<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 6, 1995
REGISTRATION NO. 33-62951
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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WALBRO CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
3714
(Primary Standard Industrial
Classification Code Number)
38-1358966
(I.R.S. Employer
Identification No.)
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6242 GARFIELD STREET, CASS CITY, MICHIGAN 48726
(517) 872-2131
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
LAMBERT E. ALTHAVER
Chairman, President and Chief Executive Officer
Walbro Corporation
6242 Garfield Street
Cass City, Michigan 48726
(517) 872-2131
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
HOWARD S. LANZNAR, ESQ.
LAWRENCE D. LEVIN, ESQ.
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661
(312) 902-5200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective date
registration statement for the same offering: / /
If any of the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box / /.
-------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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<PAGE> 2
WALBRO CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER HEADING OR SUBHEADING IN PROSPECTUS
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<C> <C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................. Facing Page of Registration Statement; Cross Reference Sheet;
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... Prospectus Summary; Investment Considerations; The Company; Selected
Historical Financial Data; Combined Pro Forma Financial Information.
4. Terms of the Transaction............... Prospectus Summary; The Exchange Offer; Description of the Old
Notes; Certain Federal Income Tax Consequences of the Exchange
Offer.
5. Pro Forma Financial Information........ Prospectus Summary; Selected Historical, Combined and Pro Forma
Financial Information.
6. Material Contracts 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................................ Legal Matters; Experts.
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............................ Prospectus Summary; Capitalization; The Company; The Dyno
Acquisition; Management's Discussion and Analysis of Financial
Condition and Results of Operations; Historical, Combined and Pro
Forma Financial Data; Business; Description of New Notes; Financial
Statements.
13. Incorporation of Certain Information by
Reference.............................. Not Applicable.
14. Information With Respect to Registrants
Other Than S-2 or S-3 Companies........ Not Applicable.
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 Solicited..... Not Applicable.
19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited,
or in an Exchange Offer................ Management.
</TABLE>
<PAGE> 3
PROSPECTUS
(LOGO WALBRO) WALBRO CORPORATION
OFFER TO EXCHANGE
9 7/8% SENIOR NOTES DUE 2005, SERIES B
FOR ALL OUTSTANDING 9 7/8% SENIOR NOTES DUE 2005, SERIES A
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON DECEMBER 8, 1995, UNLESS EXTENDED
Walbro Corporation, a Delaware corporation (the "Company" or "Walbro"),
hereby offers, upon the terms and subject to conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"; together with the Prospectus, the "Exchange Offer"), to
exchange up to an aggregate principal amount of $110,000,000 of its 9 7/8%
Senior Notes Due 2005, Series B (the "New Notes") for up to an aggregate
principal amount of $110,000,000 of its outstanding 9 7/8% Senior Notes Due
2005, Series A (the "Old 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) governing the Old Notes. The New Notes and the Old Notes are sometimes
referred to collectively as the "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 unsecured
obligations of the Company. The New Notes will be guaranteed (the "Guarantees")
on a senior unsecured basis, jointly and severally, by each of the Company's
principal wholly-owned domestic operating subsidiaries (the "Guarantors").
The New Notes and Guarantees will be effectively subordinated in right of
payment to all existing and future secured indebtedness of the Company and its
subsidiaries. The New Notes will rank pari passu in right of payment with the
Old Notes. As of June 30, 1995, after giving effect to the Initial Offering (as
defined herein), the Dyno Acquisition (as defined herein), and the borrowings
outstanding under the Credit Facility (as defined herein), the Company and its
subsidiaries had approximately $96.9 million of secured indebtedness
outstanding. In addition, the New Notes will be effectively subordinated in
right of payment to all existing and future liabilities, including trade
payables, of the Company's subsidiaries which are not Guarantors, which, as of
June 30, 1995, after giving effect to the Transactions, totalled approximately
$79 million (excluding intercompany liabilities).
