase Shares.................................. 3
2.2 Purchase Price and Payment............................................. 3
2.3 Time and Place of Closing.............................................. 3
2.4 Stockholders' Representative........................................... 3
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY TO BUYER................. 5
3.1 Making of Representations and Warranties............................... 5
3.2 Organization of the Company............................................ 5
3.3 Capital Stock of the Company........................................... 6
3.4 Authority of the Company............................................... 6
SECTION 4. REPRESENTATIONS AND WARRANTIES OF EACH OF THE STOCKHOLDERS TO THE
COMPANY AND BUYER ..................................................... 7
4.1 Making of Representations and Warranties............................... 7
4.2 Ownership of the Shares................................................ 7
4.3 Authority.............................................................. 7
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER TO THE STOCKHOLDERS AND THE
COMPANY................................................................ 8
5.1 Making of Representations and Warranties............................... 8
5.2 Organization of Buyer.................................................. 8
5.3 Authority of Buyer..................................................... 8
SECTION 6. COVENANTS PRIOR TO THE STOCK PURCHASE CLOSING.......................... 8
6.1 Conduct of Business of the Company..................................... 8
6.2 No Solicitation........................................................ 10
6.3 Access to Information; Confidentiality................................. 10
6.4 Reasonable Efforts..................................................... 11
6.5 Stockholders Meeting or Consent........................................ 11
6.6 Actions by Stockholders................................................ 11
6.7 Public Announcements................................................... 11
6.8 Notice................................................................. 12
</TABLE>
(i)
<PAGE> 3
<TABLE>
PAGE
----
<S> <C> <C>
SECTION 7. CONDITIONS............................................................. 12
7.1 Conditions to the Obligations of each of the Stockholders with Respect
to the Recapitalization................................................ 12
7.2 Conditions to the Obligations of the Company with Respect to the
Recapitalization....................................................... 13
7.3 Conditions to the Obligations of Buyer with Respect to the Stock
Purchase............................................................... 13
7.4 Conditions to the Obligations of the Stockholders with Respect to the
Stock Purchase......................................................... 16
SECTION 8. TERMINATION OF AGREEMENT............................................... 17
8.1 Termination............................................................ 17
8.2 Effect of Termination.................................................. 18
8.3 Amendment.............................................................. 18
8.4 Extension; Waiver...................................................... 18
SECTION 9. RIGHTS AND OBLIGATIONS SUBSEQUENT TO STOCK PURCHASE CLOSING............ 18
9.1 Survival of Representations and Warranties............................. 18
9.2 Further Action......................................................... 18
SECTION 10. MISCELLANEOUS.......................................................... 18
10.1 Notices................................................................ 18
10.2 Descriptive Headings................................................... 21
10.3 Counterparts........................................................... 21
10.4 Waiver of Certain Rights............................................... 22
10.5 Entire Agreement; Assignment........................................... 22
10.6 Governing Law.......................................................... 22
10.7 Remedies............................................................... 22
10.8 Expenses............................................................... 22
10.9 Parties in Interest.................................................... 22
10.10 Severability........................................................... 22
10.11 Termination of Other Agreements........................................ 23
10.12 Rescission of Recapitalization and Stock Purchase Closings............. 23
10.13 Further Assurances; Post-Closing Cooperation........................... 23
10.14 Limited Recourse....................................................... 23
10.15 Certain Definitions.................................................... 24
</TABLE>
(ii)
<PAGE> 4
RECAPITALIZATION AND STOCK PURCHASE AGREEMENT
AGREEMENT dated as of August 13, 1996 by and among MS ACQUISITION CORP., a
Delaware corporation (the "Company"); THE BERKSHIRE FUND, a Massachusetts
limited partnership ("Berkshire"), BERKSHIRE PARTNERS LLC, a Massachusetts
limited liability company ("Berkshire Partners"), as Escrow Agent, BRADLEY M.
BLOOM, J. CHRISTOPHER CLIFFORD, RUSSELL L. EPKER, CARL FERENBACH, RICHARD K.
LUBIN, LEA ANNE S. OTTINGER and KEVIN T. CALLAGHAN (collectively, together with
Berkshire and Berkshire Partners, the "Berkshire Stockholders"); THE PRUDENTIAL
INSURANCE COMPANY OF AMERICA, a New Jersey mutual insurance company
("Prudential"); PRUCO LIFE INSURANCE COMPANY, an Arizona corporation ("Pruco");
STATE TREASURER OF THE STATE OF MICHIGAN, AS 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 (collectively, "Michigan"); and JEROME SINGER, DOUGLAS A.
THAL, ROBERT J. KLEIN, and STEVEN SINGER (the "Former Management Stockholders"),
who are all the holders of the Company's capital stock (herein collectively
referred to as the "Stockholders" and individually as a "Stockholder"); and
CITICORP VENTURE CAPITAL, LTD., a New York corporation ("Buyer").
WITNESSETH
WHEREAS, the Stockholders own of record and beneficially all of the issued
and outstanding capital stock of the Company, consisting of the shares of the
Company's Class A Common Stock, par value $.01 per share ("Old Class A Common
Stock") and Class B Common Stock, par value $.01 per share ("Old Class B Common
Stock" and, together with the Old Class A Common Stock, the "Old Common Stock")
and the shares of the Company's Series A Participating Preferred Stock, par
value $.01 per share ("Old Series A Preferred Stock") and Series B Participating
Preferred Stock, par value $.01 per share ("Old Series B Preferred Stock" and,
together with the Old Series A Preferred Stock, the "Old Preferred Stock"; the
Old Common Stock and the Old Preferred Stock are hereinafter collectively
referred to as the "Old Stock") all as set forth on EXHIBIT A hereto; and
WHEREAS, Berkshire Partners holds shares of Old Stock as Escrow Agent
pursuant to Escrow Agreements dated as of March 3, 1989 and April 23, 1991, as
amended, by and among Berkshire Partners and certain other Berkshire
Stockholders, Prudential, Pruco and Michigan, as set forth on EXHIBIT A attached
hereto; and
WHEREAS, the Company desires to cause a reclassification of the capital
stock of the Company (the "Recapitalization") whereby the Stockholders shall
exchange all shares (the "Old Shares") of Old Stock held by the Stockholders for
shares (the "New Shares") of the Company's Class A Common Stock, par value $.01
per share ("New Class A Common Stock"), the Company's Class B Common Stock, par
value $.01 per share (New "Class B
<PAGE> 5
Common Stock" and, together with the New Class A Common Stock, the "New Common
Stock") and the Company's Series A Cumulative Convertible Preferred Stock,
par value $.01 per share ("New Series A Preferred Stock"; the New Common Stock
and the New Series A Preferred Stock are hereinafter collectively referred to as
the "New Stock"), as set forth on EXHIBIT A attached hereto; and
WHEREAS, immediately following the Recapitalization, each Stockholder
desires to sell to Buyer a portion of the New Shares (collectively, the "Stock
Purchase Shares") held by such Stockholder, and Buyer desires to acquire the
Stock Purchase Shares (the "Stock Purchase"); and
WHEREAS, the Stockholders are contemporaneously herewith entering into an
agreement (the "Aetna Holdings Agreement") to sell to Aetna Holdings, Inc., a
Delaware corporation ("Aetna Holdings"), an additional portion of the New Shares
held by the Stockholders.
NOW, THEREFORE, in order to consummate said Recapitalization and Stock
Purchase and in consideration of the mutual agreements set forth herein, the
parties hereto agree as follows:
SECTION 1. THE RECAPITALIZATION.
1.1 The Recapitalization Closing. Subject to Section 10.12, or unless this
Agreement shall have been terminated and the transactions herein contemplated
shall have been abandoned pursuant to Section 8, the closing of the
Recapitalization (the "Recapitalization Closing") will be held at 10:00 a.m. on
August 13, 1996 at the offices of Morgan, Lewis & Bockius LLP, 101 Park Avenue,
New York, New York 10178 (or such other time, date and place as the parties may
agree). At the Recapitalization Closing, each Stockholder shall receive for each
share of Old Stock, in accordance with the Amended and Restated Certificate (as
defined below), .34217407 shares of New Class A Common Stock, 1.75384365 shares
of New Class B Common Stock and .26776881 shares of New Series A Preferred
Stock. Upon the Recapitalization Closing, each Stockholder shall deliver or
cause to be delivered to the Company certificates representing the Old Shares
owned by such Stockholder, and the Company shall deliver to such Stockholder
certificates representing the New Shares owned, following the Recapitalization
Closing, by such Stockholder.
1.2 Certificate of Incorporation. Immediately prior to the Recapitalization
Closing, the Certificate of Incorporation of the Company shall be amended and
restated in the form of EXHIBIT B attached hereto (the "Amended and Restated
Certificate"), and, as so amended, shall become the Certificate of Incorporation
of the Company following the Recapitalization until further amended or restated
as provided therein. The Amended and Restated Certificate shall provide, among
other things, that the total number of shares of capital stock that the Company
shall have the authority to issue shall be 12,293,123.320 of which 5,000,000
shares shall be
2
<PAGE> 6
New Class A Common Stock, 5,000,000 shares shall be New Class B Common Stock,
293,123.320 shares shall be New Series A Preferred Stock and 2,000,000 shares
shall be of a class of preferred stock, $.01 par value per share, all of which
shall have the relative rights and preferences as set forth in the Amended and
Restated Certificate which is attached as Exhibit B attached hereto.
SECTION 2. SALE OF THE STOCK PURCHASE SHARES.
2.1 Transfer of the Stock Purchase Shares. At the Stock Purchase Closing
(as defined below), each Stockholder (other than Berkshire Partners) shall
deliver or cause to be delivered to Buyer certificates representing the Stock
Purchase Shares owned by such Stockholder to be purchased by Buyer, as set forth
in Exhibit A. Such stock certificates shall be duly endorsed in blank for
transfer or shall be presented with stock powers duly executed in blank, free
and clear of any and all Liens.
2.2 Purchase Price and Payment. At the Stock Purchase Closing, Buyer shall
pay $9,999,997, such amount being the aggregate cash amount owing to all of the
Stockholders hereunder, to an account established by the Company, as agent, on
behalf of the Stockholders. At the Closing, the Company shall distribute to the
Stockholders by bank cashier check or by wire transfer of immediately available
funds, at the election of each Stockholder, the amounts contributed to said
account by Buyer, in the amounts indicated on Exhibit A attached hereto with
respect to each such Stockholder.
2.3 Time and Place of Closing. Subject to Section 10.12, the closing of the
purchase and sale of the Stock Purchase Shares provided for in this Agreement
(herein called the "Stock Purchase Closing") shall be held at the offices of
Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, New York 10178 on the
same day and immediately following the Recapitalization Closing or at such other
place or a later date or time as may be mutually agreed upon by the parties.
2.4 Stockholders' Representative.
(a) In order to administer efficiently (i) the implementation of the
Agreement by certain of the Stockholders, (ii) the waiver of any condition to
the obligations of such Stockholders to consummate the transactions
contemplated hereby, and (iii) the settlement of any dispute with respect to
this Agreement, the Former Management Stockholders and the Berkshire
Stockholders, with the exception of Berkshire and Berkshire Partners, (the
"Designating Stockholders") hereby designate Russell L. Epker as their
representative (the "Stockholders' Representative").
(b) The Designating Stockholders hereby authorize the Stockholders'
Representative (i) to take all action necessary in connection with the
implementation of the Agreement on behalf of the Designating Stockholders, the
waiver of any condition to the obligations of the Designating Stockholders to
consummate the transactions contemplated
3
<PAGE> 7
hereby, and the settlement of any dispute, (ii) to give and receive all notices
required to be given under the Agreement with respect to the Designating
Stockholders and (iii) to take any and all additional action as is contemplated
to be taken by or on behalf of the Designating Stockholders by the terms of this
Agreement, including without limitation, the execution and delivery of documents
to transfer the Stock Purchase Shares to Buyer.
(c) Each Designating Stockholder hereby specifically authorizes and
directs the Stockholders' Representative to execute on behalf of such
Designating Stockholder the certificates to be delivered to Buyer by the
Company and the Stockholders pursuant to Section 7.3(b) unless such
authorization and direction shall have been revoked in writing by such
Designating Stockholder prior to the Stock Purchase Closing.
(d) In the event that the Stockholders' Representative dies, becomes
legally incapacitated or resigns from such position, Robert J. Small shall fill
such vacancy and shall be deemed to be the Stockholders' Representative
for all purposes of this Agreement unless otherwise determined by the
Designating Stockholders owning a majority of the shares of New Stock held (on a
fully diluted basis) by all Designating Stockholders; however, no change in the
Stockholders' Representative shall be effective until Buyer is given notice of
it by one or more of the Designating Stockholders.
(e) All decisions and actions by the Stockholders' Representative in
accordance with this Agreement shall be binding upon all of the Designating
Stockholders, and no Designating Stockholder shall have the right to object,
dissent, protest or otherwise contest the same.
(f) By their execution of this Agreement, the Designating Stockholders
agree that:
(i) Buyer shall be able to rely conclusively on the instructions
and decisions of the Stockholders' Representative as to any actions
required or permitted to be taken by the Designating Stockholders or the
Stockholders' Representative hereunder, and no party hereunder shall
have any cause of action against Buyer for any action taken by Buyer in
reliance upon the instructions or decisions of the Stockholders'
Representative;
(ii) all actions, decisions and instructions of the Stockholders'
Representative shall be conclusive and binding upon all of the
Designating Stockholders and no Designating Stockholder shall have any
cause of action against the Stockholders' Representative for any action
taken, decision made or instruction given by the Stockholders'
Representative under this Agreement, except for fraud or willful breach
of this Agreement by the Stockholders' Representative;
(iii) remedies available at law for any breach of the provisions of
this Section 2.4 are inadequate; therefore, Buyer shall be entitled to
temporary and
4
<PAGE> 8
permanent injunctive relief without the necessity of proving damages
if Buyer brings an action to enforce the provisions of this Section 2.4;
and
(iv) the provisions of this Section 2.4 are independent and
severable, shall constitute an irrevocable power of attorney, coupled
with an interest and surviving death, granted by the Designating
Stockholders to the Stockholders' Representative and shall be binding
upon the executors, heirs, legal representatives and successors of each
Designating Stockholder.
(g) All fees and expenses incurred by the Stockholders' Representative
shall be paid pro rata by the Designating Stockholders in accordance with their
ownership of New Common Stock.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY TO BUYER.
3.1 Making of Representations and Warranties. As a material inducement to
Buyer to enter into this Agreement and consummate the Recapitalization and Stock
Purchase contemplated hereby, the Company hereby makes to Buyer, except as set
forth on a disclosure schedule (the "Recapitalization and Stock Purchase
Disclosure Schedule") with respect to the representations and warranties in
Section 3.3 (to be delivered to Buyer prior to the Stock Purchase Closing), the
representations and warranties contained in this Section 3.
3.2 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Aetna Industries, Inc. ("Aetna") is a corporation duly organized,
validly existing and in good standing under the laws of the State of Michigan.
Aetna Export Sales Corp. ("Export") is a corporation duly organized, validly
existing and in good standing under the laws of the United States Virgin
Islands. Aetna and Export are the only subsidiaries of the Company. The Company
and each of its subsidiaries have the requisite corporate power and authority to
own, lease and operate their properties and to conduct their businesses as
currently conducted. Each of the Company and its subsidiaries is duly qualified
as a foreign corporation to do business in each jurisdiction where the character
of the properties owned, leased or operated by it or the nature of its business
makes such qualification necessary, except where the failure to be so qualified
would not have a Company Material Adverse Effect (as defined below). The term
"Company Material Adverse Effect" means any change or effect that is or would be
materially adverse to the business, assets, results of operations or financial
condition of the Company and its subsidiaries taken as a whole. Except for its
ownership of the subsidiaries, the Company does not directly or indirectly own
any equity or similar interest in, or any interest convertible, exchangeable or
exercisable for or into, any equity or similar interest in any person.
5
<PAGE> 9
3.3 Capital Stock of the Company. The authorized capital stock of the
Company consists solely of (i) 1,040,000 shares of Old Class A Common Stock,
(ii) 1,040,000 shares of Old Class B Common Stock, (iii) 80,168 shares of Old
Series A Preferred Stock, and (iv) 250,000 shares of Old Series B Preferred
Stock. As of the date hereof, there are no other shares of capital stock
outstanding or reserved for issuance except pursuant to the Company's Executive
Stock Option Plan, as amended. Upon the Recapitalization Closing, the authorized
capital stock of the Company will consist solely of (i) 5,000,000 shares of New
Class A Common Stock, (ii) 5,000,000 shares of New Class B Common Stock, (iii)
293,123.320 shares of New Series A Preferred Stock and (iv) 2,000,000 shares of
a class of preferred stock, $.01 par value per share. Following the
Recapitalization, all of the outstanding shares of New Stock will (i) have been
duly authorized, validly issued and fully paid and will be non-assessable free
and clear of all Liens and (ii) be the only issued and outstanding capital stock
of the Company. The Company owns all of the outstanding shares of capital stock
of Aetna (consisting of 1,000 shares of common stock) and Aetna owns all of the
outstanding shares of capital stock of Export (consisting of 1,000 shares of
common stock), and all such shares are duly authorized, validly issued, fully
paid and non-assessable, and free and clear of all preemptive rights and all
Liens. There are no agreements or understandings to which the Company or any
subsidiary of the Company is a party with respect to the voting of, or other
interest in, any shares of Old Stock or New Stock or which restricts the
transfer of any such shares. There are no outstanding contractual obligations of
the Company or any subsidiary of the Company to repurchase, redeem or otherwise
acquire any shares of capital stock or Option of the Company or any subsidiary
of the Company, or to make any investment in any subsidiary or any other person.
3.4 Authority of the Company. The Company has full right, authority and
power to enter into this Agreement and each agreement, document and instrument
to be executed and delivered by the Company pursuant to this Agreement and to
carry out the transactions contemplated hereby and thereby. The execution,
delivery and performance by the Company of this Agreement and each such other
agreement, document and instrument have been duly authorized by all necessary
action of the Company and no other corporate action on the part of the Company
is required in connection therewith. This Agreement and each agreement, document
and instrument executed and delivered by the Company pursuant to this Agreement
constitutes, or when executed and delivered will constitute, valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms. The execution, delivery and performance of this Agreement and each
such agreement, document and instrument does not and will not violate any
provision of the organizational documents of the Company or any laws of the
United States or any state or other jurisdiction applicable to the Company, or,
except for agreements which will be terminated at the closing of the
transactions contemplated by the Aetna Holdings Agreement, require the
Company to obtain any approval, consent or waiver from, or make any filing with,
any person or entity (governmental or otherwise) that has not been obtained or
made or will not be obtained or made prior to the Recapitalization Closing.
6
<PAGE> 10
SECTION 4. REPRESENTATIONS AND WARRANTIES OF EACH OF THE STOCKHOLDERS TO THE
COMPANY AND BUYER.
4.1 Making of Representations and Warranties. As a material inducement to
the Company and Buyer to enter into this Agreement and consummate the
Recapitalization and Stock Purchase, each Stockholder, with respect to such
Stockholder individually, hereby makes to the Company and Buyer, except as set
forth on the Recapitalization and Stock Purchase Disclosure Schedule with
respect to the representations and warranties in Section 4.2, the
representations and warranties contained in this Section 4.
4.2 Ownership of the Shares. Such Stockholder owns beneficially and of
record the Old Shares set forth opposite such Stockholder's name on Exhibit A
hereto free and clear of any and all Liens. The Stock Purchase Shares will be,
when delivered by such Stockholder to Buyer pursuant to this Agreement, free and
clear of any and all Liens and Buyer will have good and marketable title to the
Stock Purchase Shares (except for any liens, encumbrances, charges or claims set
forth in the Stockholders Agreement to be entered into contemporaneously with
the Stock Purchase Closing in substantially the form attached hereto as Exhibit
C (the "Stockholders Agreement") or set forth in the Company's Certificate of
Incorporation, as then in effect, or any Liens granted by or created through
Buyer). There are no voting trusts, voting agreements, proxies or other
agreements, instruments or undertakings with respect to the voting of the Stock
Purchase Shares to which such Stockholder is a party, except for any agreement
to which Buyer is or will be a party. None of the transactions contemplated by
this Agreement or the Aetna Holdings Agreement will give rise to or result in
(with or without lapse of time or both) any antidilution adjustment (other than
in connection with the Recapitalization), acceleration of vesting or other
change under or to any Option to which such Stockholder is a party which will
remain outstanding after the consummation of the closing of the transactions
contemplated by the Aetna Holdings Agreement.
4.3 Authority. Such Stockholder has full right, authority, power and
capacity to own the Old Shares and the New Shares, enter into this Agreement and
each agreement, document and instrument to be executed and delivered by or on
behalf of such Stockholder pursuant to this Agreement and to carry out the
Recapitalization and the other transactions contemplated hereby and thereby. Any
such Stockholder which is a corporation is in good standing under the laws of
its state of incorporation. This Agreement and each agreement, document and
instrument executed and delivered by such Stockholder pursuant to this Agreement
constitutes a valid and binding obligation of such Stockholder, enforceable in
accordance with their respective terms, and has been duly authorized by all
necessary action of such Stockholder's board of directors or partners, as the
case may be, or by such other action as is required with respect to a
Stockholder that is not a corporation or partnership. The execution, delivery
and performance of this Agreement and each such agreement, document and
instrument does not and will not violate any provision of the organizational
documents of such Stockholder which is not a natural person, or any laws of the
United States or any state or other jurisdiction applicable to such Stockholder,
or, except for agreements which will be terminated pursuant to Section 10.11
hereof, require such Stockholder to obtain any approval,
7
<PAGE> 11
consent or waiver from, or make any filing with, any person or entity
(governmental or otherwise) that has not been obtained or made or will not be
obtained or made prior to the Recapitalization Closing.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER TO THE STOCKHOLDERS AND THE
COMPANY.
5.1 Making of Representations and Warranties. As a material inducement to
the Stockholders and the Company to enter into this Agreement and consummate the
purchase and sale of the Stock Purchase Shares contemplated hereby, Buyer hereby
makes the representations and warranties to the Stockholders and the Company
contained in this Section 5.
5.2 Organization of Buyer. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of New York.
5.3 Authority of Buyer. Buyer has full right, authority and power to enter
into this Agreement and each agreement, document and instrument to be executed
and delivered by Buyer pursuant to this Agreement and to carry out the Stock
Purchase contemplated hereby. The execution, delivery and performance by Buyer
of this Agreement and each such other agreement, document and instrument have
been duly authorized by all necessary corporate action of Buyer and no other
corporate action on the part of Buyer is required in connection therewith. This
Agreement and each other agreement, document and instrument executed and
delivered by Buyer pursuant to this Agreement constitute, or when executed and
delivered will constitute, valid and binding obligations of Buyer enforceable
against Buyer in accordance with their terms. The execution, delivery and
performance of this Agreement and each such agreement, document and instrument
does not and will not violate any provision of the organizational documents of
Buyer or any laws of the United States or any state or other jurisdiction
applicable to Buyer, or require Buyer to obtain any approval, consent or waiver
from, or make any filing with, any person or entity (governmental or otherwise)
that has not been obtained or made or will not be obtained or made prior to the
Stock Purchase Closing.
SECTION 6. COVENANTS PRIOR TO THE STOCK PURCHASE CLOSING.
6.1 Conduct of Business of the Company. Except as otherwise provided for
in this Agreement or the Aetna Holdings Agreement or agreed to by Buyer and the
Stockholders in writing, the Company covenants and agrees as to itself and each
of its subsidiaries that between the date of this Agreement and the Stock
Purchase Closing, it shall carry on its respective businesses in the usual,
regular and ordinary course, consistent with past practice. Without limiting the
generality of the foregoing, neither the Company nor either of its subsidiaries
shall, between the date of this Agreement and the Stock Purchase Closing,
directly
8
<PAGE> 12
or indirectly, do any of the following without the prior written consent of
Buyer and the Stockholders, except as provided for in this Agreement or the
Aetna Holdings Agreement:
(a) (i) Declare, set aside or pay any dividend or other distribution
(whether in cash, stock, or property or any combination thereof) in respect of
any of its capital stock or make any other payment to a stockholder of the
Company in such person's capacity as a stockholder of the Company; (ii) split,
combine, reclassify or subdivide any of its capital stock; or (iii) repurchase,
redeem or otherwise acquire any of its capital stock;
(b) Authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver any shares of stock of any class or any other
securities or equity equivalents, including in connection with the exercise of
options to purchase shares of Class A Common Stock (the "Employee Options")
outstanding as of the date of this Agreement;
(c) Acquire, sell, lease, transfer or dispose of any assets other than
in the ordinary course of business consistent with past practice, except
pursuant to obligations or capital expenditure programs in effect on the date
hereof;
(d) Except in the ordinary course of business consistent with past
practice or pursuant to credit facilities in existence on the date hereof, incur
any indebtedness for borrowed money, guarantee any indebtedness, issue or sell
debt securities or warrants or rights to acquire any debt securities, guarantee
(or otherwise become liable or potentially liable for) any debt of others, make
any loans, advances or capital contributions, mortgage, pledge or otherwise
encumber any material assets, or create or suffer any material lien, charge,
security interest, encumbrance, equity, claim or option of any kind whatsoever
thereupon;
(e) Change any of the accounting principles or practices used by it;
(f) Increase the compensation payable or to become payable to its
executive officers or employees, except for increases in the ordinary course of
business consistent with past practice which do not result in a material
increase in benefits or compensation expense to the Company or its subsidiaries
taken as a whole, or grant any severance or termination pay to, or enter into
any employment or severance agreement with, any director or executive officer of
it or any of its subsidiaries other than in the ordinary course of business, or
establish, adopt, enter into or, except as required by or contemplated by this
Agreement or the Aetna Holdings Agreement (including, without limitation, the
cancellation of Employee Options outstanding as of the date hereof), amend in
any material respect or take action to accelerate any rights or benefits under
any collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund, policy
or arrangement for the benefit of any director, executive officer or employee
except as is provided therein;
9
<PAGE> 13
(g) Enter into any transaction with an affiliate of the Company other
than in the ordinary course of business and except for the payment of a bonuses
to management in the amount of $350,000 (less any applicable withholding
taxes) and the payment of deferred compensation to Jerome Singer in the amount
of $225,186 (less any applicable withholding taxes), such amounts to be paid at
the Closing;
(h) Enter into any transaction with any Berkshire Stockholder,
Prudential, Pruco or Michigan except as disclosed in Section 6.1(h) of the
Recapitalization and Stock Purchase Disclosure Schedule;
(i) Amend or otherwise change the Company's certificate of
incorporation or by-laws; or
(j) Enter into an agreement to take any of the foregoing actions.
6.2 No Solicitation. Unless this Agreement is terminated in accordance
with its terms, neither the Company nor any of its subsidiaries shall, and the
Company shall use reasonable efforts to ensure that none of its affiliates,
officers, directors, representatives or agents shall, directly or indirectly,
solicit, knowingly encourage or enter into any agreement with respect to or
participate in negotiations with, provide any confidential information to, or
otherwise cooperate in any way in connection with, or enter into any agreement
with respect to, any Third Party (as hereinafter defined) concerning any merger
or any other business combination, sale of a substantial portion of the assets
of the Company and its subsidiaries, or any similar transaction involving the
Company and its subsidiaries (each, a "Business Combination," provided, however,
that no transaction contemplated by this Agreement or the Aetna Holdings
Agreement or involving Buyer or any affiliate thereof shall be a Business
Combination). For purposes of this Agreement, "Third Party" shall mean any
person or persons other than Buyer, any affiliate of Buyer, or any of Buyer's
directors, officers, employees, representatives, and agents. The Company agrees
to terminate, immediately following the execution of this Agreement, any pending
discussions or negotiations with Third Parties with respect to any possible
Business Combination. If, prior to the earlier of the Stock Purchase Closing or
the termination of this Agreement, the Company, any subsidiary of the Company or
any Stockholder shall enter into any agreement with a Third Party relating to
any Business Combination, the Company shall reimburse Buyer for all of the fees
and expenses (including fees and expenses of counsel and accountants) incurred
by Buyer in connection with the transactions contemplated by this Agreement.
6.4 Access to Information; Confidentiality.
(a) From the date hereof to the Stock Purchase Closing, the Company
shall (and shall cause its subsidiaries and officers, directors, employees,
auditors and agents to) afford the officers, employees and agents of Buyer (the
"Representatives") reasonable access at mutually convenient times to its
officers, employees, agents, properties, offices, plants and
10
<PAGE> 14
other facilities, books and records, and shall furnish such Representatives
with all financial, operating and other data and information as may be
reasonably requested by Buyer.
(b) All information obtained by Buyer pursuant to this Section 6.3
shall, to the extent required thereby, be kept confidential in accordance
with the terms of the Confidentiality Agreement dated January 13, 1995 between
Aetna and Buyer (the "Confidentiality Agreement").
6.4 Reasonable Efforts. Upon the terms and subject to the conditions
hereof, each of the parties hereto shall use its reasonable efforts to take, or
cause to be taken, all appropriate action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated herein including,
without limitation, using its reasonable efforts to obtain all licenses,
permits, consents, approvals, authorizations, qualifications and orders of any
governmental and regulatory authorities ("Governmental Entities") as are
necessary for the consummation of the transactions contemplated herein. Each
party shall promptly consult with the other with respect to, provide any
necessary information with respect to and provide the other (or its counsel)
with copies of, (i) all filings made by such party with any Governmental
Entities or any other person in connection with the execution of this Agreement
and the consummation of the transactions contemplated hereby and (ii) all other
written materials submitted or prepared by any such party in connection with
obtaining all licenses, permits, consents, approvals, authorizations and orders
that are required to be obtained in connection with the execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement.
6.5 Stockholders Meeting or Consent. Prior to the Recapitalization
Closing, the Company shall circulate a written consent of Stockholders for the
purposes of obtaining the requisite stockholder approval to approve the
Amended and Restated Certificate and to take any other action as may be
required for the consummation of the transactions contemplated by this
Agreement or the Aetna Holdings Agreement.
6.6 Actions by Stockholders. Each Stockholder agrees that it will, prior
to the Recapitalization Closing, vote the Old Shares held by such Stockholder
(i) to approve the Amended and Restated Certificate in the form attached hereto
as Exhibit B and (ii) to approve any other actions required to be taken to
consummate the Recapitalization and Stock Purchase and to consummate the
transactions contemplated by the Aetna Holdings Agreement.
6.7 Public Announcements. The Company and Buyer shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to this Agreement or any transaction contemplated herein and shall
not issue any such press release or make any such public statement without the
prior consent of the other party, which consent shall not be unreasonably
withheld; provided, however, that a party may, without the prior consent of the
other party, issue such press release or make such public statement as may be
11
<PAGE> 15
required by law if it has used all reasonable efforts to consult with the other
party and to obtain such party's consent but has been unable to do so in a
timely manner.
6.8 Notice. The Company will notify Buyer promptly in writing of, and
contemporaneously will provide Buyer with, true and complete copies of any and
all information or documents relating to, any event, transaction or circumstance
occurring after the date of this Agreement that causes or will cause any
covenant or agreement to be performed prior to the Stock Purchase Closing of the
Company or the Stockholders under this Agreement or the Aetna Holdings Agreement
to be breached in any material respect or that renders or will render untrue in
any material respect any representation or warranty of the Company or the
Stockholders contained in this Agreement or the Aetna Holdings Agreement as if
the same were made on or as of the date of such event, transaction or
circumstance. No notice given pursuant to this Section shall have any effect on
the representations, warranties, covenants or agreements contained in this
Agreement or the Aetna Holdings Agreement for purposes of determining
satisfaction of any condition contained herein or therein or shall in any way
limit Buyer's right, if any, to seek relief with respect to the matters referred
to in such notice hereunder or under the Aetna Holdings Agreement.
SECTION 7. CONDITIONS.
7.1 Conditions to the Obligations of each of the Stockholders with Respect
to the Recapitalization. The obligations of each of the Stockholders to effect
the Recapitalization are subject to the satisfaction or waiver of the following
conditions:
(a) Consents. All authorizations, consents, orders or approvals of, or
declarations or filings with, any Governmental Entity necessary in order to
permit the consummation of the transactions contemplated by this Agreement and
the Aetna Holdings Agreement, shall have occurred or shall have been obtained.
(b) No Violation of Law. There shall not be in effect on the date of
the Stock Purchase Closing any law or other governmental regulation restraining,
enjoining or otherwise prohibiting or making illegal the consummation of any of
the transactions contemplated by this Agreement or the Aetna Holdings Agreement
and there shall not be pending on the day of the Stock Purchase Closing any
proceeding or any action (i) wherein an unfavorable judgment, decree or order
would prevent the carrying out of this Agreement or the Aetna Holdings
Agreement or any of the transactions or events contemplated hereby or thereby or
declare unlawful the transactions or events contemplated by this Agreement or
the Aetna Holdings Agreement or (ii) which could reasonably be expected to
result in the issuance of any such judgment, decree or order.
(c) Other Agreements. The Aetna Holdings Agreement shall be in full
force and effect on the date of the Stock Purchase Closing.
12
<PAGE> 16
7.2 Conditions to the Obligations of the Company with Respect to the
Recapitalization. The obligations of the Company to effect the Recapitalization
are subject to the satisfaction or waiver of the following conditions:
(a) Consents. All authorizations, consents, orders or approvals of, or
declarations or filings with, any Governmental Entity necessary in order to
permit the consummation of the transactions contemplated by this Agreement
and the Aetna Holdings Agreement, shall have occurred or shall have been
obtained.
(b) No Violation of Law. There shall not be in effect on the date of
the Stock Purchase Closing any law or other governmental regulation restraining,
enjoining or otherwise prohibiting or making illegal the consummation of any of
the transactions contemplated by this Agreement or the Aetna Holdings
Agreement and there shall not be pending on the day of the Stock Purchase
Closing any proceeding or any action (i) wherein an unfavorable judgment, decree
or order would prevent the carrying out of this Agreement or the Aetna Holdings
Agreement or any of the transactions or events contemplated hereby or thereby or
declare unlawful the transactions or events contemplated by this Agreement or
the Aetna Holdings Agreement or (ii) which could reasonably be expected to
result in the issuance of any such judgment, decree or order.
(c) Other Agreements. The Aetna Holdings Agreement shall be in full
force and effect on the date of the Stock Purchase Closing.
7.3. Conditions to the Obligations of Buyer with Respect to the Stock
Purchase. The obligations of Buyer to effect the Stock Purchase are subject to
the satisfaction or waiver of the following conditions:
(a) Prior Closing. The Recapitalization Closing shall have occurred.
(b) Representations; Warranties; Covenants. Each of the
representations and warranties of the Company contained in Section 3 and of the
Stockholders contained in Section 4 shall be true and correct in all material
respects as of the date of the Agreement and as of the date of the Stock
Purchase Closing as though made on and as of the date of the Stock Purchase
Closing (except as otherwise specifically described in this Agreement or arising
out of or related to the transactions contemplated by this Agreement and except
as to any representation or warranty which specifically relates to an earlier
date) and the Company and Stockholders shall have delivered a certificate,
executed by each Stockholder (except that the Stockholders' Representative may
sign on behalf of the Designating Stockholders), with respect to such
Stockholder, to such effect to Buyer. The Company and the Stockholders shall
have performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by them on
or prior to the date of the Stock Purchase Closing and the Company and
Stockholders shall have delivered a certificate, executed by each Stockholder
(except that the Stockholders' Representative may
13
<PAGE> 17
sign on behalf of the Designating Stockholders), with respect to such
Stockholder, to such effect to Buyer.
(c) Aetna Holdings Agreement. Each of the representations and
warranties contained in Sections 2 and 3 of the Aetna Holdings Agreement shall
be true and correct in all material respects at the time of the Stock Purchase
Closing as though made on and as of the date of the Stock Purchase Closing
(except as otherwise specifically described in this Agreement or the Aetna
Holdings Agreement or arising out of or related to the transactions
contemplated by this Agreement or the Aetna Holdings Agreement and except as to
any representation or warranty which specifically relates to an earlier date)
and the Stockholders shall have performed or complied in all material respects
with all agreements and covenants required by the Aetna Holdings Agreement to be
performed or complied with by them on or prior to the date of the closing of the
transactions contemplated by the Aetna Holdings Agreement.
(d) Consents. All authorizations, consents, orders or approvals of, or
declarations or filings with, any Governmental Entity necessary in order to
permit the consummation of the transactions contemplated by this Agreement and
the Aetna Holdings Agreement, shall have occurred or shall have been obtained in
form reasonably satisfactory to Buyer.
(e) Third Party Consents. The consents (or in lieu thereof waivers)
disclosed in the Disclosure Letter to be delivered pursuant to the Aetna
Holdings Agreement, if any, and all other consents (or in lieu thereof waivers)
to the performance by the Stockholders, the Company and Buyer of their
obligations under this Agreement or the Aetna Holdings Agreement or to the
consummation of the transactions contemplated hereby and thereby as are required
under any contract to which the Stockholders, the Company, either subsidiary
thereof, or Buyer is a party or by which any of their respective assets and
properties are bound and where the failure to obtain any such consent (or in
lieu thereof waiver) will have individually or in the aggregate with other such
failures, a Company Material Adverse Effect, shall have been obtained and be in
full force effect and shall be in form and substance reasonably satisfactory to
Buyer.
(f) Financing. Buyer or Aetna shall have obtained debt financing on
terms and conditions satisfactory to Buyer in amounts sufficient to provide
for the payment and full satisfaction of all obligations of the Company as
contemplated by the Aetna Holdings Agreement.
(g) Stockholders Agreement. The Stockholders Agreement shall have been
executed by the parties thereto.
(h) FIRPTA Certificates. Each Stockholder shall have delivered to
Buyer a duly executed FIRPTA certificate in a form that satisfies the
requirements set forth in Section 1.1445-2(b)(2) of the Treasury Regulations.
14
<PAGE> 18
(i) Opinions of Counsel. Buyer shall have received the opinion of each
of (i) Goodwin, Procter & Hoar LLP, dated as of the date of the Stock Purchase
Closing and (ii) Willkie Farr & Gallagher, counsel to Prudential, Pruco and
Michigan, or other counsel satisfactory to Buyer, dated as of the date of the
Stock Purchase Closing, and each of these opinions shall be in a form
satisfactory to Buyer.
(j) Approval of Bank. NBD Bank shall have entered into Amendment No. 1
to the existing Credit Agreement between Aetna and NBD.
(k) Good Standing Certificates. The Company shall have delivered to
Buyer certificates from the Secretary of State or other appropriate official
of the respective jurisdictions of incorporation to the effect that the Company
and its subsidiaries are in good standing in such jurisdiction.
(l) Employment Agreements. The Company shall have entered into
employment agreements with Ueli Spring, Harold Brown and Gary Easterly in a
form reasonably satisfactory to Buyer.
(m) Amendment to Certificate of Incorporation. The Stockholders shall
have approved the Amended and Restated Certificate of Incorporation in the
form attached hereto as Exhibit B and it shall have become effective.
(n) Disclosure Schedules. The Disclosure Letter (as such term is
defined in the Aetna Holdings Agreement) shall have been delivered to Aetna
Holdings and the Recapitalization and Stock Purchase Disclosure Schedule shall
have been delivered to Buyer.
(o) No Violation of Law. There shall not be in effect on the date of
the Stock Purchase Closing any law or other governmental regulation
restraining, enjoining or otherwise prohibiting or making illegal the
consummation of any of the transactions contemplated by this Agreement or the
Aetna Holdings Agreement and there shall not be pending on the day of the Stock
Purchase Closing any proceeding or any action (i) wherein an unfavorable
judgment, decree or order would prevent the carrying out of this Agreement or
the Aetna Holdings Agreement or any of the transactions or events contemplated
hereby or thereby, or declare unlawful the transactions or events contemplated
by this Agreement or the Aetna Holdings Agreement or (ii) which could reasonably
be expected to result in the issuance of any such judgment, decree or order.
(p) Payment of Bonuses. The Company or Aetna shall, at or prior to the
Stock Purchase Closing, have paid to each of the persons listed on Exhibit D
attached hereto the full amounts of bonus payments or deferred compensation
due them under any agreement, arrangement or understanding with them or for
their benefit.
15
<PAGE> 19
(q) Board of Directors. Russell L. Epker, Robert J. Small, James
Bakken, Douglas A. Thal and Jerome Singer, members of the board of
directors of the Company, shall have tendered their resignations effective at
the time of the Stock Purchase Closing.
(r) Other Agreements. The Aetna Holdings Agreement shall be in full
force and effect.
(s) Payment of Debt. The Company shall have made binding arrangements
for the payment of Aetna's 14% Senior Subordinated Notes due 1999 in full
accordance with the terms of the Securities Purchase Agreements dated as of
March 3, 1989, as amended, and the Senior Subordinated Notes thereunder, prior
to the closing of the transactions contemplated by the Aetna Holdings Agreement.
7.4 Conditions to the Obligations of the Stockholders with Respect to the
Stock Purchase. The obligations of the Stockholders to effect the Stock Purchase
are subject to the satisfaction or waiver of the following conditions:
(a) Recapitalization Closing. The Recapitalization Closing shall have
occurred.
(b) Representations; Warranties; Covenants. Each of the
representations and warranties of Buyer contained in Section 5 shall be true and
correct in all material respects as of the date of the Agreement and as
of the date of the Stock Purchase Closing as though made on and as of the date
of the Stock Purchase Closing (except as otherwise specifically contemplated by
this Agreement or arising out of or related to the transactions contemplated by
this Agreement and except as to any representation or warranty which
specifically relates to an earlier date) and Buyer shall have delivered a
certificate, executed by an authorized officer of Buyer, to such effect to the
Stockholders. Buyer shall have performed or complied in all material respects
with all agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the date of the Stock Purchase Closing and
Buyer shall have delivered a certificate, executed by an authorized officer of
Buyer, to such effect to the Stockholders.
(c) Consents. All authorizations, consents, orders or approvals of, or
declarations or filings with, any Governmental Entity necessary in order to
permit the consummation of the transactions contemplated hereby, shall have
occurred or shall have been obtained.
(d) Stockholders Agreement. The Stockholders Agreement shall have been
executed by the parties thereto.
(e) Payment of Debt. The Company shall have made arrangements for the
payment of Aetna's 14% Senior Subordinated Notes due 1999 in full accordance
with the terms of the Securities Purchase Agreements dated as of March 3, 1989,
as amended, and the
16
<PAGE> 20
Senior Subordinated Notes thereunder, prior to the closing of the transactions
contemplated by the Aetna Holdings Agreement.
(f) No Violation of Law. There shall not be in effect on the date of
the Stock Purchase Closing any law or other governmental regulation restraining,
enjoining or otherwise prohibiting or making illegal the consummation of any of
the transactions contemplated by this Agreement or the Aetna Holdings
Agreement and there shall not be pending on the day of the Stock Purchase
Closing any proceeding or any action (i) wherein an unfavorable judgment, decree
or order would prevent the carrying out of this Agreement or the Aetna Holdings
Agreement or any of the transactions or events contemplated hereby or thereby,
or declare unlawful the transactions or events contemplated by this Agreement or
the Aetna Holdings Agreement or (ii) which could reasonably be expected to
result in the issuance of any such judgment, decree or order.
(g) Opinion of Counsel. The Stockholders shall have received the
opinion of Morgan Lewis & Bockius LLP, counsel to Buyer, dated as of the
date of the Stock Purchase Closing, in a form satisfactory to the Stockholders.
(h) Other Agreements. The Aetna Holdings Agreement shall have been
duly executed and delivered by the respective parties thereto and shall be
in full force and effect on the date of the Stock Purchase Closing.
SECTION 8. TERMINATION OF AGREEMENT.
8.1 Termination. This Agreement may be terminated at any time prior to the
Recapitalization Closing as follows:
(a) by mutual written consent of all the parties hereto;
(b) by any of the parties hereto if any United States federal or state
court of competent jurisdiction or any Government Entity shall have issued
an injunction, order, decree or ruling (an "Injunction") or taken any other
action permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated hereby and such Injunction or other action shall have
become final and non-appealable; or
(c) by the Company, the Stockholders or Buyer, if the Recapitalization
Closing shall not have occurred on or before August 16, 1996 and such failure
is not caused by breach of this Agreement by the terminating party.
The right of any party hereto to terminate this Agreement pursuant to this
Section 8.1 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective
17
<PAGE> 21
employees, officers, directors, agents, representatives or advisors, whether
prior to or after the execution of this Agreement.
8.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 8.1 hereof, this Agreement shall forthwith become
void and have no effect, without any liability on the part of any party hereto
or its affiliates, directors, officers or stockholders and all rights and
obligations of any party hereto shall cease, other than the provisions of
Sections 6.3 and 10.8.
8.3 Amendment. This Agreement may be amended by the parties hereto at any
time prior to the Recapitalization Closing. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
8.4 Extension; Waiver. At any time prior to the Recapitalization Closing,
the parties hereto may (i) extend the time for the performance of any of the
obligations or other acts of any other party hereto, (ii) waive any inaccuracies
in the representations and warranties of any other party contained herein or in
any document delivered pursuant hereto and (iii) waive compliance by any other
party with any of the agreements or conditions contained herein (except that the
Stockholders' Representative may take such action on behalf of the Designating
Stockholders). Any agreement on the part of a party hereto to any such extension
or waiver shall be valid only if set forth in a written instrument signed on
behalf of such party (except that the Stockholders' Representative may sign such
instrument on behalf of the Designating Stockholders).
SECTION 9. RIGHTS AND OBLIGATIONS SUBSEQUENT TO STOCK PURCHASE CLOSING.
9.1 Survival of Representations and Warranties. The representations and
warranties made in this agreement shall terminate upon the fourth anniversary of
the Stock Purchase Closing and shall have no further force and effect, or be
relied upon in any manner or for any reason, after such date.
9.2 Further Action. In case at any time after the Stock Purchase Closing
any further action is necessary or desirable to carry out the purposes of this
Agreement, each party or the proper officers and directors of each party to this
Agreement shall use their reasonable efforts to take all such action.
SECTION 10. MISCELLANEOUS.
10.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon receipt if delivered personally,
telecopied (which is confirmed) or mailed by registered or certified mail
(return receipt requested) to the parties at
18
<PAGE> 22
the following addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to the Company, to
MS Acquisition Corp.
c/o Aetna Industries, Inc.
24331 Sherwood Avenue
Centerline, Michigan 48015-0067
Attention: Ueli Spring
Telephone: (810) 759-2200
Facsimile: (810) 759-2209
with a copy to:
MS Acquisition Corp.
c/o Berkshire Partners LLC
One Boston Place
Boston, Massachusetts 02108
Attention: Russell L. Epker
Telephone: (617) 227-0050
Facsimile: (617) 227-6105
and with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attention: Stephen W. Carr, P.C.
Telephone: (617) 570-1000
Facsimile: (617) 523-1231
(b) if to the Stockholders, to
Berkshire Partners LLC
One Boston Place
Boston, Massachusetts 02108
Attention: Russell L. Epker
Robert J. Small
Telephone: (617) 227-0050
Facsimile: (617) 227-6105
with a copy to:
19
<PAGE> 23
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attention: Stephen W. Carr, P.C.
Telephone: (617) 570-1000
Facsimile: (617) 523-1231
and:
The Prudential Insurance Company of America
Pruco Life Insurance Company
c/o Prudential Financial Restructuring Group
Four Gateway Center, 9th Floor
Newark, New Jersey 07102-4069
Attention: Stephen Haeckel
Telephone: (201) 802-2678
Facsimile: (201) 802-2662
with a copy to:
Prudential Law Department
Four Gateway Center, 6th Floor
Newark, New Jersey 07102-4069
Attention: Jack Pfeilsticker
Telephone: (201) 802-9200
Facsimile: (201) 802-3853
and with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
Attention: Duncan J. Stewart
Telephone: (212) 821-8271
Facsimile: (212) 821-8111
20
<PAGE> 24
and:
Michigan Department of Treasury
430 West Allegan
Lansing, Michigan 48922
Attention: Thomas Hufnagel
Telephone: (517) 373-4330
Facsimile: (517) 335-3668
with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
Attention: Duncan J. Stewart
Telephone: (212) 821-8271
Facsimile: (212) 821-8111
(c) if to Buyer, to
Citicorp Venture Capital, Ltd.
399 Park Avenue
New York, New York 10043
Attention: Michael Delaney
Telephone: (212) 559-2056
Facsimile: (212) 888-2940
with a copy to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Attention: Philip H. Werner
Telephone: (212) 309-6080
Facsimile: (212) 309-6273
10.2 Descriptive Headings. The descriptive headings herein are inserted
for convenience only and are not intended to be part of or to affect the
meaning or interpretation of this Agreement.
10.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when
21
<PAGE> 25
one or more counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
10.4 Waiver of Certain Rights. The parties hereto agree to waive any
preemptive rights to purchase any shares of stock of the Company issued in
connection with this Agreement or the Aetna Holdings Agreement that such party
may have under the Company's Certificate of Incorporation or otherwise. Such
waiver shall become effective upon the execution of this Agreement.
10.5 Entire Agreement; Assignment. This Agreement (together with the
Confidentiality Agreement and any other documents delivered pursuant hereto) (a)
constitute the entire agreement of the parties and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, including without limitation, the letter
of intent dated March 27, 1996, as amended, and (b) shall not be assigned by
operation of law or otherwise without the written approval of the other parties
hereto; provided, however, that any party may assign the Agreement to an
affiliate of such party, but such assignment will not relieve such party of its
obligations hereunder.
10.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York without regard to any
applicable principles of conflicts of law which might apply the laws of any
other jurisdiction.
10.7 Remedies. The remedies of the parties after the Closing with respect
to this Agreement and any transaction contemplated hereby, including without
limitation any breach of a representation, warranty or covenant contained herein
by any party, shall terminate on the fourth anniversary of the Stock Purchase
Closing.
10.8 Expenses. Whether or not the Recapitalization and Stock Purchase are
consummated, except as otherwise provided herein, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such costs and expenses, provided,
however, that the Company shall pay all reasonable costs and expenses incurred
by the Company or the Stockholders in connection with the transactions
contemplated by this Agreement, including without limitation, all costs of
obtaining permits, waivers, registrations or consents, all investment banking,
legal and accounting expenses of the Stockholders and all New York State stock
transfer taxes.