The New Notes will bear interest at the rate of 9 7/8% per annum, payable
semiannually on January 15 and July 15, commencing January 15, 1996 to holders
of record on the immediately preceding January 1 and July 1. Holders of the New
Notes will receive interest on January 15, 1996 from the date of initial
issuance of the New Notes, plus an amount equal to the accrued interest on the
Old Notes from the most recent date to which interest has been paid to the date
of exchange thereof. Interest on the Old Notes accepted for exchange will cease
to accrue upon issuance of the New Notes.
The New Notes are subject to redemption on or after July 15, 2000, at the
option of the Company, in whole or in part, at the redemption prices set forth
herein, plus accrued interest to the date of redemption. In addition, prior to
July 15, 1998, the Company may, at its option, redeem up to an aggregate of 30%
of the combined principal amount of the 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. 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 equal to 101% of the principal amount thereof plus accrued
interest to the date of repurchase. In addition, the Company will be obligated
to make an offer to repurchase the Notes in the event of certain asset sales.
See "Description of the New Notes."
(Cover continued on next page)
SEE "INVESTMENT CONSIDERATIONS" ON PAGE 9 FOR A DESCRIPTION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is November 6, 1995.
<PAGE> 4
(Continued from Cover)
The Company will accept for exchange any and all Old Notes which are
properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time,
on December 8, 1995, unless extended by the Company in its sole discretion (the
"Expiration Date"). The Expiration Date will not in any event be extended to a
date later than November 30, 1996. Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date. 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 the Old Notes to the holders thereof. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
exchange, but is otherwise subject to certain customary conditions. The Old
Notes may be tendered only in integral multiples of $1,000.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement dated
July 21, 1995 (the "Registration Rights Agreement") by and among the Company,
the Guarantors and Smith Barney, Inc., A.G. Edwards & Sons, Inc., McDonald &
Company Securities, Inc. and Stifel, Nicolaus & Company, Incorporated, as the
initial purchasers (the "Initial Purchasers"), with respect to the initial sale
of the Old Notes. Based on interpretations by the staff of the Securities and
Exchange Commission (the "Commission"), the New Notes issued pursuant to the
Exchange Offer in exchange for Notes may be offered for resale, resold and
otherwise transferred by respective holders thereof (other than any such holder
which is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, without compliance with the registration and prospectus delivery
provisions of the Securities Act, of 1933, as amended (the "Securities Act"),
provided that the New Notes are acquired in the ordinary course of such holder's
business and such holder has no arrangement with any person to participate in
the distribution of such New Notes and is not engaged in and does not intend to
engage in a distribution of the New Notes. 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 delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of 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 the New Notes received in exchange for Old Notes
if such New Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company 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
resale. See "Plan of Distribution."
Prior to the Exchange Offer, there has been no public market for the New
Notes. Although the Company has agreed pursuant to the Registration Rights
Agreement to use its best efforts to cause the New Notes to be listed on the New
York Stock Exchange, 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 Notes offered hereby. However, the Initial Purchasers are not obligated
to do so and any market marking may be discontinued at any time without notice.
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to pay the expenses incident to the Exchange Offer.
<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
"Registration Statement," which term shall include 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
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Statements made in this Prospectus
as to the contents of any contract, agreement or other document referred to in
the Registration Statement are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. The Company is subject to the
periodic reporting and other informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Periodic reports, proxy
statements and other information filed by the Company with the Commission may be
inspected at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its regional
offices located at the Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York
10007. Copies of such material can be obtained from the Company or the
Guarantors upon request.