10.9 Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person or
persons any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
10.10 Severability. The invalidity or unenforceability of a provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
22
<PAGE> 26
10.11 Termination of Other Agreements. The parties agree that,
simultaneously with the Stock Purchase Closing, the following agreements shall
terminate and from and after the Stock Purchase Closing shall have no further
force and effect: the Stock Purchase and Stockholders Agreement dated as of
March 3, 1989 by and among the Company and the Purchasers (as defined therein),
the Parallel Exit Agreement dated as of March 3, 1989 by and between the
Stockholders (as defined therein), the Voting Rights Agreement dated as of March
3, 1989 by and among the Company, the Berkshire Group (as defined therein) and
the Management Group (as defined therein), the Designated Shares Agreement dated
as of March 3, 1989 by and between the Company and the Stockholders (as defined
therein), the Registration Rights Agreement dated as of March 3, 1989 by and
among MS and the Berkshire Investors (as defined therein), the Registration
Rights Agreement dated as of March 3, 1989 by and between the Company,
Prudential, Pruco and Michigan and the Management Agreement dated as of March 3,
1989 by and among the Company, Aetna and Berkshire, each as may have been
amended from time to time, and the parties hereto consent to the transactions
contemplated by this Agreement or the Aetna Holdings Agreement, whether or not
such transactions are consistent with the terms of the other agreements referred
to above in this Section 10.11; provided, however, if the transactions
contemplated by the Aetna Holdings Agreement are not consummated by the end of
the business day on which the Stock Purchase Closing occurs, the parties agree
that all such terminations shall be rescinded. Each of the parties hereto
further agrees that, provided such terminations are not rescinded, there shall
be no surviving rights and liabilities or other obligations of any party to the
other agreements referred to in this Section 10.11 and each of the parties
hereto releases all other parties hereto, and their officers, directors,
stockholders, partners, agents and employees from all actions, causes of
actions, suits, debts, sums of money, covenants, controversies, agreements,
damages, judgments, claims and demands, at law or in equity, arising out of such
other agreements which it may now have or has ever had on or prior to the date
hereof.
10.12 Rescission of Recapitalization and Stock Purchase Closings.
Notwithstanding anything herein to the contrary, if the transactions
contemplated by the Aetna Holdings Agreement are not consummated by the end of
the business day on which the Stock Purchase Closing occurs, the parties agree
that the Recapitalization Closing, if the Stockholders' so request, and the
Stock Purchase Closing shall be rescinded.
10.13 Further Assurances; Post-Closing Cooperation. At any time or from
time to time after the Recapitalization Closing, the parties hereto shall
execute and deliver to Buyer or the Company such other documents and
instruments, provide such materials and information and take such other actions
as any party hereto may reasonably request in order that the requested party
fulfill its obligations under this Agreement which were to be performed at or
prior to the Stock Purchase Closing.
10.14 Limited Recourse. Notwithstanding anything in this Agreement, the
Aetna Holdings Agreement or any other document, agreement or instrument
contemplated hereby or thereby to the contrary, the obligations of any entity
hereunder or under the Aetna Holdings Agreement shall be without recourse to any
partner, associate or affiliate of such entity, or any
23
<PAGE> 27
other of its respective officers, directors, employees or agents and shall be
limited to the assets of such entity.
10.15 Certain Definitions. For purposes of this Agreement, the term:
(a) "affiliate" means a person that, directly or indirectly, through
one or more intermediaries, controls, is controlled by or is under common
control with, the first mentioned person;
(b) "associate" means with respect to any person, (i) any corporation
or organization of which such person is an officer or partner or is, directly or
indirectly, the beneficial owner of 10 percent or more of any class of equity
securities; (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity; and (iii) any relative or spouse of such
person, or any relative of such spouse, who has the same home as such person or
who is a director or officer of such person or any of its parents or
subsidiaries.
(c) "control" (including the terms "controlled," "controlled by" and
"under common control with") means the possession, directly or indirectly
or as trustee or executor, of the power to direct or cause the direction of the
management or policies of a person, whether through the ownership of stock or as
trustee or executor, by contract or credit arrangement or otherwise;
(d) "Liens" means any and all liens, security interests, options,
encumbrances, equities, charges or claims of any kind whatsoever, except as
contemplated by this Agreement or the Aetna Holdings Agreement or by the
Company's Certificate of Incorporation (as then in effect).
(e) "person" means any individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or government or
any agency or political subdivision thereof or any other entity; and
(f) "subsidiary" or "subsidiaries" of the Company or Buyer or any
other person means any corporation, partnership, joint venture or other legal
entity of which the Company or Buyer or such other person, as the case may
be (either alone or through or together with any other subsidiary), owns,
directly or indirectly, 50% or more of the stock or other equity interests, the
holders of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity.
24
<PAGE> 28
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date set forth above by their duly authorized
representatives.
The Company: MS ACQUISITION CORP.
By: /s/ UELI SPRING
-------------------------------
Title: President
The Stockholders and Sellers: THE BERKSHIRE FUND
A LIMITED PARTNERSHIP
BY: BERKSHIRE CAPITAL ASSOCIATES,
LIMITED PARTNERSHIP
Its General Partner
By: /s/ RUSSELL L. EPKER
-------------------------------
A General Partner
/s/ BRADLEY M. BLOOM
------------------------------------
Bradley M. Bloom
*
------------------------------------
J. Christopher Clifford
/s/ RUSSELL L. EPKER
------------------------------------
Russell L. Epker
s/ CARL FERENBACH
------------------------------------
Carl Ferenbach
/s/ RICHARD K. LUBIN
------------------------------------
Richard K. Lubin
*
------------------------------------
Lea Anne S. Ottinger
/s/ KEVIN T. CALLAGHAN
------------------------------------
Kevin T. Callaghan
RUSSELL L. EPKER
- --------------------------------------
*By Power of Attorney
25
<PAGE> 29
BERKSHIRE PARTNERS LLC, as Escrow
Agent
By: /s/ RUSSELL EPKER
-------------------------------
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ STEPHEN R. HAECKEL
-------------------------------
Vice President
PRUCO LIFE INSURANCE COMPANY
By: /s/ B. ROSS SMEAD
-------------------------------
Vice President
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
By: /s/ PAUL H. RICE
-------------------------------
Title
26
<PAGE> 30
/s/ JEROME SINGER
-------------------------------
Jerome Singer
/s/ DOUGLAS A. THAL
-------------------------------
Douglas A. Thal
/s/ ROBERT J. KLEIN
-------------------------------
Robert J. Klein
/s/ STEVEN SINGER
-------------------------------
Steven Singer
Buyer: CITICORP VENTURE CAPITAL, LTD.
By: /s/ DAVID HOWE
-------------------------------
27
<PAGE> 31
EXHIBIT A
List of Stockholders, Old Stockholdings, New Stockholdings and Consideration to
be Paid for the Stock Purchase Shares
<TABLE>
<CAPTION>
Stock Purchase Shares to be
New Shares to be Received Upon Transferred at the Stock Cash
Old Shares Recapitalization Purchase Closing Consideration
----------------------------------------- ------------------------------ ------------------------- Payable by
Name Old Old Old Old New New New New New New Buyer in the
of Class Class Series Series Series Series Series Series Series Series Stock
Stock- A B A B A B A A B A Purchase
Holder Common Common Preferred Preferred** Common Common Preferred Common Common Preferred Closing
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
The
Berkshire
Fund 272,564 0 38,334 40,398 120,204 616,119 94,066,120 60,568 166,545 29,015,330 $3,223,925
- ------------------------------------------------------------------------------------------------------------------------------------
Bradley
M. Bloom 2,126 0 335 353 963 4,935 753.500 485 1,334 232.420 $25,824
- ------------------------------------------------------------------------------------------------------------------------------------
J. Christopher
Clifford 2,126 0 335 353 963 4,935 753.500 485 1,334 232.420 $25,824
- ------------------------------------------------------------------------------------------------------------------------------------
Russell L.
Epker 2,126 0 335 353 963 4,935 753.500 485 1,334 232.420 $25,824
- ------------------------------------------------------------------------------------------------------------------------------------
Carl
Ferenbach 2,126 0 335 353 963 4,935 753.500 485 1,334 232.420 $25,824
- ------------------------------------------------------------------------------------------------------------------------------------
Richard K.
Lubin 2,126 0 335 353 963 4,935 753.500 485 1,334 232.420 $25,824
- ------------------------------------------------------------------------------------------------------------------------------------
Lea Anne S.
Ottinger 1,276 0 0 0 437 2,238 341.670 220 605 105.390 $11,710
- ------------------------------------------------------------------------------------------------------------------------------------
Kevin T.
Callaghan 530 0 75 79 234 1,200 183.150 118 324 56.500 $6,277
- ------------------------------------------------------------------------------------------------------------------------------------
The
Prudential
Insurance
Company
of America 60,374* 268,328 26,889* 28,337* 131,370 673,350 102,803.950 66,195 182,015 31,710.570 $3,523,396
- ------------------------------------------------------------------------------------------------------------------------------------
Pruco
Life
Insurance
Company 4,544* 20,196 2,023* 2,132* 9,887 50,677 7,737.180 4,982 13,699 2,386.590 $265,177
- ------------------------------------------------------------------------------------------------------------------------------------
State
Treasurer
of the State
of Michigan,
as Custodian 25,082* 111,476 11,172* 11,774* 54,578 279,745 42,710.200 27,501 75,619 13,174.250 $1,463,806
- ------------------------------------------------------------------------------------------------------------------------------------
Jerome Singer 50,000 0 0 0 17,109 87,692 13,388.440 8,621 23,704 4,129.760 $458,862
- ------------------------------------------------------------------------------------------------------------------------------------
Douglas A.
Thal 50,000 0 0 0 17,109 87,692 13,388.440 8,621 23,704 4,129.760 $458,862
- ------------------------------------------------------------------------------------------------------------------------------------
Robert J.
Klein 30,000 0 0 0 10,265 52,616 8,033.060 5,172 14,223 2,477.850 $275,317
- ------------------------------------------------------------------------------------------------------------------------------------
Steven Singer 20,000 0 0 0 6,843 35,077 5,355.380 3,448 9,482 1,651.900 $183,544
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------
* These shares of Old Stock owned by The Prudential Insurance Company of
America, Pruco Life Insurance Company and State Treasurer of the State of
Michigan, as custodian (the "Non-Berkshire Institutional Stockholders") are
owned by such parties pursuant to options to purchase such shares (the
"Institutional Options") granted by The Berkshire Fund, Bradley M. Bloom, J.
Christopher Clifford, Russell L. Epker, Carl Ferenbach, Richard K. Lubin, Lea
Anne S. Ottinger and Kevin T. Callaghan (the "Berkshire Stockholders") and
certain of such shares are held by Berkshire Partners LLC, as Escrow Agent,
pursuant to Escrow Agreements dated as of March 3, 1989 and April 23, 1991,
as amended. The Institutional Options will be exercised prior to the
Recapitalization Closing and such Escrow Agreements will be terminated.
** Old Series B Preferred Stock issued and outstanding as of July 15, 1996.
28
<PAGE> 32
Exhibit B
Form of Amended and Restated
Certificate of Incorporation
of the Company
29
<PAGE> 33
Exhibit C
Form of Stockholders Agreement
30
<PAGE> 34
Exhibit D
List of Bonus and Deferred Compensation Payments
<TABLE>
<S> <C>
Jerome Singer $225,186
Ueli Spring $127,000
Harold A. Brown $127,000
Gary Easterly $ 55,000
Jim Bostain $ 20,000
Traci-Ann Gerber $ 7,000
Ellen Lee $ 5,000
Brian Downs $ 1,500
Susan Serra $ 2,500
Cheryl Ruggirello $ 5,000
</TABLE>
31
<PAGE> 1
EXHIBIT 10.2
STOCK PURCHASE AGREEMENT
by and among
MS ACQUISITION CORP., the Company,
the STOCKHOLDERS of the Company,
the MANAGEMENT HOLDERS of the Company
and
AETNA HOLDINGS, INC., Buyer,
Dated as of August 13, 1996
<PAGE> 2
STOCK PURCHASE AGREEMENT
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1. SALE OF THE COMPANY SHARES AND PURCHASE PRICE........................... 2
1.1 Transfer of Company Shares.............................................. 2
1.2 Purchase Price and Payment.............................................. 3
1.3 Exchange of Options..................................................... 3
1.4 Prepayment of Notes and Deferred Obligations............................ 3
1.5 Stockholders' Representative............................................ 4
1.6 Closing................................................................. 5
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE REPRESENTING PARTIES.............. 5
2.1 Organization............................................................ 6
2.2 Certificate of Incorporation and By-Laws................................ 6
2.3 Capitalization.......................................................... 6
2.4 Authority Relative to this Agreement.................................... 7
2.5 Consents and Approvals; No Violations................................... 7
2.6 Compliance.............................................................. 8
2.7 Financial Statements and Undisclosed Liabilities........................ 9
2.8 Absence of Certain Changes.............................................. 9
2.9 Environmental Matters................................................... 10
2.10 Litigation.............................................................. 11
2.11 Employee Benefit Plans.................................................. 12
2.12 Trademarks, Patents and Copyrights...................................... 13
2.13 Taxes................................................................... 13
2.14 Labor Matters........................................................... 14
2.15 Real Estate............................................................. 15
2.16 Inventory............................................................... 17
2.17 Accounts Receivable..................................................... 18
2.18 Brokers................................................................. 18
2.19 Contracts and Other Agreements.......................................... 18
2.20 Banking Facilities...................................................... 19
2.21 Insurance............................................................... 20
2.22 Affiliate Transactions.................................................. 20
2.23 Tangible Personal Property.............................................. 20
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS...................... 20
3.1 Company Shares.......................................................... 20
3.2 Authority............................................................... 21
3.3 Consents and Approvals; No Violations................................... 21
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER................................. 22
4.1 Organization............................................................ 22
4.2 Certificate of Incorporation and By-Laws................................ 22
4.3 Authority Relative to this Agreement.................................... 22
4.4 Consents and Approvals; No Violations................................... 22
4.5 Brokers................................................................. 23
SECTION 5. COVENANTS............................................................... 23
5.1 Indemnification and Insurance........................................... 23
5.2 Conduct of Business of the Company...................................... 24
5.3 No Solicitation......................................................... 25
5.4 Access to Information; Confidentiality.................................. 26
5.5 Public Announcements.................................................... 26
5.6 Agreement Not To Merge.................................................. 26
5.7 Agreement To Issue Shares............................................... 26
SECTION 6. CONDITIONS.............................................................. 27
6.1 Conditions to the Obligations of Buyer.................................. 27
6.2 Conditions to the Obligations of the Stockholders and the Management
Holders................................................................. 28
SECTION 7. INDEMNIFICATION......................................................... 29
7.1 Indemnification by the Stockholders and Management Holders.............. 29
7.2 Limitations on Indemnification by the Stockholders and Management
Holders................................................................. 29
7.3 Indemnification by Buyer................................................ 30
7.4 Limitation on Indemnification by Buyer.................................. 30
7.5 Notice; Defense of Claims............................................... 30
7.6 Satisfaction of Stockholder Indemnification Obligations................. 30
SECTION 8. TERMINATION OF AGREEMENT................................................ 33
8.1 Termination............................................................. 33
8.2 Effect of Termination................................................... 33
8.3 Amendment............................................................... 34
8.4 Extension; Waiver....................................................... 34
SECTION 9. MISCELLANEOUS........................................................... 34
9.1 Fees and Expenses....................................................... 34
9.2 Governing Law........................................................... 34
9.3 Notices................................................................. 34
9.4 Descriptive Headings.................................................... 38
9.5 Counterparts............................................................ 38
9.6 Termination of Other Agreements......................................... 38
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
9.7 Entire Agreement; Assignment............................................ 38
9.8 Remedies................................................................ 39
9.9 Parties in Interest..................................................... 39
9.10 Severability............................................................ 39
9.11 Indemnification by the Company and Buyer with Respect to Senior Notes... 39
9.12 Further Assurances: Post-Closing Cooperation............................ 39
9.13 Limited Recourse........................................................ 40
9.14 Release of Representing Parties by Stockholders......................... 40
9.15 Certain Definitions..................................................... 40
9.16 Survival of Representations and Warranties.............................. 41
</TABLE>
(iii)
<PAGE> 5
STOCK PURCHASE AGREEMENT
AGREEMENT, dated as of August 13, 1996 (the "Agreement"), by and among MS
ACQUISITION CORP., a Delaware corporation (the "Company"), THE BERKSHIRE FUND, A
Massachusetts limited partnership ("Berkshire"), BERKSHIRE PARTNERS LLC, a
Massachusetts limited liability company ("Berkshire Partners"), as Escrow Agent,
BRADLEY M. BLOOM, J. CHRISTOPHER CLIFFORD, RUSSELL L. EPKER, CARL FERENBACH,
RICHARD K. LUBIN, LEA ANNE S. OTTINGER and KEVIN T. CALLAGHAN (collectively,
together with Berkshire and Berkshire Partners, the "Berkshire Stockholders"),
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey mutual insurance
company ("Prudential"), PRUCO LIFE INSURANCE COMPANY, an Arizona corporation
("Pruco"); STATE TREASURER OF THE STATE OF MICHIGAN, AS 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 (collectively "Michigan"); and JEROME SINGER, DOUGLAS
A. THAL, ROBERT J. KLEIN, and STEVEN SINGER (the "Former Management
Stockholders"), who are all the holders of the Company's capital stock (herein
collectively referred to as the "Stockholders" and individually as a
"Stockholder"); UELI SPRING, HAROLD BROWN and GARY EASTERLY (for purposes of
Section 2, the "Representing Parties"); EDWARD LAWSON, DANIEL PIERCE, DAVID THAL
and RALPH BREDENBECK (herein collectively referred to, together with the
Representing Parties, as the "Management Holders" and each of the Management
Holders is individually referred to as a "Management Holder"); and AETNA
HOLDINGS, INC., a Delaware corporation ("Buyer").
WITNESSETH
WHEREAS, the Stockholders own of record and beneficially all of the issued
and outstanding capital stock of the Company, consisting of the shares of the
Company's Class A Common Stock, par value $.01 per share ("Old Class A Common
Stock") and Class B Common Stock, par value $.01 per share ("Old Class B Common
Stock" and, together with the Old Class A Common Stock, the "Old Common Stock")
and the shares of the Company's Series A Participating Preferred Stock, par
value $.01 per share ("Old Series A Preferred Stock") and Series B Participating
Preferred Stock, par value $.01 per share ("Old Series B Preferred Stock" and,
together with the Old Series A Preferred Stock, the "Old Preferred Stock"; the
Old Common Stock and the Old Preferred Stock are hereinafter collectively
referred to as the "Old Stock"), as set forth on Exhibit A to the
Recapitalization and Stock Purchase Agreement (as defined below); and
WHEREAS, Berkshire Partners owns shares of Old Stock as Escrow Agent
pursuant to Escrow Agreements dated as of March 3, 1989 and April 23, 1991, as
amended, by and among Berkshire Partners and certain other Berkshire
Stockholders, Prudential, Pruco and Michigan, as set forth on Exhibit A to the
Recapitalization and Stock Purchase Agreement (as defined below); and
<PAGE> 6
WHEREAS, the Company, the Stockholders and Citicorp Venture Capital,
Ltd., a New York corporation ("CVC"), have entered into a Recapitalization and
Stock Purchase Agreement dated as of the date hereof (the "Recapitalization and
Stock Purchase Agreement") pursuant to which (i) the Company shall cause a
reclassification of the stock of the Company (the "Recapitalization") whereby
each Stockholder shall receive, in exchange for all of such Stockholder's shares
of Old Stock, shares of the Company's Class A Common Stock, par value $.01 per
share ("New Class A Common Stock"), the Company's Class B Common Stock, par
value $.01 per share ("New Class B Common Stock" and, together with the New
Class A Common Stock, the "New Common Stock") and the Company's Series A
Cumulative Convertible Preferred Stock, par value $.01 per share ("New Series A
Preferred Stock"; the New Common Stock and the New Series A Preferred Stock are
hereinafter collectively referred to as the "New Stock"); and (ii) each
Stockholder will sell a portion of such Stockholder's shares of New Stock to CVC
(the "Stock Purchase") as set forth on Exhibit A to the Recapitalization and
Stock Purchase Agreement; and
WHEREAS, the Company and each Management Holder desires to cancel all of
such Management Holder's options to purchase shares of Old Class A Common Stock
(collectively, "Employee Options") in exchange for shares of New Class A Common
Stock, New Class B Common Stock, New Series A Preferred Stock and certain
deferred obligations of Buyer (the "Deferred Obligations") issued by the Company
on behalf of Buyer on substantially the same terms and conditions as the Notes
(as defined below); and
WHEREAS, each Stockholder also desires to sell a portion of the shares of
New Stock (the "Company Shares") to be held by such Stockholder immediately
after the Recapitalization to Buyer and Buyer desires to acquire the Company
Shares, as set forth on Exhibit A attached hereto.
NOW, THEREFORE, in order to consummate said purchase and sale and in
consideration of the mutual agreements set forth herein, the parties hereto
agree as follows:
SECTION 1. SALE OF THE COMPANY SHARES AND PURCHASE PRICE.
1.1 Transfer of Company Shares. At the Closing (as defined in Section 1.6),
each Stockholder shall deliver or cause to be delivered to Buyer one or more
certificates representing the Company Shares then owned by such Stockholder, as
listed on Exhibit A attached hereto. Such stock certificates shall be duly
endorsed in blank for transfer or shall be presented with stock powers duly
executed in blank to effect a valid transfer of such Company Shares by such
Stockholder, free and clear of any and all liens, security interests, Options
(as defined in Section 2.3), encumbrances, equities, charges or claims of any
kind whatsoever, except as set forth in the Stockholders Agreement to be
executed prior to the Stock Purchase or the Company's Certificate of
Incorporation, as then in effect (collectively, "Liens") and except for any
Liens created by or through Buyer.
2
<PAGE> 7
1.2 Purchase Price and Payment. At the Closing, Buyer shall, upon the
surrender by each Stockholder of the certificate(s) representing the Company
Shares and in exchange for the sale by such Stockholder of the Company Shares,
pay $11,080,730, such amount being the aggregate cash amount owing to the
Stockholders hereunder, to an account established by the Company, as agent, on
behalf of the Stockholders and Buyer shall deliver to each Stockholder an amount
of 11% junior subordinated debentures of Buyer, due 2007 in the form of Exhibit
C attached hereto including any Series A or Series B Secondary Notes (as such
terms are defined therein) issued thereon (collectively, the "Notes"), as set
forth following such Stockholder's name on Exhibit A attached hereto. At the
closing, the Company shall pay to each Stockholder (i) the amounts of cash as
set forth following such Stockholder's name under the heading "Consideration to
be Received by Stockholder" on Exhibit A attached hereto and (ii) an additional
amount of cash, if any, as set forth following such Stockholder's name under the
heading "Additional Cash Payment" on Exhibit A attached hereto.
1.3 Exchange of Options. Simultaneously with the Closing, the Company and
each Management Holder agrees that such Management Holder shall surrender to the
Company for cancellation all Employee Options held by such Management Holder
and, in exchange for such surrender, the Company shall issue to such Management
Holder the number of shares of New Class A Common Stock, New Class B Common
Stock and New Series A Preferred Stock, the amount of Deferred Obligations and
cash, each as set forth on Exhibit B attached hereto.
1.4 Prepayment of Notes and Deferred Obligations. On each August 13,
November 13, February 13 and May 13 (each, a "Prepayment Date"), Buyer shall pay
or prepay, as the case may be, principal and interest on the Notes, the Series A
Secondary Notes (as such term is defined in the Notes), the Series B Secondary
Notes (as such term is defined in the Notes) and the Deferred Obligations, in an
aggregate amount equal to the amount permitted to be paid as a dividend by Aetna
Industries, Inc. ("Aetna") on each such Prepayment Date by the terms of the
documents relating to the Senior Debt (as such term is defined in the Notes as
provided for, and subject to the limitations set forth, in this Section 1.4). If
a Prepayment Date is the same as the date on which interest is due and payable
on the Notes and Deferred Obligations, then the amounts to be prepaid on such
Prepayment Date shall be allocated and paid, pro rata among the Notes and
Deferred Obligations, in the following priority: (i) first, to pay all interest
due and payable on the Notes and Deferred Obligations on such Prepayment Date;
(ii) second, to pay any remaining principal on any Series A Secondary Notes or
the corresponding obligations under the Deferred Obligations then outstanding;
and (iii) third, to pay the remaining "Prepayment Principal Amount" (as such
term is defined in the Notes) of any Notes or Deferred Obligations then
outstanding. If a Prepayment Date is not the same as a date on which
interest is due and payable on the Notes and Deferred Obligations, then the
amounts to be prepaid on such Prepayment Date shall be allocated and paid, pro
rata among the Notes and Deferred Obligations, in the following priority: (W)
first, to pay all interest accrued but not yet paid on the Series A Secondary
Notes or the corresponding obligations under the Deferred Obligations; (X)
second, to pay all interest accrued but not yet paid on the remaining Prepayment
Principal Amount or; (Y) third, to pay any remaining principal on any Series A
Secondary Notes or the corresponding obligations under the Deferred Obligations;
and (Z)
3
<PAGE> 8
fourth, to pay the remaining Prepayment Principal Amount. The total amount of
all payments pursuant to subsection (iii) and subsection (Z) shall not exceed
$2,500,000.
1.5 Stockholders' Representative.
(a) In order to administer efficiently (i) the implementation of the
Agreement by certain of the Stockholders, (ii) the waiver of any condition to
the obligations of such Stockholders, and (iii) the settlement of any dispute
with respect to the Agreement, the Former Management Stockholders, the
Management Holders and the Berkshire Stockholders, with the exception of
Berkshire and Berkshire Partners, (the "Designating Stockholders") hereby
designate Russell L. Epker as their representative (the "Stockholders'
Representative").
(b) The Designating Stockholders hereby authorize the Stockholders'
Representative (i) to take all action necessary in connection with the
implementation of the Agreement on behalf of the Designating Stockholders and
the settlement of any dispute, (ii) to give and receive all notices required to
be given under the Agreement with respect to the Designating Stockholders and
(iii) to take any and all additional action as is contemplated to be taken by or
on behalf of the Designating Stockholders by the terms of this Agreement,
including without limitation, the execution and delivery of documents to
transfer the Company Shares to Buyer.