The Company has agreed to file with the Commission, to the extent
permitted, and distribute to holders of the New Notes reports, information and
documents specified in Sections 13 and 15(d) of the Exchange Act, so long as the
New Notes are outstanding, whether or not the Company is subject to such
informational requirements of the Exchange Act. While any New Notes remain
outstanding, the Company will make available, upon request, to any holder of the
New Notes, the information required pursuant to Rule 144A(d)(4) under the
Securities Act during any period in which the Company is not subject to Section
13 or 15(d) of the Exchange Act. Any such request should be directed to the
Secretary of the Company at 6242 Garfield Street, Cass City, Michigan 48726
(telephone number (517) 872-2131).
i
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements of the Company and the notes thereto and the combined financial
statements of Dyno (as defined) and the notes thereto appearing elsewhere in
this Prospectus. Unless the context otherwise requires, the information
contained in this Prospectus gives effect to the Dyno Acquisition (as defined)
which was consummated on July 27, 1995 and all references in this Prospectus to
the Company or Walbro refer to Walbro Corporation, its consolidated subsidiaries
and the combined Dyno business.
THE COMPANY
Walbro is a global leader in the design, development and manufacture of
precision fuel systems and products for automotive and small engine markets
worldwide. The Company manufactures fuel pumps, fuel modules, fuel level
sensors, plastic fuel tanks and fuel rails for sale to automotive original
equipment manufacturers ("OEMs"). On July 27, 1995, Walbro acquired the fuel
systems business of Dyno Industrier A.S ("Dyno"), which is a leading European
plastic fuel-tank manufacturer. Products manufactured for the small engine
market include carburetors and ignitions for chain saws, outboard marine
engines, two-wheeled vehicles, industrial engines and lawn and garden equipment,
such as lawn mowers and weed trimmers. From 1989 to 1994, the Company (excluding
Dyno) increased net sales and the sum of operating income (minus foreign
currency exchange losses and other expenses, net) and depreciation and
amortization expenses ("EBITDA") at the compound rates of approximately 19% and
21% per year, respectively, despite an automotive industry downturn in
1990-1991. This growth was primarily due to the introduction of new automotive
products, penetration of additional automotive platforms and a recovery in the
small engine industry. The Company, including Dyno on a pro forma basis, had
1994 net sales of $472.4 million and EBITDA of $51.3 million.
WALBRO AUTOMOTIVE CORPORATION
Through its subsidiary, Walbro Automotive Corporation, the Company designs,
develops and manufactures fuel storage and delivery products for a broad range
of U.S. and foreign manufacturers of passenger automobiles and light trucks
(including minivans). The Company holds a strong market position in the U.S.
and, through the Dyno Acquisition (as defined) and Walbro's joint ventures in
France, Brazil, Japan and South Korea, has diversified its business across a
number of geographic markets. Management believes that, in the North American
automotive market, the Company manufactures fuel pumps for approximately 40% of
Ford Motor Company's ("Ford") automobiles and light trucks, including the
Taurus, Explorer, Windstar and F-Series Pickup. The Company manufactures all
fuel module requirements for Ford light trucks, and, according to management's
estimates, manufactures approximately 25% of Ford's fuel rail needs. In
addition, management estimates that the Company supplies Chrysler Corporation
("Chrysler") with approximately 70% of its fuel pump and fuel module
requirements, including all requirements for Chrysler's passenger cars and
minivans and most requirements for Chrysler's light trucks, including the Dodge
Ram Truck. Other automotive customers of the Company, including Dyno and the
Company's joint ventures, include Renault, Peugeot, Mercedes-Benz, Fiat, Volvo,
Rover, Saab, Volkswagen, Audi, Daewoo, Hyundai and Kia. Management believes that
the Company manufactures substantially all of the fuel tank systems for Volvo
and Saab and the fuel tank for the Mercedes 190/C Class, Volkswagen Polo and
Renault Twingo. Approximately 73% of the Company's 1994 revenues, including Dyno
on a pro forma basis, were generated by its automotive operations.