(c) Each Designating Stockholder hereby specifically authorizes and
directs the Stockholders' Representative to execute on behalf of such
Designating Stockholder the certificates to be delivered to Buyer by the
Representing Parties and the Stockholders pursuant to Section 6.1 unless such
authorization and direction shall have been revoked by such Designating
Stockholder in writing prior to the Closing.
(d) In the event that the Stockholders' Representative dies, becomes
legally incapacitated or resigns from such position, Robert J. Small shall fill
such vacancy and shall be deemed to be the Stockholders' Representative for all
purposes of this Agreement unless otherwise determined by the Designating
Stockholders owning a majority of the shares of New Stock held (on a fully
diluted basis) by all Designating Stockholders; however, no change in the
Stockholders' Representative shall be effective until Buyer is given notice of
such change by one or more of the Designating Stockholders.
(e) All decisions and actions by the Stockholders' Representative in
accordance with this Agreement shall be binding upon all of the Designating
Stockholders, and no Designating Stockholder shall have the right to object,
dissent, protest or otherwise contest the same.
(f) By their execution of this Agreement, the Designating Stockholders
agree that:
4
<PAGE> 9
(i) Buyer shall be able to rely conclusively on the instructions
and decisions of the Stockholders' Representative as to any actions
required or permitted to be taken by the Designating Stockholders or the
Stockholders' Representative hereunder, and no party hereunder shall
have any cause of action against Buyer for any action taken by Buyer in
reliance upon the instructions or decisions of the Stockholders'
Representative;
(ii) all actions, decisions and instructions of the Stockholders'
Representative shall be conclusive and binding upon all of the
Designating Stockholders and no Designating Stockholder shall have any
cause of action against the Stockholders' Representative for any action
taken, decision made or instruction given by the Stockholders'
Representative under this Agreement, except for fraud or willful breach
of this Agreement by the Stockholders' Representative;
(iii) remedies available at law for any breach of the provisions of
this Section 1.5 are inadequate; therefore, Buyer shall be entitled to
temporary and permanent injunctive relief without the necessity of
proving damages if Buyer brings an action to enforce the provisions of
this Section 1.5; and
(iv) the provisions of this Section 1.5 are independent and
severable, shall constitute an irrevocable power of attorney, coupled
with an interest and surviving death, granted by the Designating
Stockholders to the Stockholders' Representative and shall be binding
upon the executors, heirs, legal representatives and successors of each
Designating Stockholder.
(g) All fees and expenses incurred by the Stockholders' Representative
shall be paid pro rata by the Designating Stockholders in accordance with their
ownership of New Common Stock.
1.6 Closing. The closing of the purchase and sale of the Company Shares
(the "Closing") shall take place at the offices of Morgan Lewis & Bockius LLP,
101 Park Avenue, New York, New York 10178 on the same day as and promptly after
the Stock Purchase Closing (as defined in the Recapitalization and Stock
Purchase Agreement) contemplated by the Recapitalization and Stock Purchase
Agreement (or at such other time, date and place as the parties may agree).
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE REPRESENTING PARTIES
The Representing Parties, jointly and severally, represent and warrant to
Buyer that except as set forth in the disclosure letter to be delivered to Buyer
prior to the Closing (the "Disclosure Letter"):
5
<PAGE> 10
2.1 Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Aetna is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Michigan. Aetna Export Sales Corp. ("Export") is a
corporation duly organized, validly existing and in good standing under the laws
of the United States Virgin Islands. Aetna and Export are the only subsidiaries
of the Company. The Company and each of its subsidiaries have the requisite
corporate power and authority to own, lease and operate their properties and to
conduct their businesses as currently conducted. Each of the Company and its
subsidiaries is duly qualified as a foreign corporation to do business in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its business makes such qualification necessary, except
where the failure to be so qualified would not have a Company Material Adverse
Effect (as defined below). The term "Company Material Adverse Effect" means any
change or effect that is or would be materially adverse to the business, assets,
results of operations or financial condition of the Company and its subsidiaries
taken as a whole. Except for its ownership of the subsidiaries, the Company does
not directly or indirectly own any equity or similar interest in, or any
interest convertible, exchangeable or exercisable for or into, any equity or
similar interest in any person.
2.2 Certificate of Incorporation and By-Laws. The Company has previously
delivered to Buyer a true, complete and correct copy of the Certificate of
Incorporation and By-Laws (or equivalent organizational documents), each as
amended to date, of the Company and each of its subsidiaries. Such Certificates
of Incorporation and By-Laws (and equivalent organizational documents) are in
full force and effect. Neither the Company nor any of its subsidiaries is in
violation of any provision of its Certificate of Incorporation or By-Laws (or
equivalent organizational documents).
2.3 Capitalization. The authorized capital stock of the Company consists
solely of (i) 1,040,000 shares of Old Class A Common Stock, (ii) 1,040,000
shares of Old Class B Common Stock, (iii) 80,168 shares of Old Series A
Preferred Stock and (iv) 250,000 shares of Old Series B Preferred Stock. As of
the date of this Agreement, (i) 525,000 shares of Old Class A Common Stock are
issued and outstanding, (ii) 400,000 shares of Old Class B Common Stock are
issued and outstanding, (iii) 80,168 shares of Old Series A Preferred Stock are
issued and outstanding and (iv) 84,485 shares of Old Series B Preferred Stock
are issued and outstanding. Upon the Recapitalization, the authorized capital
stock of the company will consist solely of (i) 5,000,000 shares of New Class A
Common Stock, (ii) 5,000,000 shares of New Class B Common Stock, (iii)
293,123.320 shares of New Series A Preferred Stock and (iv) 2,000,000 shares of
a class of preferred stock, par value $.01 per share. All of the outstanding
shares of Old Stock have been duly authorized and validly issued and are fully
paid and non-assessable and free of preemptive rights. Neither the Company nor
any of its subsidiaries has any outstanding options, warrants, subscriptions or
other rights (including without limitation any "phantom" stock rights),
agreements, arrangements or commitments of any character (collectively,
"Options") relating to the issued or unissued capital stock of the Company or
any of its subsidiaries, or obligating the Company or any of its subsidiaries
to issue or sell any shares of capital stock of, or other equity interests in,
the Company or any of
6
<PAGE> 11
its subsidiaries, or entitling any person other than the holder of shares
of capital stock or Options, if any, to receive from the Company or any of
its subsidiaries any benefits or rights similar to benefits or rights enjoyed
by or accruing to a holder of shares of capital stock. The Company owns all of
the outstanding shares of capital stock of Aetna (consisting of 1,000 shares of
common stock) and Aetna owns all of the outstanding shares of capital stock of
Export (consisting of 1,000 shares of common stock), and all such shares are
duly authorized, validly issued, fully paid and non-assessable, and free and
clear of all preemptive rights and all Liens. There are no agreements or
understandings to which the Company or any subsidiary of the Company is a party
with respect to the voting of, or other interest in any shares of Old Stock or
which restrict the transfer of any such shares. There are no outstanding
contractual obligations of the Company or any subsidiary of the Company to
repurchase, redeem or otherwise acquire any shares of capital stock or Option of
the Company or any subsidiary of the Company, or to make any investment in any
subsidiary or any other person. Neither the Company nor any subsidiary of the
Company is under any obligation, contingent or otherwise, by reason of any
agreement to register any of its securities under the Securities Act of 1933, as
amended (the "Securities Act").
2.4 Authority Relative to this Agreement. The Company has all necessary
corporate power and authority to execute and deliver this Agreement and the
Stockholders Agreement and Registration Rights Agreement to be executed and
delivered in connection with this Agreement (collectively, the "Operative
Documents"), and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of the Operative Documents by the Company and the
consummation by the Company of the transactions contemplated thereby have been
duly and validly authorized by the Board of Directors of the Company, and no
other corporate proceedings on the part of the Company are necessary to
authorize the Operative Documents, and to consummate the transactions
contemplated thereby. The Operative Documents have been duly and validly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery by the other parties thereto, constitute the valid and
binding agreement of the Company, enforceable against the Company in accordance
with their respective terms.
2.5 Consents and Approvals; No Violations.
(a) The execution and delivery of the Operative Documents by the
Company does not, and the performance of the transactions contemplated by the
Operative Documents by the Company will not, except for agreements to be
terminated at the Closing pursuant to Section 9.6, require any filing with or
notification to, or any consent, approval, authorization or permit from, any
governmental or regulatory authority (a "Governmental Entity") or any other
person except for where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications,
individually or in the aggregate, (X) would not prevent or delay consummation
of the transactions contemplated by this Agreement, (Y) would not otherwise
prevent or delay the Company from performing its obligations under this
Agreement and (Z) would not have a Company Material Adverse Effect.
7
<PAGE> 12
(b) The execution and delivery of the Operative Documents by the Company
does not, and the performance of the transactions contemplated by the Operative
Documents by the Company will not, (i) conflict with or violate the Certificate
of Incorporation or By-Laws (or equivalent documents) of the Company, (ii)
violate any order, writ, injunction, decree, statute, treaty, law, rule or
regulation applicable to the Company or any of its subsidiaries, or (iii) result
in a violation or any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under any note, bond,
mortgage, indenture, contract, agreement (except for agreements which will be
terminated at the Closing pursuant to Section 9.6), lease, license, permit,
franchise or other instrument or obligation to which the Company or any of its
subsidiaries is a party or by which any of their respective assets is bound or
(iv) result in the creation or imposition of any Lien upon the Company or any of
its subsidiaries or any of their respective assets, except for any such
conflicts, violations, breaches, defaults or other occurrences which,
individually or in the aggregate, (X) would not prevent or delay consummation of
the transactions contemplated by this Agreement, (Y) would not otherwise prevent
or delay in any material respect the Company from performing its obligations
under this Agreement and (Z) would not have a Company Material Adverse Effect.
2.6 Compliance.
(a) The Company and its subsidiaries have all licenses, permits,
franchises, orders or approvals of any federal, state, local or foreign
governmental or regulatory body or other Governmental Entity material to the
conduct of their businesses on a consolidated basis (collectively, "Company
Permits"), and such Company Permits are in full force and effect and no
proceeding is pending or, to the knowledge of the Company, threatened to revoke
or limit any Company Permit except where the failure to have any such Company
Permit would not have a Company Material Adverse Effect.
(b) Neither the Company nor any of its subsidiaries is in default or
violation of (i) any law, rule, ordinance, regulation, order, judgment or decree
applicable to the Company or any of its subsidiaries or of any Company Permit or
(ii) any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company or any
of its subsidiaries is a party, except for such defaults or violations which,
individually or in the aggregate, would not have a Company Material Adverse
Effect. Since January 1, 1993, neither the Company nor any of its subsidiaries
has received notice of any investigation or review by any Governmental Entity or
any other person concerning any such possible violations by the Company or any
of its subsidiaries, nor has any Governmental Entity or any other person
notified the Company or any of its subsidiaries in writing of its intention to
conduct the same, in each case other than those the outcome of which would not
have a Company Material Adverse Effect.
8
<PAGE> 13
2.7 Financial Statements and Undisclosed Liabilities.
(a) The Company has previously delivered to Buyer a true, complete and
correct copy of its audited consolidated financial statements for the years
ended December 31, 1995 and 1994 (the "Audited Financial Statements") and its
unaudited consolidated balance sheet of the Company and its consolidated
subsidiaries as of June 30, 1996 (the "Current Balance Sheet") and the related
statements of operations and accumulated deficit and cash flows for the
six-month period then ended (collectively with the Current Balance Sheet, the
"Current Financial Statements"). The Audited Financial Statements and the
Current Financial Statements were prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods indicated (except as may be otherwise indicated in the notes thereto and
except that the Current Financial Statements do not contain footnotes meeting
the requirements of GAAP) and fairly present the consolidated financial
position, accumulated deficit and results of operations of the Company and its
subsidiaries on a consolidated basis as at the respective dates thereof and for
the respective periods indicated therein (subject, in the case of the Current
Financial Statements, to normal year-end adjustments consistent with past
practice).
(b) Except (i) as set forth in the Current Financial Statements, (ii) as
set forth in or described in this Agreement or the Disclosure Letter, (iii) for
liabilities incurred in the ordinary course of business since December 31, 1995
which would be required to be included as a liability on a consolidated balance
sheet prepared in accordance with GAAP as of the date hereof, or (iv) all other
liabilities or obligations incurred in the ordinary course of business, the
Company and its subsidiaries do not have any liability or obligation of any
nature (whether accrued, absolute, contingent or otherwise), except for any
liability or obligation which will not have a Company Material Adverse Effect.
2.8 Absence of Certain Changes. Since June 30, 1996, there has not been
(i) a Company Material Adverse Effect; (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock, or
property or any combination thereof) in respect of any shares of any capital
stock of the Company or any of its subsidiaries, or any direct or indirect
redemption, purchase or other acquisition by the Company or any of its
subsidiaries of any of their respective securities (including any Options),
other than dividends by a subsidiary to the Company; (iii) any entry into any
agreement, commitment or transaction by the Company or any of its subsidiaries
that is material to the Company and its subsidiaries taken as a whole, except
agreements, commitments or transactions in the ordinary course of business; (iv)
any significant change by the Company or any subsidiary in accounting methods,
principles or practices, (v) any acquisition, sale, lease, transfer or
disposition by the Company or its subsidiaries of any material assets or
properties used or held for use in the conduct of their respective businesses,
or any creation or incurrence of a Lien on any such assets or properties, in
each case other than in the ordinary course of business consistent with past
practice; (vi) any authorization, issuance, sale, delivery or other disposition
by the Company or any subsidiary of any shares of capital stock (other than
pursuant to the exercise of any options or conversion rights) of, or any Option
with respect to, the Company or any of its
9
<PAGE> 14
subsidiaries, or any modification or amendment of any right of any holder
of any outstanding shares of capital stock of, or any Option with respect
to (except as contemplated by this Agreement), the Company or any of its
subsidiaries; (vii) any damage, destruction or loss (whether or not covered by
insurance) with respect to any property or asset individually or in the
aggregate of the Company or any of its subsidiaries and having a Company
Material Adverse Effect; (viii) except in the ordinary course of business
consistent with past practice or pursuant to working capital credit facilities
in existence on the date of this Agreement, an incurrence of any long-term
indebtedness for borrowed money, a guarantee of any indebtedness, an issuance or
sale of debt securities or warrants or rights to acquire any debt securities, a
guarantee of any debt of others, any loan, advance or capital contribution, any
mortgage, pledge or other encumbrance of any material assets, or the creation of
any material Lien thereupon; (ix) an increase in the compensation payable or to
become payable to the Company's executive officers or employees, except for
increases in the ordinary course of business in accordance with past practice
which do not result in a material increase in benefits or compensation expense
to the Company or its subsidiaries taken as a whole, or the grant of any
severance or termination pay to, any director or executive officer of it or any
of its subsidiaries other than in the ordinary course of business, or the
establishment, adoption, or amendment in any material respect or the
acceleration of any rights or benefits under any collective bargaining, bonus,
profit sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
director, executive officer or employee except as is provided therein; (x) any
transaction with an affiliate of the Company except in the ordinary course of
business; (xi) any transaction with any Berkshire Stockholder, Prudential, Pruco
or Michigan; or (xii) any agreement (other than this Agreement, the
Recapitalization and Stock Purchase Agreement, and agreements contemplated
hereby or thereby) entered into by the Company to take any of the foregoing
actions.
2.9 Environmental Matters.
(a) The Company and its subsidiaries are in compliance with all
Environmental Laws, except for any noncompliance individually or in the
aggregate that does not have a Company Material Adverse Effect. "Environmental
Laws" shall mean all federal, state and local laws, rules, regulations,
ordinances, common law and orders that purport to regulate the release of
Hazardous Materials (as defined herein) or other materials into the environment,
or impose requirements relating to environmental protection. "Hazardous
Materials" shall mean petroleum and petroleum products, radioactive materials,
pesticides, asbestos and asbestos-containing materials, polychlorinated
biphenyls, and any materials or substances defined as or included in the
definition of "hazardous materials," hazardous wastes," "hazardous substances,"
"toxic substances," "toxic pollutants," "pollutants," "contaminants," "solid
wastes," or "regulated substances" under any applicable Environmental Law. The
Company has previously delivered to Buyer a true and complete copy of
environmental assessment reports prepared by Dames & Moore with respect to
Aetna's facilities (collectively, such reports are referred to as the
"Environmental Reports")
10
<PAGE> 15
and any other written reports relating to the environmental condition of
any of the Owned Real Estate, Leased Real Estate, or any properties formerly
owned or leased by the Company or its subsidiaries which are in the possession
of the Company, its subsidiaries or its agents.
(b) To the knowledge of the Company, there are no Hazardous Materials
present and there has been no material release or threat of material release of
any Hazardous Material on, in, under, from or to the Owned Real Estate or Leased
Real Estate (as such terms are defined in Section 2.15) or any property formerly
owned or leased by the Company or its Subsidiaries for which the Company or its
subsidiaries could incur material liability, except is indicated by the
information set forth in the Environmental Reports.
(c) No Lien has been imposed on the Owned Real Estate or, to the
Company's knowledge, Leased Real Estate by any governmental agency at the
federal, state, or local level in connection with the presence of any hazardous
material.
(d) None of the Company or either of its subsidiaries has: (i) entered
into or been subject to any consent decree, compliance order, or administrative
order with respect to environmental matters relating to the Owned Real Estate or
Leased Real Estate or any property formerly owned or leased by the Company or
its subsidiaries, the operations of the Company or its subsidiaries, or any
off-site location to which the Company or its subsidiaries sent Hazardous
Materials for treatment, storage, handling or disposal; (ii) received since
January 1, 1995 written notice under the citizen suit provision of any
Environmental Law in connection with the Owned Real Estate or the Leased Real
Estate, any property formerly owned or leased by the Company or its subsidiaries
or the operations of the Company or its subsidiaries; (iii) received since
January 1, 1995 any written request for information, notice, demand letter,
administrative inquiry, or complaint with respect to environmental matters
relating to the Owned Real Estate or the Leased Real Estate, any property
formerly owned or leased by the Company or its subsidiaries, or any off-site
location to which the Company or its subsidiaries sent Hazardous Materials for
treatment, storage, handling or disposal; or (iv) been subject to any
governmental or citizen enforcement action with respect to environmental matters
relating to the Owned Real Estate or the Leased Real Estate, any property
formerly owned or leased by the Company or its subsidiaries, the operations of
the Company or its subsidiaries or any off-site location to which the Company or
its subsidiaries sent Hazardous Materials for treatment, storage, handling or
disposal.
2.10 Litigation. There is no litigation, suit, action, proceeding, or
complaint pending or, to the knowledge of the Company and its subsidiaries,
threatened against the Company or any of its subsidiaries as to which there is a
reasonable likelihood of an adverse determination and which, if adversely
determined, could reasonably be expected to (i) have a Company Material Adverse
Effect, (ii) materially and adversely affect the Company's ability to perform
its obligations under this Agreement or (iii) prevent the consummation of any of
the transactions contemplated by this Agreement. Prior to the date hereof, the
Company has delivered to Buyer all responses of counsel to the Company or its
subsidiaries to auditor's request for information delivered in connection with
the Audited Financial Statements.
11
<PAGE> 16
2.11 Employee Benefit Plans.
(a) Disclosure. Section 2.11 of the Disclosure Letter contains a true
and complete list of all pension, benefit, profit sharing, retirement, stock,
deferred compensation, welfare, insurance, disability, severance pay and other
similar plans, programs and agreements, including all "employee benefit plans"
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), currently maintained or contributed to by the
Company or its subsidiaries, covering employees of the Company or any entity (a
"Commonly Controlled Entity") that, together with the Company, would be treated
as a single employer under Section 414(b) or (c) of the Internal Revenue Code of
1986, as amended (the "Code") (each an "Employee Plan"). Neither the Company nor
any subsidiary has any current or future obligation under any plan or
arrangement providing health care benefits or other financial benefits to former
employees (other than pension benefits under the defined benefit plans disclosed
in Section 2.11 of the Disclosure Letter and benefits required to be provided
under part 6 of subtitle B of title I of ERISA).
(b) Prohibited Transactions. With respect to each Employee Plan, there
has been no nonexempt "prohibited transaction," as such term is defined in
Section 4975 of the Code or Section 406 of ERISA, in connection with which Buyer
could be subject to a material liability due to either a penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Code.
(c) Compliance. All Employee Plans comply in all material respects
with, and have been administered in material compliance with, all laws,
including, but not limited to, ERISA and the Code, applicable to such Employee
Plans. Neither the Company nor Aetna has any liability under Title IV of ERISA,
nor has any event or circumstance occurred which would reasonably be expected
to result in such a liability being asserted by any party, including the
Pension Benefit Guaranty Corporation, with respect to any Employee Plan or any
other plan subject to Title IV of ERISA (other than the payment of annual
premiums). No Employee Plan that is subject to Section 302 of ERISA or Section
412 of the Code, or both, has incurred any "accumulated funding deficiency"
(as defined in such sections), whether or not waived; nor has the Company or
any Commonly Controlled Entity failed to pay any amounts due and owing as
required by the terms of any Employee Plan. If each Employee Plan which is
subject to Title IV of ERISA were terminated in a "standard termination" (as
described in Section 4041(b) of ERISA) as of the Effective Time, the current
value of the assets of such Employee Plan would equal or exceed the "benefit
liabilities" (as defined in Section 4001(a)(16) of ERISA) of such Employee
Plan as determined on such date. There has been no partial termination of any
Employee Plan that would require full vesting under the terms of such Employee
Plan, the Code, ERISA or any other applicable law or ruling.
(d) Multiemployer Plans. Neither the Company nor Aetna has within six
(6) years prior to the Closing been obligated, nor has any other entity within
six (6) years prior to the Closing been obligated at any time when such entity
was a Commonly Controlled Entity, to contribute to any "multiemployer plan" as
such term is defined in Section 4001(a)(3) of
12
<PAGE> 17
ERISA. Neither the Company nor Aetna has any "withdrawal liability," as
computed under Section 4211 of ERISA, with respect to any such plan.
(e) Copies of Employee Plans and Related Documents. Copies of all
Employee Plans which have been reduced to writing, together with copies of
determination letters and annual reports with respect to each qualified Employee
Plan, have been provided to Buyer.
(f) Qualifications. Each Employee Plan which is an "employee pension
benefit plan" (as defined in Section 3(2) of ERISA) intended to qualify under
Section 401(a) of the Code is, and at all times has been, so qualified and has
been determined by the Internal Revenue Service to so qualify, and each trust
created thereunder has been determined to be exempt from tax under the
provisions of Section 501(a) of the Code, and nothing has since occurred which
would cause the loss of such qualification or exemption.
(g) Claims and Litigation. There are no pending claims, suits or other
proceedings in connection with any Employee Plan by present or former employees
of the Company or its subsidiaries, plan participants, beneficiaries or spouses
of any of the above, other than claims by participants or beneficiaries of such
Employee Plan for ordinary and usual benefits to which such beneficiaries or
participants are entitled under the terms of such Employee Plan.
2.12 Trademarks, Patents and Copyrights. The Company and its
subsidiaries own, or possess adequate licenses or other rights to use, all
patents, trademarks, trade names, copyrights, service marks, trade secrets,
know-how and other proprietary rights used in connection with the business of
the Company and its subsidiaries as currently conducted (the "Company
Proprietary Rights") other than any such Company Proprietary Rights which are
not material to the Company and its subsidiaries, and no assertion or claim has
been made in writing since January 1, 1993 challenging the validity of any of
the Company Proprietary Rights. To the knowledge of the Company, the conduct of
the business of the Company and its subsidiaries as currently conducted does not
conflict with any patent, license, trademark, trade name, or copyright of any
other person. Neither the Company nor any subsidiary is in default (or with the
giving of notice or lapse of time or both, would be in default) under any
license to use Company Proprietary Rights, which default individually or in the
aggregate would cause a Company Material Adverse Effect. The Company has
received no written claim or threat that any such conflict exists, and no
litigation, claim, suit, action, proceeding, or complaint concerning the
foregoing has been filed or is ongoing.
2.13 Taxes. The Company and its subsidiaries have duly and timely filed
all Tax Returns required to be filed by them through the date hereof and have
paid all Taxes shown on such Tax Returns or pursuant to any assessments received
by the Company or its subsidiaries, unless contested in good faith in
appropriate proceedings, and all such Tax Returns are correct and complete in
all material respects. All monies (except for amounts that are not material)
required to be withheld by the Company or its subsidiaries from employees,
independent
13
<PAGE> 18
contractors, creditors or other third parties for taxes have been collected
or withheld, and either duly and timely paid to the appropriate Taxing
Authorities or set aside in accounts for such purposes, except where the failure
to do so will not have a Company Material Adverse Effect. The provisions for
current Taxes made on the Current Financial Statements are sufficient for the
payment of all accrued and unpaid Taxes not yet due and payable as of such date,
except where failure to be so will not have a Company Material Adverse Effect.
Neither the Company nor any of its Subsidiaries is a party to any agreement
extending, or having the effect of extending, the time within which to file any
Tax Return or the period of assessment or collection of any Taxes. Neither the
Internal Revenue Service nor any other Taxing Authority is now asserting or, to
the knowledge of the Company, threatening to assert against the Company or any
of its subsidiaries any material deficiency or material claim for additional
Taxes or interest thereon or penalties in connection therewith. There are no
liens for Taxes upon the assets of the Company and its subsidiaries. Neither the
Company nor any subsidiary (i) is a party to or is bound by any obligations
under any tax sharing, tax indemnity or similar agreement or arrangement, (ii)
has made or is subject to any election under section 341(f) of the Internal
Revenue Code of 1986, as amended, (iii) has made or is subject to any election
or deemed election under section 338 or section 336(a) of the Code or the
regulations thereunder, (iv) has agreed to make any adjustment under section 481
of the Code (or any comparable provision of state, local or foreign law) by
reason of a change in accounting method or otherwise, or (v) has since January
1, 1990 been a member of any affiliated, consolidated, combined, unitary or
similar group for any Tax purpose (other than a group consisting solely of the
Company and its subsidiaries). Aetna Export made a valid election to be
classified as a "small FSC" within the meaning of section 922(b) of the Code for
its taxable year commencing January 1, 1988, and has qualified as a small FSC
for all of its taxable years commencing on or after January 1, 1988, through the
date of the Closing, except where the failure to do so would not be material to
the Company and its subsidiaries on a consolidated basis. "Taxes" means all
federal, state, local or foreign net or gross income, gross receipts, net
proceeds, sales, use, ad valorem, value added, franchise, withholding, payroll,
employment, excise, sales, use, property, alternative or add-on minimum or other
taxes, whether disputed or not, together with any interest, penalties, additions
to tax or additional amounts with respect thereto. "Tax Returns" means any
returns, reports or statements (including any information returns) required to
be filed for purposes of a particular Tax. "Taxing Authority" means any
governmental agency, board, bureau, body, department or authority of any
federal, state, local or foreign jurisdiction, having or purporting to exercise
jurisdiction with respect to any Tax.
2.14 Labor Matters. There is not currently, and within the last three years
neither the Company nor any subsidiary of the Company has experienced, any
strike, lockout, picketing, boycott, work stoppage or slow down or union
organization activity or demands for recognition. The Company has no knowledge
(i) of any allegation, charge or complaint of unfair labor practice, employment
discrimination or other matter relating to the employment of labor pending or
threatened against the Company or any subsidiary of the Company, (ii) of any
basis for any such allegation, charge or complaint or (iii) that it, or any
subsidiary of the Company, has not complied in all material respects or is not
in material compliance with all
14
<PAGE> 19
applicable laws, rules and regulations relating to the employment of labor
except where such practice, discrimination matter or non-compliance will not
have a Company Material Adverse Effect.
2.15 Real Estate.
(a) Owned Real Estate. Section 2.15 of the Disclosure Letter contains
a true, complete and correct list of all real property owned by the Company or
any of its subsidiaries, directly or indirectly (the "Owned Real Estate").
(i) Title to Owned Real Estate. The Company has made available to
Buyer true and complete copies of all owner's policies of title
insurance issued with respect to the Owned Real Estate. To the knowledge
of the Company, there are no liabilities, liens, encumbrances,
easements, restrictions, reservations, agreements or other matters
affecting the Company's title or any subsidiary's title to the Owned
Real Estate except for those listed in such policies of title insurance
or otherwise listed in Section 2.15 of the Disclosure Letter (such
listed matters, the "Permitted Exceptions").
(ii) Condemnation or Eminent Domain Proceedings. There is no
pending, or to the Company's knowledge, threatened condemnation or
eminent domain proceedings with respect to any of the Owned Real Estate.
(iii) Taxes. There are no taxes or betterment assessments other
than ordinary real estate taxes pending or payable against the Owned
Real Estate. To the Company's knowledge, there are no unpaid taxes or
levies, permit fees or connection fees remaining unpaid with respect to
existing curb cuts, sewer hook-ups, water main hook-ups or other
municipal services of a like nature which are due and which if they
remain unpaid will have a Company Material Adverse Effect.
(iv) Utilities. All water, sewer, gas, electric, telephone,
drainage and other utility equipment required by law or necessary for
the current operation of the Owned Real Estate are installed and
connected to the Owned Real Estate and such utilities are available in
sufficient quantities and such connections are adequate to service the
Owned Real Estate as it is currently improved and operated.
(v) Compliance with Law; Governmental Approvals. The Company has
received no notice from any municipal, state, federal or other
governmental authority of any violation of any zoning, building, fire,
water, use, health, environmental or other law, ordinance, code,
regulation, license, permit or authorization issued in respect to any of
the Owned Real Estate, and the Company has no knowledge of any
violations of any such applicable statutes, laws, codes or ordinances or
other governmental regulations, which violation or violations would
reasonably be expected to have a Company Material Adverse Effect.
15
<PAGE> 20
(vi) Condition. Substantially all of the buildings, fixtures and
other improvements located on the Owned Real Estate which are
material to the business of the Company or its subsidiaries are in
sufficient condition and repair for the operation of the Owned Real
Estate as presently conducted.
(vii) Flood Hazard Areas. The Owned Real Estate is not located in
any special flood hazard area as designated by any Governmental
Entity having jurisdiction over the Owned Real Estate.
(viii) Leases. None of the Owned Real Estate is leased to any other
person.
(b) Leased Real Estate. Section 2.15 of the Disclosure Letter contains a
complete and correct list of all real property leased by the Company or any of
its subsidiaries or lessor or lessee, directly or indirectly (the "Leased Real
Estate").
(i) Leases. The Company has made available to Buyer true, complete
and accurate copies of all leases or other agreements ("Leases") under
which the Company or any of its subsidiaries leases the Leased Real
Estate, together with all amendments thereto. With respect to each of
the Leases: (a) each of the Leases is in full force and effect on the
terms set forth therein and has not been modified, amended or altered,
in writing or otherwise; (b) all material obligations of the landlord or
lessor under the Leases which have accrued have been performed, and to
the knowledge of the Company, no landlord or lessor is in default under
or in arrears in the payment of any sum or the performance of any
obligation required of it under any Lease, and no circumstance presently
exists which, with notice or the passage, or both, would give rise to a
default by the landlord or lessor under any such Lease; (c) all material
obligations of the Company or its subsidiaries under the Leases which
have accrued have been performed and neither the Company nor any
subsidiary of the Company is in default under or in arrears in the
payment of any sum or in the performance of any material obligation
required under any of the Leases, and no circumstance presently exists
which, with the passage of time or giving of notice, or both would give
rise to such a default by the Company or any of its subsidiaries, and
(d) the Company has obtained the consent of each landlord or lessor
under any Leases whose consent is required in connection with the
transactions contemplated by this Agreement, and the consummation of
such transactions will not give any landlord or lessor under any Lease
any right or remedy, including, without limitation, any right to declare
a default under any Lease.
(ii) Condemnation or Eminent Domain Proceedings. There is no
pending, or, to the Company's knowledge, threatened condemnation or
eminent domain proceedings with respect to any of the Leased Real
Estate.
16
<PAGE> 21
(iii) Taxes. Other than ordinary real estate taxes pending or
payable against the Leased Real Estate, there are no taxes or betterment
assessments which if they remain unpaid will have a Company Material
Adverse Effect. There are no taxes or levies, permit fees or connection
fees remaining unpaid with respect to existing curb cuts, sewer
hook-ups, water main hook-ups or other municipal services of a like
nature which are due and which if they remain unpaid will have a Company
Material Adverse Effect.
(iv) Utilities. All water, sewer, gas, electric, telephone,
drainage and other utility equipment required by law or necessary for
the current operation of the Leased Real Estate are installed and
connected to the Leased Real Estate and such utilities are available in
sufficient quantities and such connections are adequate to service the
Leased Real Estate as it is currently improved and operated.
(v) Compliance with Law; Governmental Approvals. The Company has
received no notice from any municipal, state, federal or other
governmental authority of any violation of any zoning, building, fire,
water, use, health, environmental or other law, ordinance, code,
regulation, license, permit or authorization issued in respect to any of
the Leased Real Estate, and the Company has no knowledge of any
violations of any such applicable statutes, laws, codes or ordinances or
other governmental regulations, which violation or violations would
reasonably be expected to have a Company Material Adverse Effect.
(vi) Condition. Substantially all of the buildings, fixtures and
other improvements located on the Leased Real Estate which are material
to the business of the Company or its subsidiaries are in sufficient
condition and repair for the operation of the Leased Real Estate as
presently conducted.
(vii) Flood Hazard Areas. The Leased Real Estate is not located in
any special flood hazard area as designated by any Governmental Entity
having jurisdiction over the Leased Real Estate.
(c) Section 2.15 of the Disclosure Letter contains a list of all real
property owned or leased by the Company or any of its subsidiaries,
directly or indirectly, within the last five (5) years.
2.16 Inventory. The Current Financial Statements set forth as of June 30,
1996, the respective dollar values of raw materials, work in process, finished
goods and tooling inventory of the Company and its subsidiaries (the
"Inventory"). The values at which the Inventory is stated therein reflect the
normal inventory valuation policy of the Company and its subsidiaries of stating
inventory at the lower of cost or market value in accordance with generally
accepted accounting principles. The Inventory consists of items which are usable
or saleable in the ordinary course of business, net of applicable reserves
reflected in the Current Financial Statements.
17
<PAGE> 22
2.17 Accounts Receivable.
(a) Section 2.17 of the Disclosure Letter sets forth as of June 30, 1996
a list of the accounts and notes receivable of the Company and its subsidiaries
(the "Accounts Receivable"), including the aging thereof which, to the knowledge
of the Company, is correct and complete in all material respects.
(b) All Accounts Receivable arose out of the bona fide sale of inventory
or services in the ordinary course of business and are payable on ordinary trade
terms.
2.19 Brokers. No broker, finder or investment banker, other than Morgan
Stanley & Co. Incorporated ("Morgan Stanley"), is entitled to any brokerage,
finder's or other fee or commission from the Company in connection with the
transactions contemplated by this Agreement. The amount payable by the Company
to Morgan Stanley in connection with the transactions contemplated hereby is
$1,000,000, which amount shall include expenses reimbursable pursuant to the
Agreement between Morgan Stanley and the Company, a copy of which has previously
been provided to Buyer, and such amount shall be payable by the Company at the
Closing.
2.19 Contracts and Other Agreements. Section 2.19 of the Disclosure Letter
sets forth a correct and complete list of the following contracts and other
agreements to which the Company or any of its subsidiaries is a party or by or
to which they or their assets or properties are bound or subject, except for
those which will not continue in effect after the Closing:
(a) any agreement that individually requires aggregate expenditures by
the Company or any of its subsidiaries in any one year of more than $100,000;
(b) any indenture, trust agreement, loan agreement or note that involves
or evidences outstanding indebtedness, or liabilities for borrowed money (i) in
excess of $50,000 or (ii) in favor of any affiliate of the Company or any of its
subsidiaries (other than the Company or Aetna);
(c) any lease, sublease, installment purchase or similar arrangement for
the purchase, use or occupancy of real or personal property (i) that
individually requires aggregate expenditures by the Company or any of its
subsidiaries in any one year of more than $50,000, or (ii) pursuant to which the
Company or any of its subsidiaries is the lessor of any real property which has
rentals over $50,000 per year, together with the date of termination of such
leases, the name of the other party and the annual rental payments required to
be made under such leases;
(d) any agreement of surety, guarantee or indemnification, other than
(i) an agreement in the ordinary course of business with respect to obligations
in an amount not in
18
<PAGE> 23
excess of $50,000, or (ii) indemnification provisions contained in leases not
otherwise required to be disclosed;
(e) any employment agreements, consulting agreements, independent
contractor agreements with respect to the sale of products by the subsidiaries
of the Company, and bonus plans relating to the compensation of (i) officers or
(ii) other employees, consultants earning more than $100,000 per year or $10,000
per month;
(f) any agreement containing covenants of the Company not to compete in
any line of business, in any geographic area or with any person or covenants of
any other person not to compete with the Company or in any line of business of
the Company;
(g) any agreement granting or restricting the right of the Company or
any of its subsidiaries to use a trade name, trade mark, logo or the Company
Proprietary Rights;
(h) any collective bargaining agreements pursuant to which the Company
or any of its subsidiaries has any obligation;
(i) any agreement with any customer or supplier that cannot be
terminated without penalty in excess of $100,000 by the Company or any of its
subsidiaries within one year;
(j) any power-of-attorney or comparable obligation granted by the
Company or any of its subsidiaries to any person other than in the ordinary
course of business; and
(k) any other agreement that is material to the business, assets,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
Complete and correct copies of all of the contracts and other agreements
set forth in Section 2.19 of the Disclosure Letter have been previously made
available to Buyer. All contracts and other agreements set forth in Section 2.19
of the Disclosure Letter are valid, existing, in full force and effect, binding
upon the Company or its subsidiaries, as the case may be, and to the knowledge
of the Company, binding upon the other parties thereto in accordance with their
terms, and the Company and its subsidiaries are not, nor have they received
since January 1, 1995 any written notice that they are about to be in default
under any of them, nor, to the knowledge of the Company, is any other party to
any such contract or other agreement in default thereunder, nor does any
condition exist that with notice or lapse of time or both would constitute a
default thereunder.
2.20 Banking Facilities. Section 2.20 of the Disclosure Letter sets forth a
correct and complete list of (i) each bank, savings and loan or similar
financial institution (and any securities broker) in which the Company or its
subsidiaries has an account or safety deposit box and the numbers of the
accounts or safety deposit boxes maintained by the Company or its
19
<PAGE> 24
subsidiaries thereat; and (ii) the names of all persons authorized to draw on
each such account or to have access to any such safety deposit box facility.
2.21 Insurance. Section 2.21 of the Disclosure Letter sets forth a true,
correct and complete list of all fire, theft, casualty, general liability,
workers compensation, automobile and other insurance policies maintained by the
Company or its subsidiaries and of all life insurance policies maintained on the
lives of any of their employees, specifying the type of coverage, the amount of
coverage, the premium, the insurer and the expiration date of each such policy
(collectively, the "Insurance Policies"). True, correct and complete copies of
all Insurance Policies have been made available to Buyer. The Insurance Policies
are in full force and effect. All premiums due on the Insurance Policies or
renewals thereof have been paid, and there is no default by the Company or its
subsidiaries under the Insurance Policies and neither the Company nor any of its
subsidiaries has received notice of impending cancellation or termination in
respect thereof. Neither the Company nor any of its subsidiaries has received
notice that any insurer under any policy referred to in this Section 2.21 is
denying liability or coverage with respect to any material claim thereunder.
Such policies will remain in full force and effect after giving effect to the
transactions contemplated hereby. The Company has had customary insurance
coverage at all times since January 1, 1992.
2.22 Affiliate Transactions. Section 2.22 of the Disclosure Letter sets
forth a complete and correct list of each existing commitment or legally binding
arrangement of the Company or any subsidiary of the Company to engage in the
future in any material transaction involving the transfer of any cash, property
or rights to or from the Company or any subsidiary of the Company from, to or
for the benefit of any affiliate of the Company, any subsidiary of the Company
or any executive officer, director or stockholder of the Company or any of its
subsidiaries (or any of their respective affiliates).
2.23 Tangible Personal Property. The Company has good title to, or has a
valid leasehold interest in or valid rights under contract to use, all tangible
personal property which is used by the Company in the conduct of its business
and is material to the conduct of its business. All of such material personal
property is free and clear of all Liens, other than the Liens disclosed in
Section 2.23 of the Disclosure Letter.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.
As a material inducement to Buyer to enter into this Agreement and
consummate the transactions contemplated hereby, each Stockholder and Management
Holder hereby makes to Buyer each of the representations and warranties set
forth in this Section 3 with respect to such Stockholder or Management Holder.
3.1 Company Shares. Except as set forth in Section 3.1 of the Disclosure
Letter, such Stockholder owns beneficially and of record the number of the
Company Shares set forth opposite such Stockholder's name in EXHIBIT A. Such
Company Shares are, and when
20
<PAGE> 25
delivered by such Stockholder to Buyer pursuant to this Agreement will be, free
and clear of any and all Liens. Each Management Holder owns beneficially and
of record the options to purchase the shares of Old Class A Common Stock as set
forth on EXHIBIT B attached hereto (the "Company Options").
3.2 Authority. Such Stockholder or Management Holder has full right,
authority, power and capacity to enter into the Operative Documents and each
agreement, document and instrument to be executed and delivered by or on behalf
of such Stockholder or Management Holder pursuant to the Operative Documents and
to carry out the transactions contemplated thereby. Each Operative Document and
each agreement, document and instrument executed and delivered by such
Stockholder or Management Holder pursuant to the Operative Documents constitutes
a valid and binding obligation of such Stockholder or Management Holder,
enforceable in accordance with its respective terms, and has been duly
authorized by all necessary corporate action of each Stockholder which is a
corporation, and such Stockholder has full power and authority to transfer, sell
and deliver the Company Shares to Buyer pursuant to this Agreement.
3.3 Consents and Approvals; No Violations. The execution, delivery and
performance of the Operative Documents by such Stockholder or Management Holder
and each such agreement, document and instrument contemplated hereby:
(i) does not and will not violate any provision of the
organizational documents of any Stockholder which is not a natural
person, or any laws of the United States or any state or other
jurisdiction applicable to such Stockholder or Management Holder, or
require such Stockholder or Management Holder to obtain any approval,
consent or waiver from, or make any filing with, any Governmental Entity
or any other person that has not been obtained or made; and
(ii) does not and will not, except for agreements which will be
terminated at the Closing pursuant to Section 9.6, result in a breach
of, constitute a default under, accelerate any obligation under, or give
rise to a right of termination of, any indenture or loan or credit
agreement or any other agreement, contract, instrument, mortgage, lien,
lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which such Stockholder or
Management Holder is a party or by which the property of such
Stockholder or Management Holder is bound or affected, or result in the
creation or imposition of any mortgage, pledge, lien, security interest
or other charge or encumbrance on any assets of the Company or any
subsidiary or on Company Shares owned by such Stockholder or on Company
Options owned by such Management Holder.
21
<PAGE> 26
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to the Company, the Stockholders and
the Management Holders as follows:
4.1 Organization. Buyer is a corporation duly organized, validly existing
and in good standing under the laws of Delaware. Buyer has the requisite
corporate power and authority to own, lease and operate its properties and to
conduct its business as it is currently conducted. Buyer has not issued or
agreed to issue any shares of its capital stock, except as provided in Section
5.7 hereof. Buyer is duly qualified as a foreign corporation to do business in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification necessary,
except where the failure to be so qualified would not have a Buyer Material
Adverse Effect (as defined below). The term "Buyer Material Adverse Effect"
means any change or effect that is or would be materially adverse to the
business, assets, results of operations or financial condition of Buyer and its
subsidiaries taken as a whole.
4.2 Certificate of Incorporation and By-Laws. Buyer has previously
delivered to the Company a true, complete and correct copy of its Certificate of
Incorporation and By-Laws, each as amended to date. Such Certificate of
Incorporation and By-Laws are in full force and effect. Buyer is not in
violation of any provision of its Certificate of Incorporation or By-Laws.
4.3 Authority Relative to this Agreement. Buyer has all necessary corporate
power and authority to execute and deliver the Operative Documents, and to
consummate the transactions contemplated hereby. Aetna has all necessary
corporate power and authority to execute and deliver the Agreement to Indemnify
described in Section 6.2(d) (the "Agreement to Indemnify"). The execution and
delivery of the Operative Documents by Buyer and the Agreement to Indemnify by
Buyer and the consummation by Buyer and Aetna of the transactions contemplated
by the Operative Documents or the Agreement to Indemnify, respectively, have
been duly and validly authorized by the Board of Directors of Buyer and Aetna,
respectively, and no other corporate proceedings on the part of Buyer and Aetna,
respectively, are necessary to authorize the Operative Documents or the
Agreement to Indemnify, respectively, or to consummate the transactions
contemplated by the Operative Documents or the Agreement to Indemnify,
respectively. The Operative Documents and the Agreement to Indemnify have been
duly and validly executed and delivered by Buyer or Aetna, respectively, and,
assuming the due authorization, execution and delivery by the other parties
thereto, constitute the valid and binding agreement of Buyer or Aetna,
respectively, enforceable against Buyer or Aetna, respectively, in accordance
with their respective terms.
4.4 Consents and Approvals; No Violations.
(a) The execution and delivery of the Operative Documents by Buyer and
the Agreement to Indemnify by Aetna do not, and the performance of the
transactions
22
<PAGE> 27
contemplated by the Operative Documents by Buyer and the Agreement to
Indemnify by Aetna will not, require any filing with or notification to, or any
consent, approval, authorization or permit from, any Governmental Entity or any
other person except where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, (X) would
not prevent or delay consummation of the transactions contemplated by this
Agreement, (Y) would not otherwise prevent or delay Buyer from performing its
obligations under this Agreement and (Z) would not have a Buyer Material Adverse
Effect.
(b) The execution and delivery of the Operative Documents and the
Agreement to Indemnify by Buyer or Aetna, respectively, do not, and the
performance of the transactions contemplated by the Operative Documents and the
Agreement to Indemnify by Buyer or Aetna, respectively, will not, (i) conflict
with or violate the Certificate of Incorporation or By-Laws of Buyer or Aetna,
respectively, (ii) violate any order, writ, injunction, decree, statute, treaty,
law, rule or regulation applicable to Buyer or Aetna, respectively, or (iii)
result in a violation or any breach of or constitute a default (or an event that
with notice or lapse of time or both would become a default) under any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Buyer or Aetna,
respectively, is a party except for any such conflicts, violations, breaches,
defaults or other occurrences that would not prevent or delay in any material
respect consummation of the transactions contemplated by this Agreement or
otherwise prevent or delay in any material respect Buyer from performing its
obligations under this Agreement or Aetna from performing its obligations under
the Agreement to Indemnify.
4.5 Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission from Buyer in connection with the
transactions contemplated herein by this Agreement.
SECTION 5. COVENANTS
5.1 Indemnification and Insurance.
(a) The Company covenants and agrees that from and after the Closing,
the Certificate of Incorporation and By-Laws of the Company shall contain the
provisions with respect to indemnification and limitations on personal liability
set forth in Exhibit D attached hereto, which provisions shall not be amended,
repealed or otherwise modified for a period of five years after the Closing in
any manner that would adversely affect the rights thereunder of individuals who
are covered thereby (the "Indemnified Parties") in respect of actions or
omissions occurring at or prior to the Closing (including, without limitation,
the transactions contemplated by this Agreement), unless such modification is
required by law.
(b) This Section 5.1 is intended for the irrevocable benefit of, and to
grant third party rights to, the Indemnified Parties and shall be binding on all
successors and assigns
23
<PAGE> 28
of Buyer and the Company. Each of the Indemnified Parties shall be entitled to
enforce the covenants contained in this Section 5.1.
(c) In the event the Company or any of its successors or assigns (i)
consolidates with or merges into any other person or entity and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all of its properties and assets
to any person or entity, then, and in each such case, proper provision shall be
made so that the successors and assigns of the Company assume the obligations
set forth in this Section 5.1.
5.2 Conduct of Business of the Company. Except as otherwise provided for in
this Agreement or the Recapitalization and Stock Purchase Agreement or agreed to
by the Company, Buyer and the Stockholders in writing, the Company covenants and
agrees as to itself and each of its subsidiaries that between the date of this
Agreement and the Closing, it shall carry on its respective businesses in the
usual, regular and ordinary course, consistent with past practice. Without
limiting the generality of the foregoing, neither the Company nor either of its
subsidiaries shall, between the date of this Agreement and the Closing, directly
or indirectly, do any of the following without the prior written consent of
Buyer and the Stockholders except as provided for in this Agreement or the
Recapitalization and Stock Purchase Agreement:
(a) (i) Declare, set aside or pay any dividend or other distribution
(whether in cash, stock, or property or any combination thereof) in respect of
any of its capital stock or make any other payment to a stockholder of the
Company in such person's capacity as a stockholder of the Company, (ii) split,
combine, reclassify or subdivide any of its capital stock or (iii) repurchase,
redeem or otherwise acquire any of its capital stock;
(b) Authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver any shares of stock of any class or any other securities
or equity equivalents, other than the issuance of capital stock pursuant to the
Recapitalization and Stock Purchase Agreement, including in connection with the
exercise of Employee Options outstanding as of the date of this Agreement;
(c) Acquire, sell, lease, transfer or dispose of any assets other than
in the ordinary course of business, except pursuant to obligations or capital
expenditure programs in effect on the date hereof;
(d) Except in the ordinary course of business consistent with past
practice or pursuant to working capital credit facilities in existence on the
date hereof, incur any long-term indebtedness for borrowed money, guarantee any
indebtedness, issue or sell debt securities or warrants or rights to acquire any
debt securities, guarantee (or otherwise become liable or potentially liable
for) any debt of others, make any loans, advances or capital contributions,
mortgage, pledge or otherwise encumber any material assets, or create or suffer
any material Lien thereupon;
24
<PAGE> 29
(e) Change any of the accounting principles or practices used by it;
(f) Increase the compensation payable or to become payable to its
executive officers or employees, except for increases in the ordinary course of
business consistent with past practice which do not result in a material
increase in benefits or compensation expense to the Company or its subsidiaries
taken as a whole, or grant any severance or termination pay to, or enter into
any employment or severance agreement with, any director or executive officer of
it or any of its subsidiaries other than in the ordinary course of business, or
establish, adopt, enter into or, except as required by or as provided for in
this Agreement or the Recapitalization and Stock Purchase Agreement (including,
without limitation, the cancellation of Employee Options outstanding as of the
date hereof), amend in any material respect or take action to accelerate any
rights or benefits under any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any director,
executive officer or employee except as is provided therein;
(g) Enter into any transaction with an affiliate of the Company other
than in the ordinary course of business and except for the payment of bonuses to
management in the amount of $350,000 (less any applicable withholding taxes) and
payment of deferred compensation to Jerome Singer in the amount of $225,186
(less any applicable withholding taxes), such amounts to be paid at the Closing;
(h) Enter into any transaction with any Berkshire Stockholder,
Prudential, Pruco or Michigan except as discussed in Section 2.22 of the
Disclosure Letter;
(i) Amend or otherwise change the Company's Certificate of Incorporation
or By-Laws; or
(j) Enter into an agreement to take any of the foregoing actions.