The Company's strategy is to grow its position as a global supplier to the
automotive industry through the design, development and manufacture of
technologically advanced fuel systems and components which are delivered
worldwide. In anticipation of the increasing demand by OEMs for the supply of
integrated automotive systems, Walbro is supplying OEMs with an increasing
number of fuel storage and delivery components with the ultimate goal of being
responsible for the complete fuel storage and delivery system ("FSDS") which
would integrate all of the components necessary for fuel delivery. The Company's
ability to assume responsibility for the development of complete systems will
allow OEMs to reduce internal engineering costs, use fewer suppliers and
assemble systems rather than components. Once an OEM designates the Company to
supply FSDS components for a new vehicle program, the OEM usually will continue
to purchase those components from the Company for the life of the program,
although not necessarily for a redesign.
1
<PAGE> 7
Through Dyno and Walbro's joint ventures in Europe, South America and East
Asia, Walbro is increasing its ability to design, develop, manufacture and
distribute fuel delivery components and systems worldwide and to support OEMs as
they produce vehicles for the global automotive market. The Company's FSDS
product development efforts focus on the regulatory and competitive challenges
facing its customers worldwide. For example, Walbro has used its technical
skills to develop plastic multi-layer fuel tanks and on-board running and vapor
recovery ("ORVR") devices, which are designed, in part, to assist OEMs in
complying with increasingly strict emission regulations.
WALBRO ENGINE MANAGEMENT CORPORATION
Through its subsidiary, Walbro Engine Management Corporation, the Company
designs, develops and manufactures diaphragm carburetors for portable engines
(such as those used in chain saws and weed trimmers), float feed carburetors for
ground supported engines (such as those used in lawn mowers and generators) and
ignition systems and other components for a variety of small engine products.
The Company believes that it is the world's largest independent manufacturer of
small engine carburetors, with an approximate 76% share of the global diaphragm
carburetor market including sales to such leading chain saw and weed trimmer
manufacturers as Poulan/Weedeater (a Division of Electrolux A.B.), Homelite (a
Division of Deere & Company), Stihl, Incorporated, McCulloch (a Division of Shop
Vac), Ryobi Ltd. and Kioritz (Echo) Corporation. Walbro believes it has an
approximate 14% share of the global float feed carburetor market, including
sales to Briggs & Stratton Corporation, the world's largest small engine
manufacturer, Kohler Company, Tecumseh Products Co., and to Mercury Marine (a
Division of Brunswick Corporation), a major manufacturer of outboard marine
engines. Walbro also manufactures replacement products for both the automotive
and small engine aftermarkets, sales of which are included within its small
engine product business. Approximately 27% of the Company's 1994 net sales,
including Dyno on a pro forma basis, were generated by its small engine
operations.
The Company's strategy in the small engine sector is to enhance its
presence as a leading supplier of small engine carburetors, ignition systems and
other small engine products through the development of technologies which assist
customers in complying with new emission standards. The Company's strategy also
includes increasing its global presence, particularly in developing countries
such as The People's Republic of China, to profit from the growing market for
carburetors for two-wheeled vehicles and other small engine applications in
those countries and from infrastructure development which requires
gasoline-powered portable tools.
THE DYNO ACQUISITION
On July 27, 1995, the Company acquired the fuel systems business of Dyno
for approximately $124 million (the "Dyno Acquisition"). Dyno is a leading
designer, manufacturer and marketer of plastic mono-layer fuel tank systems and
components to many European vehicle manufacturers, including Renault,
Mercedes-Benz, Volvo, Peugeot, Saab, Rover, Volkswagen and Audi, and has
operations in France, Norway, Germany, Great Britain, Spain and Belgium. Dyno
produced approximately 1.5 million plastic fuel tanks in 1994, which management
estimates to be approximately 17% of the European plastic fuel tank market.
In addition to manufacturing fuel tanks, Dyno manufactures plastic fill
pipes, fuel overflow containers, and other automobile blow-molded components for
cooling, heating and air conditioning systems. Management expects these
products, in the aggregate, to account for approximately 10% of Dyno's 1995
revenues.