5.3 No Solicitation. Unless this Agreement is terminated in accordance with
its terms, neither the Company nor any of its subsidiaries shall, and the
Company shall use reasonable efforts to ensure that none of its affiliates,
officers, directors, representatives or agents shall, directly or indirectly,
solicit, knowingly encourage or enter into any agreement with respect to or
participate in negotiations with, provide any confidential information to, or
otherwise cooperate in any way in connection with, or enter into any agreement
with respect to, any Third Party (as hereinafter defined) concerning any merger
or any other business combination, sale of a substantial portion of the assets
of the Company and its subsidiaries, or any similar transaction involving the
Company and its subsidiaries (each, a "Business Combination," provided, however,
that no transaction contemplated by this Agreement or the Recapitalization and
Stock Purchase Agreement or involving Buyer or any affiliate thereof shall be a
Business Combination). For purposes of this Agreement, "Third Party" shall mean
any person or persons (other than Buyer, any affiliate of Buyer, or any of
Buyer's directors,
25
<PAGE> 30
officers, employees, representatives, and agents.) The Company agrees to
terminate, immediately following the execution of this Agreement, any pending
discussions or negotiations with Third Parties with respect to any possible
Business Combination. If, prior to the earlier of the Closing or the termination
of this Agreement, the Company, any subsidiary of the Company or any Stockholder
shall enter into any agreement with a Third Party relating to any Business
Combination, the Company shall reimburse Buyer for all of the fees and expenses
(including fees and expenses of counsel and accountants) incurred by Buyer in
connection with the transactions contemplated by this Agreement.
5.4 Access to Information; Confidentiality.
(a) From the date hereof to the Closing, the Company shall (and shall
cause its subsidiaries and officers, directors, employees, auditors and agents
to) afford the officers, employees and agents of Buyer (the "Representatives")
reasonable access at mutually convenient times to its officers, employees,
agents, properties, offices, plants and other facilities, books and records, and
shall furnish such Representatives with all financial, operating and other data
and information as may be reasonably requested by Buyer.
(b) All information obtained by Buyer pursuant to this Section 5.4
shall, to the extent required thereby, be kept confidential in accordance with
the terms of the Confidentiality Agreement dated January 13, 1995 between Aetna
and Citicorp Venture Capital Ltd. (the "Confidentiality Agreement").
5.5 Public Announcements. Buyer and the Company shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to this Agreement or any transaction contemplated herein and shall
not issue any such press release or make any such public statement without the
prior consent of the other party, which consent shall not be unreasonably
withheld; provided, however, that a party may, without the prior consent of the
other party, issue such press release or make such public statement as may be
required by law if it has used all reasonable efforts to consult with the other
party and to obtain such party's consent but has been unable to do so in a
timely manner.
5.6 Agreement Not To Merge. Buyer agrees that it will not, until the second
anniversary of this Agreement, merge with and into the Company or agree to do
so; provided, however, that Buyer may so merge with the Company on any date
following the first anniversary of the date of this Agreement if, prior to the
date of such merger, there has been a Qualifying Offering of the Company's
common stock.
5.7 Agreement To Issue Shares. Buyer agrees that, immediately prior to the
Closing, it shall issue shares of its common stock to the Company, such shares
to be all of the issued and outstanding capital stock of Buyer, and the Company
agrees that, in return for the issuance of such shares, it will (i) make a
capital contribution to Buyer of all the issued and outstanding shares of
capital stock of Aetna and (ii) simultaneously with the Closing, issue, on
behalf of Buyer, the Deferred Obligations.
26
<PAGE> 31
SECTION 6. CONDITIONS
6.1 Conditions to the Obligations of Buyer. The obligations of Buyer to
effect the transactions contemplated by this Agreement are subject to the
satisfaction or waiver of the following conditions:
(a) Representations; Warranties; Covenants. Each of the representations
and warranties of the Representing Parties contained in Section 2 and the
Stockholders contained in Section 3 shall be true and correct in all material
respects as of the date of the Agreement and (except as otherwise specifically
provided for by this Agreement or the Recapitalization and Stock Purchase
Agreement or arising out of or related to the transactions contemplated by this
Agreement or the Recapitalization and Stock Purchase Agreement and except as to
any representation or warranty which specifically relates to an earlier date) as
of the date of the Closing, as though made on and as of the date of the Closing
and the Representing Parties with respect to Section 2 and the Stockholders with
respect to Section 3 shall have delivered a certificate, executed by the
Representing Parties with respect to Section 2 and the Stockholders with respect
to Section 3 (except that the Stockholders' Representative may sign on behalf of
the Designating Stockholders), with respect to such Stockholder, to such effect
to Buyer. The Stockholders shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by them on or prior to the date of the Closing and
the Stockholders shall have delivered a certificate, executed by the
Stockholders (except that the Stockholders' Representative may sign on behalf of
the Designating Stockholders), to such effect to Buyer.
(b) Prior Closings. The transactions contemplated by the
Recapitalization and Stock Purchase Agreement shall have been consummated and
the Recapitalization Closing and Stock Purchase Closing (as defined therein)
shall have occurred.
(c) Other Transactions. Immediately subsequent to the effectiveness of
the Amended and Restated Certificate, the Recapitalization Closing and the Stock
Purchase Closing, the following shall have occurred: (i) the execution and
delivery of the Stockholders Agreement by all parties thereto; (ii) the
contribution by the Company to Buyer of all of the issued and outstanding
capital stock of Aetna in exchange for issuance of all of the outstanding
capital stock of Buyer to the Company; (iii) the merger of Aetna with and into
Aetna Industries, Inc., a Delaware corporation which immediately prior to and
after such merger shall be a wholly owned subsidiary of Buyer; (iv) Buyer shall
have obtained debt financing on terms and conditions satisfactory to Buyer
sufficient to provide for the payment and full satisfaction of all obligations
of the Company as contemplated by this Agreement; (v) the dividend to Buyer of
at least $11,080,730 so that Buyer may satisfy its obligations hereunder; and
(vi) the 14% Senior Subordinated Notes due 1999 of Aetna shall have been paid in
full in accordance with the terms of the Securities Purchase Agreements dated as
of March 3, 1989, as amended, and the Senior Subordinated Notes issued
thereunder.
27
<PAGE> 32
6.2 Conditions to the Obligations of the Stockholders and the Management
Holders. The obligations of the Stockholders and the Management Holders to
effect the transactions contemplated by this Agreement are subject to the
satisfaction or waiver of the following conditions:
(a) Representations; Warranties; Covenants. Each of the representations
and warranties of Buyer contained in Section 4 shall be true and correct in all
material respects as of the date of the Agreement and (except as otherwise
specifically contemplated by this Agreement or the Recapitalization and Stock
Purchase Agreement or arising out of or related to the transactions contemplated
by this Agreement or the Recapitalization and Stock Purchase Agreement and
except as to any representation or warranty which specifically relates to an
earlier date) as of the date of the Closing as though made on and as of the date
of the Closing, and Buyer shall have delivered a certificate, executed by an
authorized officer of Buyer, to such effect to the Stockholders and the
Management Holders. Buyer shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the date of the Closing, and
Buyer shall have delivered a certificate, executed by an authorized officer of
Buyer, to such effect to the Stockholders and the Management Holders.
(b) Prior Closings. The transactions contemplated by the
Recapitalization and Stock Purchase Agreement shall have been consummated and
the Recapitalization Closing and Stock Purchase Closing (as defined therein)
shall have occurred.
(c) Other Transactions. Immediately subsequent to the effectiveness of
the Amended and Restated Certificate, the Recapitalization Closing and the Stock
Purchase Closing, the following shall have occurred: (i) the execution and
delivery of the Stockholders Agreement by all parties thereto; (ii) the
contribution by the Company to Buyer of all of the issued and outstanding
capital stock of Aetna in exchange for issuance of all of the outstanding
capital stock of Buyer to the Company; (iii) the merger of Aetna with and into
Aetna Industries, Inc., a Delaware corporation which immediately prior to and
after such merger shall be a wholly owned subsidiary of Buyer; (iv) Buyer shall
have obtained debt financing on terms and conditions satisfactory to Buyer
sufficient to provide for the payment and full satisfaction of all obligations
of the Company as contemplated by this Agreement; (v) the dividend to Buyer of
at least $11,080,730 so that Buyer may satisfy its obligations hereunder; and
(vi) the 14% Senior Subordinated Notes due 1999 of Aetna shall have been paid in
full in accordance with the terms of the Securities Purchase Agreements dated as
of March 3, 1989, as amended, and the Senior Subordinated Notes issued
thereunder.
(d) Agreement to Indemnify. Buyer shall have caused Aetna to enter into
an agreement with Russell L. Epker, Robert J. Small, James Bakken, Douglas A.
Thal and Jerome Singer whereby Aetna agrees to indemnify such persons on terms
comparable to the terms of Section 9.11 of this Agreement and otherwise
satisfactory to them.
28
<PAGE> 33
SECTION 7. INDEMNIFICATION.
7.1 Indemnification by the Stockholders and Management Holders. Each
Stockholder and Management Holder individually with respect to the
representations and warranties made by such Stockholder and Management Holder in
Section 3 and each Stockholder and Management Holder jointly and severally with
respect to the representations and warranties in Section 2, agrees to indemnify
and hold Buyer subject to the provisions of this Section 7, harmless from and
against any damages, liabilities, losses, fines, penalties, costs, and expenses
(including, without limitation, reasonable fees of counsel) of any kind or
nature whatsoever (collectively, "Losses") which may be sustained or suffered by
Buyer arising out of or based upon any breach of any representation or warranty
contained in Section 2 or 3 of this Agreement or of such Stockholder and
Management Holder under or in any certificate delivered by such Stockholder and
Management Holder pursuant hereto or based upon any breach of any covenant or
agreement, required by this Agreement to be performed before the Closing, by
such Stockholder.
7.2 Limitations on Indemnification by the Stockholders and Management
Holders.
(a) Notwithstanding the foregoing and subject to Section 7.6(d), (i)
except for any claim arising out of or based upon a breach of Sections 2.9, 2.11
or 2.13 of this Agreement, no indemnification shall be payable to Buyer with
respect to claims asserted pursuant to Section 7.1 on any date after the first
anniversary of the Closing, (ii) with respect to any claim arising out of or
based upon a breach of Section 2.9 or 2.11 of this Agreement, no indemnification
shall be payable to Buyer with respect to claims asserted pursuant to Section
7.1 on any date after the third anniversary of the Closing, (iii) with respect
to any claim arising out of or based upon a breach of Section 2.13 of this
Agreement, no indemnification shall be payable to Buyer with respect to claims
asserted pursuant to Section 7.1 on any date after the expiration of the statute
of limitations applicable to such claim (each such date being an
"Indemnification Cut-Off Date"), (iv) no Stockholder or Management Holder shall
be liable unless, and only to the extent that, the Losses for which the Buyer is
entitled to be indemnified for hereunder exceed, individually or in the
aggregate, $500,000 (any such excess, the "Indemnifiable Losses") and (v) each
Stockholder's and Management Holder's liabilities under this Section 7 with
respect to the Indemnifiable Losses shall be further limited by and paid only
according to the provisions of Section 7.6(b) and (c).
(b) No Stockholder or Management Holder shall be liable under this
Section 7 for an aggregate amount, for all claims made pursuant to this Section
7, in excess of the Set-Off Percentage (as defined in Section 7.6(a)) applicable
to each Note or Deferred Obligation held by such Stockholder or Management
Holder immediately following the Closing multiplied by five million dollars
($5,000,000).
(c) Notwithstanding any other provision of this Agreement, no
Stockholder or Management Holder shall be liable hereunder with respect to any
individual claim for indemnification for an Indemnifiable Loss unless such
Indemnifiable Loss is greater than
29
<PAGE> 34
$15,000, and thereafter the entire amount of such Indemnifiable Loss shall be
recoverable, to the extent provided by and in accordance with the provisions
of, this Section 7.
7.3 Indemnification by Buyer. Buyer agrees to indemnify and hold each of
the Stockholders and Management Holders harmless from and against any Losses
which may be sustained or suffered by any of them arising out of or based upon
any breach of any representation, warranty or covenant made by Buyer in this
Agreement or in any certificate delivered by Buyer pursuant hereto.
7.4 Limitation on Indemnification by Buyer. Notwithstanding the foregoing,
no indemnification shall be payable to the Stockholders with respect to claims
asserted pursuant to Section 7.3 above after the fourth anniversary of the
Closing.
7.5 Notice; Defense of Claims. An indemnified party may make claims for
indemnification hereunder by giving written notice thereof to any indemnifying
party within the period in which indemnification claims can be made hereunder;
provided, however, that notice by Buyer to the Designating Stockholders will be
deemed to be given if notice is given by Buyer to the Stockholders'
Representative. If indemnification is sought for a claim or liability asserted
by a third party, the indemnified party shall also give written notice thereof
to the indemnifying party promptly after it receives notice of the claim or
liability being asserted, but the failure to do so shall not relieve the
indemnifying party from any liability except to the extent that it is materially
prejudiced by the failure or delay in giving such notice. Such notice shall
summarize the bases for the claim for indemnification and any claim or liability
being asserted by a third party. The indemnifying party shall be entitled to
direct the defense against a third party claim or liability if it so elects. The
indemnified party shall at all times have the right to fully participate in the
defense of a third party claim or liability at its own expense directly or
through counsel. If the indemnifying party decides not to direct the defense,
the indemnified party shall have the right, at the expense of the indemnifying
party, to undertake the defense of such claim or liability (with counsel
selected by the indemnified party), and to compromise or settle it, exercising
reasonable business judgment. If the third party claim or liability is one that
by its nature cannot be defended solely by the indemnifying party, then the
indemnified party shall make available such information and assistance as the
indemnifying party may reasonably request and shall cooperate with the
indemnifying party in such defense. If the parties hereto attempt to resolve in
good faith a claim for indemnification hereunder and if such claim is not
resolved within 60 days from the date of such claim, the party making such claim
may bring suit in a court of competent jurisdiction.
7.6 Satisfaction of Stockholder Indemnification Obligations.
(a) Upon providing notice to the Stockholders and Management Holders of
a claim for an Indemnifiable Loss (the "Claimed Amount") pursuant to this
Section 7 within the applicable time periods set forth in Section 7.2(a), Buyer
shall be entitled to withhold payment of a portion of the unpaid principal
amount of each Note and Deferred Obligation that is still outstanding, such
withheld amount to be equal to the Claimed Amount multiplied by a fraction
30
<PAGE> 35
(such fraction herein referred to, for each such Note and Deferred Obligation,
as the "Set-Off Percentage"), the numerator of which shall be the principal
amount of each such Note or Deferred Obligation (or such Secondary Note (as such
term is defined in the Notes) or such correspondeing obligation under a Deferred
Obligation) then outstanding, as the case may be, and the denominator of which
shall be a notional amount equal to the sum of (i) the aggregate principal
amount of all then outstanding Notes and Deferred Obligations, (ii) the
aggregate principal amount of Notes and Deferred Obligations which have been
acquired or satisfied by the Company or any affiliate thereof in transactions
which did not constitute pro rata prepayments in accordance with the terms
thereof, (iii) the aggregate principal amount of all Secondary Notes and the
corresponding obligations under the Deferred Obligations which would have been
issued in connection with such acquired Notes or Deferred Obligations (both
directly with respect to such Notes or Deferred Obligations and indirectly with
respect to Notes or Deferred Obligations derivative therefrom) if they had not
been acquired, (iv) the aggregate principal amount of all Notes and Deferred
Obligations converted pursuant to their terms and conditions and (v) the
aggregate principal amount of all Secondary Notes and the corresponding
obligations under the Deferred Obligations which would have been issued in
connection with such converted Notes or Deferred Obligations (either directly
with respect to such Notes or Deferred Obligations or indirectly with respect to
Notes or Deferred Obligations derivative therefrom) if they had not been
converted. Upon a Determination (as defined in paragraph (b)) and the set-off or
reduction by the buyer as provided below, payment of such withheld amounts shall
be made as provided by the terms of the Notes and Deferred Obligations.
(b) Notwithstanding the provisions of paragraph (a) above, Buyer shall
be entitled to indemnification with respect to the amount of or any portion of
the amount of a claim pursuant to Section 7.1 hereof only upon the earlier of
(i) the execution and delivery by Buyer, the Stockholders and Management Holders
of a joint written statement acknowledging the liability for any such amount or
(ii) the final adjudication after all appeals by a court of competent
jurisdiction that Buyer is entitled to indemnification with respect to such
Claimed Amount or for an amount determined pursuant to the provisions of this
Section 7 which such court shall deem proper (each such acknowledgment or
determination, a "Determination" and the amount of the claim so acknowledged or
determined an "Indemnifiable Claim").
(c) Any and all amounts owed to Buyer by any Stockholder or Management
Holder with respect to an Indemnifiable Claim shall be satisfied only by means
of a reduction, by the appropriate Set-Off Percentage, in the principal amount
still outstanding of and accrued but unpaid interest on each Note and Deferred
Obligation held by such Stockholder or Management Holder; provided, however,
that (i) if an Indemnifiable Claim is asserted prior to June 30, 1997, reduction
shall be made first to the Prepayment Principal Amount (as such term is defined
in the Notes) and (ii) if an Indemnifiable Claim is asserted on or after June
30, 1997, such reduction shall be made only to the Remaining Principal Amount
(as such term is defined in the Notes); provided further, if the Indemnifiable
Claim relates to a breach of a representation or warranty in Section 3, the
Indemnifiable Claim may be satisfied (subject to all limitations set forth in
this Section 7) only by means of a reduction in the principal amount
31
<PAGE> 36
of and accrued but unpaid interest on the Notes and the Deferred Obligations,
if any, issued on the date of this Agreement to the Stockholder or Management
Holder who made such representation or warranty and to whom such
representation or warranty relates and no other Stockholder or Management Holder
shall be liable for any portion of such Indemnifiable Claim and no other Notes
or Deferred Obligations shall be subject to reduction in principal amount or
accrued interest pursuant to this Section 7. It is agreed and understood that
any reduction to the amounts, if any, due under the Notes or Deferred
Obligations pursuant to this Section 7 shall be in complete satisfaction of any
and all amounts payable to Buyer by such Stockholder or Management Holder with
respect to any Indemnifiable Claim made pursuant to this Section 7, and in no
event shall the aggregate amount payable pursuant to this paragraph (c) by any
Stockholder or Management Holder with respect to all Indemnifiable Claims exceed
the amount set forth in Section 7.2(b).
(d) If any of the Notes or Deferred Obligations are converted, pursuant
to their terms and provisions, into shares of common stock of the Company or are
paid or payable by the Company, Buyer shall have no right to make any further
claims for indemnification pursuant to this Section 7; provided, however, if,
prior to such conversion or prepayment in the case of a prepayment at the option
of Buyer, Buyer has made a claim for indemnification pursuant to this Section 7,
then until the date on which a Determination related to such claim is made, each
Stockholder or Management Holder (or, if the claim relates to a breach of a
representation or warranty contained in Section 3, the Stockholder or Management
Holder who made such representation or warranty and to whom such representation
or warranties relates) shall retain the lesser of (i) all shares of common stock
received by such Stockholder or Management Holder upon such conversion or (ii) a
number of shares of common stock received by such Stockholder or Management
Holder upon such conversion, valued at the closing price of such stock on the
date of the conversion therefor of the underlying Notes or Deferred Obligations,
equal in value to the Set-Off Percentage applicable to the Note or Deferred
Obligation so converted multiplied by the lesser of (X) the amount of such
Indemnifiable Claim or (Y) the "Aggregate Limit Amount," which shall mean the
least of (A) $5,000,000, (B) the amount of such claim or (C) $5,000,000 less the
sum of all Indemnifiable Claims previously satisfied by the Stockholders and
Management Holders and of any other amounts being retained by such Stockholder
or Management Holder pursuant to this sentence. If such retained shares are
subsequently sold or if the Note or Deferred Obligation is prepaid at the option
of Buyer, each Stockholder or Management Holder shall retain an amount in cash
equal to the lesser of (i) the net proceeds (after expenses and taxes) of such
sale or such prepayment amount, as applicable or (ii) the Set-Off Percentage
applicable to the Note or Deferred Obligation converted or prepaid at the option
of Buyer by such Stockholder or Management Holder multiplied by the lesser of
(X) the amount of such Indemnifiable Claim or (Y) the Aggregate Limit Amount.
After a Determination has been made with respect to such claim and the amount of
the Indemnifiable Claim has been determined, Buyer's sole remedy pursuant to
this paragraph (d) with respect to each Stockholder or Management Holder shall
be, at the election of each Stockholder and Management Holder, to receive from
each Stockholder and Management Holder either (i) cash in an amount equal to the
Set-Off Percentage applicable to the Note or Deferred Obligation converted or
prepaid at the option of
32
<PAGE> 37
Buyer by such Stockholder or Management Holder multiplied by the lesser of
(x) the amount of such Indemnifiable Claim or (y) the Aggregate Limit Amount
or (ii) a number of shares of common stock of the Company, valued at the closing
price of such stock on the date of the conversion therefor of the underlying
Notes or Deferred Obligations, equal in value to the Set-Off Percentage
applicable to the Note or Deferred Obligation converted by such Stockholder or
Management Holder multiplied by the lesser of (X) the amount of such
Indemnifiable Claim or (Y) the Aggregate Limit Amount. In the event of a
conversion or prepayment at the option of Buyer, the aggregate amount payable by
any Stockholder or Management Holder pursuant to this paragraph (d) shall not
exceed the amount of the least of (i) the amount set forth in Section 7.2(b),
(ii) the value of the shares of common stock of the Company received by such
Stockholder or Management Holder upon conversion or prepayment at the option of
Buyer of the Notes or Deferred Obligations, valued at the closing price of such
stock on the date of such conversion or prepayment or (iii) the net cash
proceeds (after expenses and taxes) of the sale of the common stock received by
such Stockholder or Management Holder upon conversion or from prepayment at the
option of Buyer of the Notes or Deferred Obligations, as the case may be.
SECTION 8. TERMINATION OF AGREEMENT.
8.1 Termination. This Agreement may be terminated at any time prior to the
Closing as follows:
(a) by mutual written consent of all parties hereto;
(b) by any of the parties hereto if any United States federal or state
court of competent jurisdiction or any Government Entity shall have issued an
injunction, order, decree or ruling (an "Injunction") or taken any other action
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated hereby and such Injunction or other action shall have become final
and non-appealable; or
(c) by the Company, the Stockholders or Buyer, if (i) the Closing shall
not have occurred on or before August 16, 1996 and such failure is not caused by
breach of this Agreement by the terminating party or (ii) the Recapitalization
and Stock Purchase Agreement has been terminated in accordance with its terms.
The right of any party hereto to terminate this Agreement pursuant to this
Section 8.1 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective employees, officers,
directors, agents, representatives or advisors, whether prior to or after the
execution of this Agreement.
8.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 8.1 hereof, this Agreement shall forthwith become
void and have no
33
<PAGE> 38
effect, without any liability on the part of any party hereof or its
affiliates, directors, officers or stockholders and all rights and
obligations of any party hereto shall cease, other than the provisions of
Section 5.4 and 9.1.
8.3 Amendment. This Agreement may be amended by the parties hereto at any
time prior to the Closing. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Closing, the parties
hereto may (i) extend the time for the performance of any of the obligations or
other acts of any other party hereto, (ii) waive any inaccuracies in the
representations and warranties of any other party contained herein or in any
documents delivered pursuant hereto and (iii) waive compliance by any other
party with any of the agreements or conditions contained herein. Any agreement
on the party of a party hereto any such extension or waiver shall be valid only
if set forth in a written instrument signed on behalf of such party (except that
the Stockholders Representative may sign on behalf of the Designating
Stockholders).
SECTION 9. MISCELLANEOUS.
9.1 Fees and Expenses. Each of the parties will bear its own expenses in
connection with the negotiation and the consummation of the transactions
contemplated by this Agreement; provided, however, that the Company will pay all
costs incurred in connection with the transfer of the Company Shares to Buyer as
contemplated by this Agreement, including without limitation, all transfer taxes
and charges applicable to such transfer, all costs of obtaining permits,
waivers, registrations or consents with respect to any assets, rights or
contracts of the Company or any subsidiary, all legal, accounting or
professional expenses of the Company or Stockholders and all New York state
stock transfer taxes.
9.2 Governing Law. This Agreement shall be construed under and governed by
the internal laws of the State of New York without regard to its conflict of
laws provisions.
9.3 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon receipt if delivered personally,
telecopied (which is confirmed) or mailed by registered or certified mail
(return receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
34
<PAGE> 39
(a) if to the Company, to
MS Acquisition Corp.
c/o Aetna Industries, Inc.
24331 Sherwood Avenue
Centerline, Michigan 48015-0067
Attention: Ueli Spring
Telephone: (810) 759-2200
Facsimile: (810) 759-2209
with a copy to:
MS Acquisition Corp.
c/o Berkshire Partners LLC
One Boston Place
Boston, Massachusetts 02108
Attention: Russell L. Epker
Telephone: (617) 227-0050
Facsimile: (617) 227-6105
and with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attention: Stephen W. Carr, P.C.
Telephone: (617) 570-1000
Facsimile: (617) 523-1231
(b) if to the Stockholders, to
Berkshire Partners LLC
One Boston Place
Boston, Massachusetts 02108
Attention: Russell L. Epker
Robert J. Small
Telephone: (617) 227-0050
Facsimile: (617) 227-6105
35
<PAGE> 40
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attention: Stephen W. Carr, P.C.
Telephone: (617) 570-1000
Facsimile: (617) 523-1231
and to:
The Prudential Insurance Company of America
Pruco Life Insurance Company
c/o Prudential Financial Restructuring Group
Four Gateway Center, 9th Floor
Newark, New Jersey 07102-4069
Attention: Stephen Haeckel
Telephone: (201) 802-2678
Facsimile: (201) 802-2662
With a copy to:
Prudential Law Department
Four Gateway Center, 6th Floor
Newark, New Jersey 07102-4069
Attention: Jack Pfeilsticker
Telephone: (201) 802-9200
Facsimile: (201) 802-3853
and with a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
Attention: Duncan J. Stewart
Telephone: (212) 821-8271
Facsimile: (212) 821-8111
and to:
36
<PAGE> 41
Michigan Department of Treasury
430 West Allegan
Lansing, Michigan 48922
Attention: Thomas Hufnagel
Telephone: (517) 373-4330
Facsimile: (517) 335-3668
With a copy to:
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
Attention: Duncan J. Stewart
Telephone: (212) 821-8271
Facsimile: (212) 821-8111
(c) if to Buyer, to
Aetna Holdings, Inc.
c/o Aetna Industries, Inc.
24331 Sherwood Avenue
Centerline, Michigan 48015-0067
Attention: Ueli Spring
Telephone: (810) 759-2200
Facsimile: (810) 759-2209
with a copy to
Citicorp Venture Capital, Ltd.
399 Park Avenue
New York, New York 10043
Attention: Michael Delaney
Telephone: (212) 559-2056
Facsimile: (212) 888-2940
and:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178-0060
Attention: Philip H. Werner
Telephone: (212) 309-6080
Facsimile: (212) 309-6273
37
<PAGE> 42
9.4 Descriptive Headings. The descriptive headings herein are inserted
for convenience only and are not intended to be part of or to affect the meaning
or interpretation of this Agreement.
9.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.6 Termination of Other Agreements. The parties agree that, upon the
Closing, the following agreements shall terminate and from and after the Closing
shall have no further force and effect: the Stock Purchase and Stockholders
Agreement dated as of March 3, 1989 by and among the Company and the Purchasers
(as defined therein), the Parallel Exit Agreement dated as of March 3, 1989 by
and between the Stockholders (as defined therein), the Voting Rights Agreement
dated as of March 3, 1989 by and among the Company, the Berkshire Group (as
defined therein) and the Management Group (as defined therein), the Designated
Shares Agreement dated as of March 3, 1989 by and between the Company and the
Stockholders (as defined therein), the Registration Rights Agreement dated as of
March 3, 1989 by and among MS and the Berkshire Investors (as defined therein),
the Registration Rights Agreement dated as of March 3, 1989 by and between the
Company, Prudential, Pruco and Michigan, and the Management Agreement dated as
of March 3, 1989 by and among the Company, Aetna and Berkshire, each as may have
been amended from time to time, and the parties hereto consent to the
transactions contemplated by this Agreement or the Recapitalization and Stock
Purchase Agreement, whether or not such transactions are consistent with the
terms of the other agreements referred to in this Section 9.6. Each of the
parties hereto further agrees that there shall be no surviving rights or
liabilities or other obligations of any party to the other agreements referred
to in this Section 9.6 and each of the parties hereto releases all other parties
hereto, and their officers, directors, stockholders, partners, agents and
employees from all actions, causes of action, suits, debts, sums of money,
covenants, controversies, agreements, damages, judgments, claims and demands, at
law or in equity, arising out of such other agreements which it may now have or
has ever had on or prior to the date hereof.
9.7 Entire Agreement; Assignment. This Agreement (together with the
Disclosure Letter and the other documents delivered pursuant hereto or thereto)
(a) constitute the entire agreement of the parties and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; including, without limitation, the letter
of intent dated March 27, 1996, as amended, and (b) shall not be assigned by
operation of law or otherwise without the written approval of the other parties
hereto; provided, however, that any party may assign this Agreement to an
affiliate of such party, but such assignment will not relieve such party of its
obligations hereunder; and further provided that the Buyer at the Closing may
assign its rights under Section 7, subject to the provisions thereof, to any
holder of Senior Debt (as such term is defined in the Notes) on the day of the
Closing.
38
<PAGE> 43
9.8 Remedies. The remedies of the parties after the Closing with respect to
this Agreement and any transactions contemplated hereby, including without
limitation any breach of a representation or warranty or of any covenant to be
performed prior to the Closing contained herein by any party and any and all
claims, demands, damages, liabilities, expenses, actions and causes of action of
whatever nature, whether at law or in equity, whether or not presently known or
capable of proof as of the date of this Agreement or as of the Closing, arising
out of or relating to this Agreement or the transactions contemplated hereby,
shall be limited to the rights set forth in Section 7.
9.9 Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person or
persons any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement, except pursuant to Sections 5.1 and 9.11 hereof.
9.10 Severability. The invalidity or unenforceability of a provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9.11 Indemnification by the Company and Buyer with Respect to Senior
Notes. The Company and Buyer, jointly and severally, agree to indemnify and hold
harmless Russell L. Epker, Robert J. Small, James Bakken, Douglas A. Thal and
Jerome Singer against any and all Losses to which such person may become subject
insofar as such Losses arise out of or are based on or are related to any untrue
statement or alleged untrue statement of any material fact contained in the
Offering Memorandum, or Preliminary Offering Memorandum dated July 25, 1996, or
any amendment or supplement thereto, relating to the Senior Notes due 2006 of
Aetna, or arise out of or are based upon or are related to the omission or
alleged omission to state in any of them a material fact required to be stated
therein or necessary to make the statements in any of them not misleading and
will promptly reimburse each such person for any reasonable legal and other
expenses as such expenses are incurred by such person in connection with
investigating, defending, settling, compromising or paying such Loss; provided,
however, that no indemnification shall be owing to such person pursuant to this
Section 9.11 to the extent such information arises out of or is based on any
untrue statement or omission or alleged omission made in such documents in
reliance upon or in conformity with written information furnished specifically
for use therein to the Company or its representative by or on behalf of such
person.
9.12 Further Assurances: Post-Closing Cooperation. At any time or from time
to time after the Closing, the parties hereto shall execute and deliver to Buyer
such other documents and instruments, provide such materials and information and
take such other actions as any party hereto may reasonably request in order that
the requested party fulfill its obligations under this Agreement which were to
be performed at or prior to the Closing.
39
<PAGE> 44
9.13 Limited Recourse. Notwithstanding anything in this Agreement, the
Recapitalization and Stock Purchase Agreement or any other document, agreement
or instrument contemplated hereby or thereby to the contrary, the obligations of
any entity under this Agreement or under the Recapitalization and Stock Purchase
Agreement shall be without recourse to any partner, associate or affiliate of
such entity, or any other of its respective officers, directors, employees or
agents and shall be limited to the assets of such entity.
9.14 Release of Representing Parties by Stockholders. Effective as of
the Closing, each of the Stockholders, on behalf of itself, and its
predecessors, successors, controlling or related entities, affiliates,
executors, administrators, heirs and assigns, and all of their respective past,
present and future representatives, agents, assigns, attorneys, directors,
officers, partners, stockholders and employees, and all other persons in
connection therewith that might claim by, through or under it or them
(collectively, the "Stockholder Releasors"), agrees to and hereby releases and
forever discharges the Representing Parties and their executors, administrators,
heirs and assigns, and all of their respective past, present and future
representatives, agents, assigns, attorneys, partners and employees
(collectively, the "Representing Party Releasees") from and against, and agrees
not to commence any suit or action based upon, any and all claims, demands,
damages, liabilities, expenses, actions and causes of action of whatever nature,
whether at law or in equity, whether presently known or capable of proof as of
the date of this Agreement or as of the Closing, arising out of or relating to
the (i) making of the representations and warranties contained in Section 2
hereof or (y) providing of information contained in the Disclosure Letter, which
any of the Stockholder Releasors has or may have, claimed or asserted against
the Representing Party Releasees; provided, however, that this Section 9.14 will
not cover, and will not release any Representing Party Releasee with respect to,
(i) such claims, demands, damages, liabilities, expenses or causes of action
which arise out of fraud or willful misconduct of or by such Representing Party
or (ii) the Buyer's rights pursuant to Section 7 hereof.
9.15 Certain Definitions. For purposes of this Agreement, the term:
(a) "affiliate" means a person that, directly or indirectly, through one
or more intermediaries, controls, is controlled by or is under common control
with, the first mentioned person;
(b) "associate" means with respect to any person, (i) any corporation or
organization of which such person is an officer or partner or is, directly or
indirectly, the beneficial owner of 10 percent or more of any class of equity
securities; (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity; and (iii) any relative or spouse of such
person, or any relative of such spouse, who has the same home as such person or
who is a director or officer of such person or any of its parents or
subsidiaries.
(c) "control" (including the terms "controlled," "controlled by" and
"under common control with") means the possession, directly or indirectly or as
trustee or executor,
40
<PAGE> 45
of the power to direct or cause the direction of the management or policies
of a person, whether through the ownership of stock or as trustee or executor,
by contract or credit arrangement or otherwise;
(d) "knowledge of the Company" and similar phrases means the actual
knowledge of Ueli Spring, Harold Brown and Gary Easterly;
(e) "person" means any individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or government or any
agency or political subdivision thereof or any other entity;
(f) "Qualifying Offering" means the consummation of an underwritten
primary or secondary public offering of Common Stock registered under the
Securities Act of 1933, as amended, as the result of which the Company receives
at least $20 million of aggregate gross proceeds; and
(g) "subsidiary" or "subsidiaries" of Buyer or the Company or any other
person means any corporation, partnership, joint venture or other legal entity
of which Buyer or the Company or such other person, as the case may be (either
alone or through or together with any other subsidiary), owns, directly or
indirectly, 50% or more of the stock or other equity interests, the holders of
which are generally entitled to vote for the election of the board of directors
or other governing body of such corporation or other legal entity, provided,
however, that Buyer shall be deemed not to be a subsidiary of the Company for
the purposes of this Agreement.
9.16 Survival of Representations and Warranties. Each of the
representations, warranties, agreements, covenants and obligations herein or in
any schedule, exhibit, certificate or financial statement delivered by any party
to the other party incident to this Agreement are material, shall be deemed to
have been relied upon by the other parties and shall survive the execution of
this Agreement regardless of any investigation and shall not merge in the
performance of any obligation by any party hereto; provided, however, that such
representations and warranties shall expire on the same dates as and to the
extent that the rights to indemnification with respect thereto under Section 7
shall expire.
41
<PAGE> 46
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date set forth above by their duly authorized
representatives.
The Company: MS ACQUISITION CORP.
By: /s/ UELI SPRING
---------------------------------
President
The Stockholders: THE BERKSHIRE FUND
A LIMITED PARTNERSHIP
BY: BERKSHIRE CAPITAL ASSOCIATES,
LIMITED PARTNERSHIP
Its General Partner
By: /s/ RUSSELL L. EPKER
---------------------------------
A General Partner
/s/ BRADLEY M. BLOOM
--------------------------------------
Bradley M. Bloom
*
--------------------------------------
J. Christopher Clifford
/s/ RUSSELL L. EPKER
--------------------------------------
Russell L. Epker
/s/ CARL FERENBACH
--------------------------------------
Carl Ferenbach
/s/ RICHARD K. LUBIN
--------------------------------------
Richard K. Lubin
*
--------------------------------------
Lea Anne S. Ottinger
/s/ KEVIN T. CALLAGHAN
--------------------------------------
Kevin T. Callaghan
/s/ RUSSELL L. EPKER
- --------------------------------------
*By Power of Attorney
BERKSHIRE PARTNERS LLC, as Escrow
Agent
By: /s/ RUSSELL EPKER
----------------------------------
42
<PAGE> 47
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ STEPHEN R. HAECKEL
----------------------------------
Vice President
PRUCO LIFE INSURANCE COMPANY
By: /s/ B. ROSS SMEAD
----------------------------------
Vice President
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
By: /s/ PAUL H. RICE
---------------------------------
Title
43
<PAGE> 48
/s/ JEROME SINGER
--------------------------------------
Jerome Singer
/s/ DOUGLAS A. THAL
--------------------------------------
Douglas A. Thal
/s/ ROBERT J. KLEIN
--------------------------------------
Robert J. Klein
/s/ STEVEN SINGER
--------------------------------------
Steven Singer
AETNA HOLDINGS, INC.
By: /s/ UELI SPRING
----------------------------------
President
44
<PAGE> 49
/s/ UELI SPRING
--------------------------------------
Ueli Spring
/s/ HAROLD BROWN
--------------------------------------
Harold Brown
/s/ GARY EASTERLY
--------------------------------------
Gary Easterly
/s/ EDWARD LAWSON
--------------------------------------
Edward Lawson
/s/ DANIEL PIERCE
--------------------------------------
Daniel Pierce
/s/ DAVID THAL
--------------------------------------
David Thal
/s/ RALPH BREDENBECK
--------------------------------------
Ralph Bredenbeck
45
<PAGE> 50
EXHIBIT A
LIST OF STOCKHOLDERS AND STOCKHOLDINGS
<TABLE>
<CAPTION>
THE COMPANY SHARES TO BE SOLD
TO AETNA HOLDINGS
-------------------------------
NEW
CLASS NEW NEW CONSIDERATION TO BE
A CLASS B SERIES A RECEIVED BY STOCKHOLDER ADDITIONAL
COMMON COMMON PREFERRED ------------------------ CASH
NAME OF STOCKHOLDER STOCK STOCK STOCK CASH NOTES PAYMENT
- ------------------------------------ ------ ------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
The Berkshire Fund.................. 0 449,574 57,436.160 $3,567,049 $2,814,747 $15,713.72
Bradley M. Bloom.................... 0 3,601 460.080 $ 28,573 $ 22,548 $ 137.31
J. Christopher Clifford............. 0 3,601 460.080 $ 28,573 $ 22,548 $ 137.31
Russell L. Epker.................... 0 3,601 460.080 $ 28,573 $ 22,548 $ 137.31
Carl Ferenbach...................... 0 3,601 460.080 $ 28,573 $ 22,548 $ 137.31
Richard K. Lubin.................... 0 3,601 460.080 $ 28,573 $ 22,548 $ 137.31
Lea Anne S. Ottinger................ 0 1,633 208.620 $ 12,956 $ 10,224 $ 0
Kevin T. Callaghan.................. 0 876 111.830 $ 6,946 $ 5,481 $ 30.73
The Prudential Insurance Company of
America........................... 0 491,335 62,771.420 $3,898,393 $3,076,208 $ 0
Pruco Life Insurance Company........ 0 36,978 4,724.270 $ 293,398 $ 231,520 $ 0
State Treasurer of the State of
Michigan, as Custodian............ 0 204,126 26,078.570 $1,619,599 $1,278,017 $ 0
Jerome Singer....................... 0 63,988 8,174.890 $ 507,698 $ 400,623 $ 0
Douglas A. Thal..................... 0 63,988 8,174.890 $ 507,698 $ 400,623 $ 0
Robert J. Klein..................... 0 38,393 4,904.930 $ 304,619 $ 240,374 $ 0
Steven Singer....................... 0 25,595 3,269.960 $ 203,079 $ 160,249 $ 0
</TABLE>
<PAGE> 51
EXHIBIT B
COMPANY OPTIONS AND CONSIDERATION TO BE RECEIVED BY MANAGEMENT HOLDERS
<TABLE>
<CAPTION>
CONSIDERATION TO BE RECEIVED BY
MANAGEMENT HOLDER
-------------------------------------------------------
NEW NEW
COMPANY OPTIONS CLASS CLASS NEW
(TO BE A B SERIES A
EXCHANGED COMMON COMMON PREFERRED DEFERRED
NAME OF STOCKHOLDER AND CANCELED STOCK STOCK STOCK CASH OBLIGATIONS
- ------------------------------------ --------------- ------ ------ --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Ueli Spring......................... 30,000 5,093 0 650.270 $93,450 $ 240,374
Harold Brown........................ 10,800 1,834 0 234.100 $33,642 $ 86,535
Gary Easterly....................... 5,800 984 0 125.720 $18,067 $ 46,472
Edward Lawson....................... 5,800 984 0 125.720 $18,067 $ 46,472
Daniel Pierce....................... 5,800 984 0 125.720 $18,067 $ 46,472
David Thal.......................... 2,750 467 0 59.610 $ 8,566 $ 22,034
Ralph Bredenbeck.................... 1,250 212 0 27.090 $ 3,894 $ 10,016
</TABLE>
<PAGE> 52
EXHIBIT C
FORM OF JUNIOR SUBORDINATED DEBENTURE
<PAGE> 53
EXHIBIT D
[ATTACH ARTICLE IV OF BY-LAWS AND ARTICLE NINTH OF CERTIFICATE OF INCORPORATION]
<PAGE> 1
EXHIBIT 10.13
AGREEMENT TO INDEMNIFY
AGREEMENT, dated as of August 13, 1996 (the "Agreement"), by and between
Aetna Industries, Inc. ("Aetna") and each of Russell L. Epker, Robert J. Small,
James Bakken, Douglas A. Thal and Jerome Singer (collectively, the "Indemnified
Parties" and, individually, an "Indemnified Party").
WHEREAS, the Indemnified Parties are parties to that certain Stock
Purchase Agreement (the "Stock Purchase Agreement") dated as of August 13, 1996
by and among MS Acquisition Corp. (The "Company"), stockholders of the Company,
certain other individuals and Aetna Holdings, Inc. ("Buyer"); and
WHEREAS, pursuant to Section 9.11 of the Stock Purchase Agreement, the
Company and Buyer have agreed to indemnify and hold harmless the Indemnified
Parties against any and all Losses (as such term is defined below) with respect
to the Senior Notes due 2006 of Aetna (the "Senior Notes"); and
WHEREAS, in order to induce the Indemnified Parties to complete the
transactions contemplated by the Stock Purchase Agreement, Aetna desires to
enter into an agreement whereby Aetna shall agree to indemnify the Indemnified
Parties on terms comparable to the terms of Section 9.11 of the Stock Purchase
Agreement.
NOW, THEREFORE, in consideration of the mutual agreements set forth herein
and other good and valuable consideration, the receipt of which is hereby
acknowledged by each party hereto, the parties hereto agree as follows:
1. Aetna agrees to indemnify and hold harmless each Indemnified Party
against any and all Losses to which such person may become subject insofar as
such Losses arise out of or are based on or are related to any untrue statement
or alleged untrue statement of any material fact contained in the Offering
Memorandum dated August 8, 1996, or Preliminary Offering Memorandum dated July
25, 1996, or any amendment or supplement thereto, relating to the Senior Notes,
or arise out of or are based upon or are related to the omission or alleged
omission to state in any of them a material fact required to be stated therein
or necessary to make the statements in any of them not misleading and will
promptly reimburse each such person for any reasonable legal and other expenses
as such expenses are incurred by such person in connection with investigating,
defending, settling, compromising or paying such Loss provided, however, that
no indemnification shall be owing to such person pursuant to this Agreement to
the extent such information arises out of or is based on any untrue statement
or omission or alleged omission made in such documents in reliance upon or in
conformity with written information furnished specifically for use therein to
Aetna or its respective representative by or on behalf of such Indemnified
Party.
2. "Losses" shall mean any damages, liabilities, losses, fines, penalties,
costs, and expenses (including, without limitation, reasonable fees of counsel)
of any kind or nature whatsoever.
<PAGE> 2
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date set forth above.
AETNA INDUSTRIES, INC.
BY: /s/ Ueli Spring
---------------------
/s/ Russell L. Epker
---------------------
Russell L. Epker
/s/ Robert J. Small
---------------------
Robert J. Small
/s/ James Bakken
---------------------
James Bakken
/s/ Douglas A. Thal
---------------------
Douglas A. Thal
/s/ Jerome Singer
---------------------
Jerome Singer
<PAGE> 1
EXHIBIT 10.16
FORM OF EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT, dated as of August 13, 1996 (this
"Agreement"), by and between Aetna Industries, Inc., a Delaware corporation
("Aetna"), MS Acquisition Corp., a Delaware Corporation ("MS Acquisition"; and
together with Aetna, the "Companies"), and Ueli Spring (the "Executive").
WHEREAS, the Executive entered into certain agreements and arrangements as
listed and described in Exhibit A hereto under the caption "Prior Agreements to
be Terminated" (the "Prior Agreements") with the Companies, and/or its direct
or indirect subsidiaries;
WHEREAS, the Companies and the Executive desire to terminate the Prior
Agreements; and
WHEREAS, the Companies desire to employ the Executive as President and
Chief Executive Officer, and the Executive desires to be retained in such
capacities, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
made herein, the Companies and the Executive agree as follows:
1. Prior Agreements. The Executive represents and warrants to the
Companies that the Prior Agreements are the only agreements between MS
Acquisition, Aetna or any of their respective direct or indirect, current or
former subsidiaries on the one hand, and the Executive and his Affiliates and
Associates, on the other. The Companies and the Executive hereby terminate the
Prior Agreements and the Executive hereby releases the Companies and their
respective direct or indirect subsidiaries from all payments and other
obligations thereunder, if any.
2. Employment; Duties. The Companies shall employ the Executive as
President and Chief Executive Officer for the "Employment Period" as defined in
Section 3. The Executive, in his capacity as President and Chief Executive
Officer, shall report to the Boards of Directors of the Companies and shall have
such duties, responsibilities and authority normally incident to such office,
including responsibility for the day-to-day operations of the Companies, subject
to the provisions of the Bylaws of the Companies. Subject to the foregoing, the
precise duties, responsibilities and authority of the Executive may be expanded,
limited or modified, from time to time, at the discretion of the Boards of
Directors of the Companies. During the Employment Period, the Executive shall
render his business services solely in the performance of his duties hereunder.
The Executive agrees that during the term of his employment hereunder, he shall
devote his full working time, attention, knowledge and experience and give his
best effort, skill and abilities, exclusively to promote the business and
interests of MS Acquisition, Aetna and their respective direct and indirect
subsidiaries. The Executive may not serve as an officer or
<PAGE> 2
director of, make investments in, or otherwise participate in, any other entity
without the prior written consent of the Boards of Directors of the Companies;
provided, that the foregoing shall not be deemed to prohibit the Executive from
acquiring, directly or indirectly, solely as an investment, not more than two
percent (2%) of any class of securities of any entity, other than MS
Acquisition, that are registered under Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended, including the regulations issued thereunder;
and provided further, that so long as it does not interfere with the
Executive's employment, the Executive may (a) serve as an officer, director or
otherwise participate in purely educational, welfare, social, religious and
civic organizations, and (b) manage personal and family investments.
3. Employment Period. This Agreement shall have a term of three years,
commencing as of the date hereof and ending on the third anniversary of the date
hereof (the "Initial Period"), unless sooner terminated in accordance with the
provisions of Section 8 or Section 9. On the expiration of the Initial Period
and on each yearly anniversary thereof, this Agreement shall automatically renew
for an additional one-year period (each such one-year period being referred to
as a "Renewal Period"), unless sooner terminated in accordance with the
provisions of Section 8 or Section 9, unless either of the Companies or the
Executive notifies the other in writing of its intention not to renew this
Agreement not less than ninety (90) days prior to such expiration date or
anniversary, as the case may be. The term of this Agreement, as in effect from
time to time, is referred to herein as the "Employment Period".
4. Compensation and Benefits.
(a) Base Compensation. The Executive shall be paid an aggregate base
salary (the "Base Salary") of $225,000 per annum, less statutory deductions and
withholdings. The Base Salary shall be payable in a manner consistent with the
normal payroll practices of the Companies in effect from time to time. The
Boards of Directors of the Companies, in their sole discretion, or at the
recommendation of the Compensation Committee, may increase (but not decrease)
the Base Salary, at any time.
(b) Annual Bonus. In addition to the Base Salary, the Executive may
be entitled to receive an aggregate discretionary annual bonus for each fiscal
year of Aetna that ends during the Employment Period of up to 100% of his annual
Base Salary (the "Bonus Award") based upon the achievement, as determined by the
Boards of Directors of the Companies, of annual Aetna and individual performance
goals to be set by the Board of Directors of Aetna, in consultation with the
Executive, and included in Aetna's annual business plan, a copy of which shall
be provided to the Executive.
(c) Benefits. The Executive shall also be entitled to participate
in the employee benefit and group insurance programs provided by the Companies
for their officers and employees generally and in accordance with the terms of
the applicable plan documents as they may be revised from time to time. In
addition, the Executive shall be entitled, during the
2
<PAGE> 3
Employment Period, to the continuation of those benefits identified on Exhibit
A hereto under the caption "Continuing Individual Benefits."
5. Trade Secrets. The Executive recognizes that it is in the legitimate
business interest of the Companies to restrict his disclosure or use of Trade
Secrets and Confidential Information relating to MS Acquisition, Aetna and their
respective direct or indirect subsidiaries for any purpose other than in
connection with his performance of his duties to the Companies, and to limit any
potential appropriation of such Trade Secrets and Confidential Information by
the Executive. The Executive therefore agrees that all Trade Secrets and
Confidential Information relating to MS Acquisition, Aetna and their respective
direct or indirect subsidiaries heretofore or in the future obtained by the
Executive shall be considered confidential and the proprietary information of MS
Acquisition, Aetna and their respective direct or indirect subsidiaries. During
the Employment Period the Executive shall not use or disclose, or authorize any
other person or entity to use or disclose, any Trade Secrets or other
Confidential Information, other than as necessary to further the business
objectives of the Companies in accordance with the terms of his employment
hereunder. The term "Trade Secrets or other Confidential Information" includes,
by way of example and without limitation, matters of a technical nature, such as
scientific, trade and engineering secrets, "know-how", formulas, secret
processes, drawings, works of authorship, machines, inventions, computer
programs (including documentation of such programs), services, materials, patent
applications, new product plans, other plans, technical information, technical
improvements, manufacturing techniques, specifications, manufacturing and test
data, progress reports and research projects, and matters of a business nature,
such as business plans, prospects, financial information, proprietary
information about costs, profits, markets, sales, lists of customers and
suppliers of MS Acquisition, Aetna and their respective direct or indirect
subsidiaries, procurement and promotional information, credit and financial data
concerning customers or suppliers of MS Acquisition, Aetna and their respective
direct or indirect subsidiaries, information relating to the management,
operation and planning of MS Acquisition, Aetna and their respective direct and
indirect subsidiaries, and other information of a similar nature to the extent
not available to the public, and plans for future development. After
termination of the Executive's employment with the Companies for any reason, the
Executive shall not use or disclose Trade Secrets or other Confidential
Information.
6. Return of Documents and Property. Upon the termination of the
Executive's employment with the Companies, or at any time upon the request of
the Companies, the Executive (or his heirs or personal representatives) shall
deliver to the Companies (a) all documents and materials (including, without
limitation, computer files) containing Trade Secrets or other Confidential
Information relating to the business and affairs of MS Acquisition, Aetna and
their respective direct and indirect subsidiaries, and (b) all documents,
materials and other property (including, without limitation, computer files)
belonging to MS Acquisition, Aetna or their respective direct or indirect
subsidiaries, which in either case are in the possession or under the control of
the Executive (or his heirs or personal representatives).
3
<PAGE> 4
7. Discoveries and Work. All Discoveries and Works made or conceived by
the Executive during his employment by the Companies, whether during the
Employment Period or at any time prior thereto, jointly or with others, that
relate to the present or anticipated activities of MS Acquisition, Aetna or
their respective direct or indirect subsidiaries, or are used or usable by MS
Acquisition, Aetna or their respective direct or indirect subsidiaries shall be
owned by MS Acquisition, Aetna or their respective direct or indirect
subsidiaries. The term "Discoveries and Works" includes, by way of example but
without limitation, Trade Secrets and other Confidential Information, patents
and patent applications, trademarks and trademark registrations and
applications, service marks and service mark registrations and applications,
trade names, copyrights and copyright registrations and applications. The
Executive shall (a) promptly notify, make full disclosure to, and execute and
deliver any documents requested by, the Companies, as the case may be, to
evidence or better assure title to Discoveries and Works in MS Acquisition,
Aetna or their respective direct or indirect subsidiaries, as so requested, (b)
renounce any and all claims, including but not limited to claims of ownership
and royalty, with respect to all Discoveries and Works and all other property
owned or licensed by MS Acquisition, Aetna or their respective direct or
indirect subsidiaries, (c) assist MS Acquisition, Aetna or their respective
direct or indirect subsidiaries in obtaining or maintaining for itself at its
own expense United States and foreign patents, copyrights, trade secret
protection or other protection of any and all Discoveries and Works, and (d)
promptly execute, whether during his employment with the Companies or
thereafter, all applications or other endorsements necessary or appropriate to
maintain patents and other rights for MS Acquisition, Aetna or their respective
direct or indirect subsidiaries and to protect the title of MS Acquisition,
Aetna or their respective direct or indirect subsidiaries thereto, including but
not limited to assignments of such patents and other rights. Any Discoveries
and Works which, within six months after the termination of the Executive's
employment with the Companies, are made, disclosed, reduced to a tangible or
written form or description, or are reduced to practice by the Executive and
which pertain to the business carried on or products or services being sold or
developed by MS Acquisition, Aetna or their respective direct or indirect
subsidiaries at the time of such termination shall, as between the Executive
and, the Companies, be presumed to have been made during the Executive's
employment by the Companies. The Executive acknowledges that all Discoveries
and Works shall be deemed "works made for hire" under the Copyright Act of 1976,
as amended, 17 U.S.C. Section 101.
8. Termination.
(a) The Companies or the Executive may terminate this Agreement,
with or without cause, with or without prior notice. Except as provided in
Sections 8(b) and 19, in the event either of the Companies or the Executive
terminates this Agreement, the Executive's rights and the obligations of the
Companies hereunder shall cease as of the effective date of the termination,
including, without limitation, the right to receive the Base Salary, any Bonus
Award and all other compensation or benefits provided for in this Agreement.
4
<PAGE> 5
(b) In the event the Companies terminate this Agreement without
"cause" or in the event that the Executive terminates this Agreement upon notice
for "Good Reason", the Executive shall be entitled to receive within 30 days of
the date of such termination a termination payment (the "Termination Payout") in
an aggregate amount equal to (i) the pro rata portion of his Base Salary that
would otherwise be payable during the balance of the then existing Employment
Period (the "Continuation Period"), provided, however, that if such termination
occurs during the Initial Term or on account of the Companies' action pursuant
to Section 3 which prevents the automatic renewal of the Agreement upon (and
only upon) expiration of the Initial Term, then the length of the Continuation
Period with respect to which the Executive shall be entitled to receive a
Termination Payout calculated on the basis of his Base Salary in accordance with
this clause (i) shall be no less than twelve months from the date of
termination; plus (ii) the greater of (x) the amount of bonus paid to the
Executive by the Companies for the fiscal year of the Companies ended
immediately preceding the year in which the Executive's employment with the
Companies is so terminated, or (y) an amount equal to 50% of the Executive's
Base Salary for the fiscal year in which such termination occurs. During the
Continuation Period, the Executive shall be entitled to continue to participate
in the benefit plans of the Companies in which he is entitled to and does
participate pursuant to Section 4(c) hereof as of the date of such termination,
and to continue to receive for such period the benefits identified on Exhibit A
hereto under "Continuing Individual Benefits".
For purposes of this Agreement, "cause" shall mean (i) the willful failure
of the Executive to follow the directions of the Boards of Directors of the
Companies (other than any such failure resulting from his incapacity due to
physical or mental illness or disability which is subject to the provisions of
Section 9), (ii) any act of fraud or dishonesty, misappropriation or
embezzlement, wilful misconduct or gross negligence in connection with the
performance of the Executive's duties hereunder, (iii) a breach by the Executive
of any provision hereof or of any contractual or legal duty to the Companies
(including, but not limited to, the unauthorized disclosure of Trade Secrets or
other Confidential Information, non-compliance with the written policies,
guidelines and procedures of the Companies), after written notice thereof from
the Board of Directors of either of the Companies and a 30-day opportunity to
cure in the event that such breach was not wilful, (iv) the conviction of the
Executive of the commission of a crime or offense involving moral turpitude
(including pleading guilty or no contest to such a crime or offense or a lesser
charge which results from plea bargaining), whether or not committed in
connection with the business of the Companies, (v) alcohol or substance abuse or
(vi) breach by the Executive of the provisions of the Stockholders Agreement.
For purposes of this Agreement, "Good Reason" shall mean (i) the Companies
change the Executive's status, title or position as an officer of the Companies
and such change represents a material reduction in such status, title or
position conferred hereunder, and/or (ii) the Companies materially breached this
Agreement, and such change or breach is not cured by the Companies within thirty
(30) days from the date the Executive delivers a Notice of Termination for Good
Reason. Such "Notice of Termination for Good Reason" shall include the specific
5
<PAGE> 6
section of this Agreement which was relied upon and the reason that the
Companies act or failure to act has given rise to his termination for Good
Reason.
(c) In the event the Companies terminate this Agreement for cause
or the Executive terminates this Agreement (other than for Good Reason), the
Executive's rights hereunder shall cease as of the effective date of the
termination, including, without limitation, the right to receive the Base
Salary, any Bonus Award and all other compensation or benefits provided for in
this Agreement.
(d) Notwithstanding anything to the contrary set forth herein, upon
24 hours' written notice to the Executive, the Companies may relieve the
Executive of all his duties and responsibilities hereunder and may relieve the
Executive of authority to act on behalf of, or legally bind, the Companies,
provided that any such action by the Companies shall be without prejudice to the
Executive's right to the compensation and benefits provided under this Agreement
or the Executive's right to terminate his employment and receive the
compensation and benefits following his termination of employment as otherwise
provided under this Agreement.
(e) As a condition to his entitlement, if any, to Base Salary and
all other compensation and benefits provided for hereunder upon termination, the
Executive shall have executed and delivered to the Companies a release in the
form attached hereto as Exhibit B (the "Release"), as such Release may be
modified by the Companies from time to time in good faith, and such Release
shall have become irrevocable.
9. Disability; Death.
(a) If, prior to the expiration of the Employment Period or the
termination of this Agreement, the Executive shall be unable to perform his
duties by reason of mental or physical disability for at least one hundred and
eighty (180) consecutive days or any one hundred and eighty (180) days (whether
or not consecutive) in any two hundred and fifty (250) consecutive day period,
the Companies shall have the right to terminate this Agreement and the remainder
of the Employment Period by giving written notice to the Executive to that
effect. Immediately upon the giving of such notice, the Employment Period shall
terminate.
(b) Upon termination of this Agreement pursuant to Section 9(a), the
Executive shall be entitled to a termination payment equal to the amount the
Executive would have received had his employment been terminated pursuant to
Section 8(b) hereof. In the event of a dispute as to whether the Executive is
disabled within the meaning of Section 9(a), any party may from time to time
request a medical examination of the Executive by a doctor appointed by the
Chief of Staff of a hospital selected by mutual agreement of the parties, or as
the parties may otherwise agree, and the written medical opinion of such doctor
shall be conclusive and binding upon the parties as to whether the Executive has
become disabled and the date when such disability arose. The cost of any such
medical examination shall be borne by the Companies. If,
6
<PAGE> 7
prior to the expiration of the Employment Period or the termination of this
Agreement, the Executive shall die, the Executive's estate shall be paid his
Base Salary through the end of the month in which the Executive's death has
occurred, at which time the Employment Period shall terminate without further
notice and the Companies shall have no further obligations hereunder.
10. No Conflicts. The Executive represents to the Companies that the
execution, delivery and performance by the Executive of this Agreement do not
conflict with or result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default under any contract, agreement
or understanding, whether oral or written, to which the Executive is a party or
of which the Executive is or should be aware.
11. Mitigation; Offset.
(a) Upon termination by the Companies without cause or voluntarily by
the Executive for Good Reason pursuant to Section 8(b) hereof, the Executive
shall have an obligation to the Companies to mitigate damages by actively
seeking other employment of comparable position and salary in compliance with
Section 12. The Companies may, at their option, engage an out placement service
firm to assist the Executive in his attempt to seek other employment until the
earlier of the time the Executive (i) accepts new employment or (ii) is no
longer entitled to payments under this Agreement.
(b) If the Executive accepts other employment (i) all of the
Executive's rights to benefits under Sections 4 and 8(b) shall cease, and (ii)
all compensation payable to the Executive from services as an officer,
consultant or employee of any other business after the termination of the
Executive's employment hereunder with respect to the balance of the Employment
Period, whether paid during or after such period, shall be offset against and
reduce any payments (but not below zero) required to be paid to the Executive
under this Agreement.
12. Non-Competition. From and after the date hereof, the Executive will
not, except pursuant to the terms hereof, directly or indirectly, own, manage,
operate, join, finance control or participate in the ownership, management,
operation or control of, or be employed or be otherwise connected in any manner
with, any business under a name similar to the name of any of the Companies or
any direct or indirect subsidiary thereof. Prior to the termination of the
Executive's employment hereunder and for a period after any such termination or
expiration of this Agreement equal to the greater of (i) twelve (12) months and
(ii) the balance of the then existing Employment Period (as if this Agreement
were not terminated), the Executive will not (except as an officer, director,
employee, agent or consultant of the Companies) directly or indirectly, own,
manage, operate, join, or have a financial interest in, control or participate
in the ownership, management, operation or control of, or be employed as an
employee, agent or consultant, or in any other individual or representative
capacity whatsoever, or use or permit his name to be used in connection with, or
be otherwise connected in any manner with (i) any business or enterprise engaged
(wherever located) in the design, development, manufacture, distribution or sale
of any products, or the provision of any services, which the Companies or
7
<PAGE> 8
their direct or indirect subsidiaries were designing, developing, manufacturing,
distributing, selling or providing at any time up to and including the date of
termination of this Agreement or (ii) any business which is similar to or
competitive with the business carried on or planned by the Companies or their
direct or indirect subsidiaries at any time during the period of the Executive's
employment by the Companies, whether during or prior to the Employment Period,
unless the Executive shall have obtained the prior written consent of the Boards
of Directors of the Companies, provided that the foregoing restriction shall not
be construed to prohibit the ownership by the Executive of not more than two
percent (2%) of any class of securities of any corporation which is engaged in
any of the foregoing businesses, having a class of securities registered
pursuant to the Securities Exchange Act of 1934, which securities are publicly
owned and regularly traded on any national exchange or in the over-the-counter
market, provided further, that such ownership represents a passive investment
and that neither the Executive nor any group of persons including the Executive
in any way, either directly or indirectly, manages or exercises control of any
such corporation, guarantees any of its financial obligations, otherwise takes
part in its business other than exercising his rights as a shareholder, or seeks
to do any of the foregoing.
13. Non-Solicitation. Prior to the termination of the Executive's
employment hereunder and for a period after any such termination or expiration
of this Agreement equal to the greater of (i) twelve (12) months and (ii) the
balance of the then existing Employment Period (as if this Agreement were not
terminated), the Executive agrees, directly or indirectly, whether for his own
account or for the account of any other individual or entity, not to solicit or
canvas the trade, business or patronage of, or sell any products or services
which are the same as or similar to those designed, developed, manufactured,
distributed or sold by MS Acquisition, Aetna or their respective direct or
indirect subsidiaries to, any individuals or entities that were either customers
of MS Acquisition, Aetna or any of their respective direct or indirect
subsidiaries during the time the Executive was employed by the Companies,
whether during or prior to the Employment Period, or prospective customers with
respect to whom a sales effort, presentation or proposal was made by MS
Acquisition, Aetna or any of their respective direct or indirect subsidiaries
during the twelve months preceding the date of termination or expiration, as the
case may be. The Executive further agrees that prior to the termination of the
Executive's employment hereunder and for a period of one year thereafter, he
shall not, directly or indirectly, (i) solicit, induce, enter into any agreement
with, or attempt to influence any individual who was an employee or consultant
of MS Acquisition, Aetna or any of their respective direct or indirect
subsidiaries at any time during the time the Executive was employed by the
Companies, whether during or prior to the Employment Period, to terminate his or
her employment relationship with MS Acquisition, Aetna or any of their
respective direct or indirect subsidiaries or to become employed by the
Executive or any individual or entity by which Executive is employed or (ii)
interfere in any other way with the employment, or other relationship, of any
employee or consultant of MS Acquisition, Aetna or any of their respective
direct or indirect subsidiaries.
14. Enforcement. (a) The Executive agrees that the remedies at law for
any breach or threat of breach by him of any of the provisions of Sections 5, 6,
7, 12 and 13 hereof
8
<PAGE> 9
will be inadequate, and that, in addition to any other remedy to which the
Companies may be entitled at law or in equity, the Companies shall be entitled
to a temporary or permanent injunction or injunctions or temporary restraining
order or orders to prevent breaches of the provisions of Sections 5, 6, 7, 12
and 13 hereof and to enforce specifically the terms and provisions thereof, in
each case without the need to post any security or bond. Nothing herein
contained shall be construed as prohibiting the Companies from pursuing, in
addition, any other remedies available to the Companies for such breach or
threatened breach. A waiver by the Companies of any breach of any provision
hereof shall not operate or be construed as a waiver of a breach of any other
provision of this Agreement or of any subsequent breach by the Executive.
(b) It is expressly understood and agreed that although the Companies
and the Executive consider the restrictions contained in Sections 5, 6, 7, 12
and 13 hereof to be reasonable for the purpose of preserving the goodwill,
proprietary rights and going concern value of the Companies, if a final judicial
determination is made by a court having jurisdiction that the time or territory
or any other restriction contained in such Sections 5, 6, 7, 12 and 13 is an
unenforceable restriction on the Executive's activities, the provisions of such
Sections 5, 6, 7, 12 and 13 shall not be rendered void but shall be deemed
amended to apply as to such maximum time and territory and to such other extent
as such court may judicially determine or indicate to be reasonable.
Alternatively, if the court referred to above finds that any restriction
contained in Sections 5, 6, 7, 12 or 13 or any remedy provided herein is
unenforceable, and such restriction or remedy cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained therein or the availability of any other remedy.
The provisions of Sections 5, 6, 7, 12 and 13 shall in no respect limit or
otherwise affect the Executive's obligations under other agreements with the
Companies.
15. Assignment. The rights and obligations of the parties under this
Agreement shall not be assignable by either the Companies or the Executive,
provided that this Agreement is assignable by the Companies to any affiliate of
the Companies, to any successor in interest to the business of any of the
Companies, or to a purchaser of all or substantially all of the assets of any of
the Companies.
16. Notices. Any notice required or permitted under this Agreement shall
be deemed to have been effectively made or given if in writing and personally
delivered, mailed properly addressed in a sealed envelope, postage prepaid by
certified or registered mail, delivered by a reputable overnight delivery
service or sent by facsimile. Unless otherwise changed by notice, notice shall
be properly addressed to the Executive if addressed to:
Ueli Spring
2700 Greenstone Drive
Apt. 1410, Bldg. 14
Auburn Hills, MI 48326
and properly addressed to the Companies if addressed to:
9
<PAGE> 10
Aetna Industries, Inc.
MS Acquisition Corp.
24331 Sherwood Avenue
P.O. Box 3067
Centerline, MI 48015-0067
Attention: Board of Directors
Fax No. 810-759-2209
with a copy to:
Citicorp Venture Capital, Ltd.
399 Park Avenue - 14th Floor
New York, NY 10043
Attention: Michael A. Delaney
Fax No. 212-888-2940
17. Severability. Wherever there is any conflict between any provision of
this Agreement and any statute, law, regulation or judicial precedent, the
latter shall prevail, but in such event the provisions of this Agreement thus
affected shall be curtailed and limited only to the extent necessary to bring
them within the requirements of the law. In the event that any provision of
this Agreement shall be held by a court of proper jurisdiction to be indefinite,
invalid, void or voidable or otherwise unenforceable, the balance of the
Agreement shall continue in full force and effect unless such construction would
clearly be contrary to the intentions of the parties or would result in an
unconscionable injustice.
18. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
19. Effect of Termination. Notwithstanding anything to the contrary
contained herein, if this Agreement or the Executive's employment is validly
terminated pursuant to Section 8 or Section 9 or expires by its terms, the
provisions of Sections 5, 6, 7, 11, 12, 13, 14, and 17 shall continue in full
force and effect.
20. Disputes. Any claim or controversy arising out of or relating to this
Agreement, or any breach thereof, or otherwise arising out of or relating to the
Executive's employment, compensation and benefits with the Companies or the
termination thereof, shall be settled by arbitration in Detroit, Michigan in
accordance with the rules established by the American Arbitration Association,
provided, however, that the parties agree that (i) the arbitrator shall be
prohibited from disregarding, adding to or modifying the terms of this
Agreement; (ii) the arbitrator shall be required to follow established
principles of substantive law and the law governing burdens of proof; (iii) only
legally protected rights may be enforced in arbitration; (iv)
10
<PAGE> 11
the arbitrator shall be without authority to award punitive or exemplary
damages; (v) the arbitrator shall be an attorney licensed to practice law in
Michigan who has experience in similar matters; and (vi) any demand for
arbitration made by the Executive must be filed and served, if at all, within
180 days of the occurrence of the act or omission complained of. Any claim or
controversy not submitted to arbitration in accordance with this Section 21
shall be considered waived and, thereafter, no arbitration panel or tribunal or
court shall have the power to rule or make any award on any such claim or
controversy. The award rendered in any arbitration proceeding held under this
Section 21 shall be final and binding, and judgment upon the award may be
entered in any court having jurisdiction thereof, provided that the judgment
conforms to established principles of law and is supported by substantial record
evidence.
21. Miscellaneous; Choice of Law. This Agreement constitutes the entire
agreement, and supersedes all prior agreements, of the parties hereto relating
to the subject matter hereof, and there are no written or oral terms or
representations made by either party other than those contained herein. This
Agreement shall be governed by and construed in accordance with the domestic
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of New York.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as
of the day and year first above written.
AETNA INDUSTRIES, INC.
________________________
By:
Its:
MS ACQUISITION CORP.
______________________
By:
Its:
_______________________
Ueli Spring
12
<PAGE> 13
EXHIBIT A
Prior Agreements to be Terminated:
Continuing Individual Benefits:
Automobile lease/insurance arrangements.
Life insurance policy.
13
<PAGE> 14
EXHIBIT B
Form of Release
I, ______________________, hereby release and discharge ________________
(the "Company"); its present and former subsidiaries and affiliates; the
Company's, any such subsidiaries' and any such affiliates' present and former
partners, officers, directors, stockholders, employees, representatives and
agents; and the successors and assigns of each of the foregoing persons and
entities (collectively, the "Released Persons"), from any and all actions,
causes of action, suits, debts, dues, sums of money, including without
limitation any compensation owed or potentially owed, any accounts, reckonings,
bonds, bills, specialties, covenants, contracts, controversies, agreements,
promises, variances, trespasses, damages, judgments, executions, claims, and
demands whatsoever (including, without limitation, under the Age Discrimination
in Employment Act, 29 U.S.C. Section 621 et seq. ("ADEA"), or the Employee
Retirement Income Security Act, 29 U.S.C. Section 1001 et seq.), known or
unknown, fixed, conditional or contingent, in law or in equity, which I and my
respective heirs, executors, administrators, legal representatives, successors
and assigns ever had, now have or hereafter can, shall or may have against the
Released Persons, individually or collectively, derivatively or otherwise, for,
upon or by reason of any matter, cause or thing whatsoever from the beginning
of time to the date hereof.
The Company has advised me to consult with an attorney of my choosing prior
to executing this Release regarding this Release and I hereby represent to the
Company that I have in fact consulted with such an attorney prior to the
execution of this Release with respect hereto. I acknowledge that I shall have
up to twenty-one days prior to the execution of this Release to consider the
waiver of my rights under ADEA pursuant to this Release, provided that once I
have executed this Release, I shall have seven days from the date of execution
to revoke my consent to the release of my rights under ADEA. If no such
revocation occurs, my release of rights under ADEA pursuant to this Release
shall become effective seven days from the date I execute this Release. I
acknowledge that any revocation of consent pursuant to this Release must be in
writing and must be hand-delivered or telecopied to
_____________________________, counsel to the Company, at
________________________________________________, facsimile number ________,
within such seven-day period.
IN WITNESS WHEREOF, the undersigned has executed this Release as of
_______ of ______________.
____________________________
[Name]
14
<PAGE> 1
EXHIBIT 12
Aetna Industries, Inc.
Information on Ratio of Earnings
To fixed charges computation
(in thousands)
<TABLE>
<CAPTION>
Six months ended
Year ended December 31, Proforma June 30, Proforma
1991 1992 1993 1994 1995 1995 1995 1996 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income before the
effect of accounting changes (2,287) (2,768) 915 6,595 4,576 3,674 5,466 2,806 2,253
Income taxes 218 (347) 930 4,000 1,877 1,392 2,243 2,163 1,865
Pretax income (2,069) (3,115) 1,845 10,595 6,453 5,066 7,709 4,969 4,118
Fixed charges per below 10,467 10,299 9,659 9,800 9,795 11,432 4,720 4,756 5,732
---------------------------------------------------------------------------------
Earnings from operations 8,398 7,184 11,504 20,395 16,248 16,498 12,429 9,725 9,850
---------------------------------------------------------------------------------
Fixed charges:
Interest expense 9,525 9,206 9,020 8,929 8,579 10,094 4,246 4,132 5,047
Debt amortization 432 557 99 198 442 564 99 221 282
Rent expense - portion of
operating rentals
representative of the
interest factor 510 536 540 673 774 774 375 403 403
---------------------------------------------------------------------------------
Total fixed charges 10,467 10,299 9,659 9,800 9,795 11,432 4,720 4,756 5,732
---------------------------------------------------------------------------------
Ratio of income to fixed charges (1) (1) 1.2 2.1 1.7 1.5 2.6 2.0 1.7
</TABLE>
(1) The deficiency of earnings from operations versus fixed charges
was $ 2.1 million and $3.1 million for the years ended December 31, 1991
and 1992, respectively.
<PAGE> 1
EXHIBIT 23.2
Consent of Independent Accountants
We hereby consent to use in the Prospectus constituting part of Amendment No. 1
to this Registration Statement on Form S-4 of our report dated February 12,
1996, except for notes 11 and 12 which are May 2, 1996 and August 13, 1996,
respectively, relating to the financial statements of Aetna Industries, Inc.,
which appears in such Prospectus. We also consent to the reference to us under
the headings "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Detroit, Michigan
October 30, 1996
<PAGE> 1
EXHIBIT 23.3
Consent of Independent Accountants
We hereby consent to use in the Prospectus constituting part of Amendment No.1
to this Registration Statement on Form S-4 of our report dated February 12,
1996, except for notes 12 and 13 which are May 2, 1996 and August 13, 1996
respectively, relating to the financial statements of MS Acquisition Corp.,
which appears in such Prospectus. We also consent to the reference to us under
the headings "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Detroit, Michigan
October 30, 1996