Concurrently with the consummation of the Dyno Acquisition, (i) the Company
issued and sold the Old Notes (the "Initial Offering"), and (ii) the Company and
certain of its wholly-owned domestic and foreign subsidiaries entered into a new
bank revolving credit facility (the "New Credit Facility") with Comerica Bank,
as agent, and the other lenders named therein, providing for borrowings of up to
$135 million. The gross proceeds from the Initial Offering, along with
borrowings under the New Credit Facility, were used to acquire Dyno, retire
certain credit facilities and pay fees and expenses. The Initial Offering, the
Dyno Acquisition and the borrowings under the New Credit Facility are referred
to herein together as the "Transactions." See "Business--Dyno Acquisition" and
"Description of Other Indebtedness."
2
<PAGE> 8
The following table sets forth the sources and uses of funds in: (a) the
Initial Offering, (b) the Dyno Acquisition and (c) the New Credit Facility:
<TABLE>
<CAPTION>
AMOUNT
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(IN THOUSANDS)
<S> <C>
Sources:
Initial Offering............................................... $109,615
New Credit Facility(1)......................................... 36,385
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Total sources............................................... $146,000
Uses:
Dyno Acquisition(2)............................................ $130,000
Retire certain credit facilities(3)............................ 11,000
Fees and expenses of the Initial Offering and New Credit
Facility.................................................... 5,000
--------
Total uses.................................................. $146,000
</TABLE>
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(1) In connection with the Dyno Acquisition and the retirement of certain credit
facilities, the Company borrowed this amount under the $135,000 New Credit
Facility.
(2) Based on a purchase price of $124,000, adjusted to reflect estimated closing
adjustments and certain related fees and expenses of $6,000.
(3) Based on the outstanding principal balances as of June 30, 1995.
The Dyno Acquisition is a continuation of the Company's efforts to
strengthen its position as a key supplier of integrated fuel systems to the
global automotive market, and it will create the only integrated provider of
plastic fuel tank and fuel pump systems in Europe. The Dyno Acquisition is
expected to provide Walbro with a number of benefits, including:
- - Further diversification of the Company's geographic markets and the increased
ability to participate in the current European automotive market recovery.
Walbro's international sales, on a pro forma basis for the Dyno Acquisition,
would have been 47% of the Company's net sales (excluding joint ventures) in
1994 compared to 24% without Dyno.
- - An increased opportunity for Walbro to sell its fuel system products to Dyno's
European-based OEM customers and for Dyno to sell its products to the European
operations of Chrysler, Ford and General Motors.
- - The ability to share blow molding process technology, especially with respect
to the eventual transfer of Walbro's multi-layer blow molding technology to
Dyno's European facilities.
RECENT DEVELOPMENTS
On October 19, 1995, the Company announced certain financial data for the
three month and nine month periods ended September 30, 1995. For the three
months ended September 30, 1995, the Company reported net sales of $124.5
million, compared with $75.3 million for this same period in 1994. Net income
was $2.3 million for this three month period in 1995, compared to $3.0 million
for this period in 1994. Net income per share for this period fell to $.27 per
share in 1995, from $.35 per share for the same period in 1994. For the nine
months ended September 30, 1995, Walbro reported net sales of $312.8 million,
compared to $241.4 million for the same period in 1994. Net income for the nine
month period of 1995 was $11.2 million, compared to $11.9 million for the same
period in 1994. Net income per share for this nine month period in 1995 was
$1.30, compared with $1.39 for the first nine months of 1994.
The Company believes that the relative decrease in third quarter earnings
in 1995 was due to a softening of passenger car sales in the United States,
reducing overall demand for Walbro Automotive Corporation's products.
Specifically, Walbro Automotive Corporation's fuel rail operations suffered due
to weak sales of some vehicles using engines with Walbro Automotive Corporation
rails. In addition, the continued slow start-up of a major new vehicle line with
high Company product content reduced sales in the third quarter of 1995.
Walbro Automotive Corporation's operating results were also affected by
continued high levels of investment in research and development. Sales of Walbro
Engine Management Corporation's small engine products dropped below 1994 levels
in the third quarter of 1995. Demand for float-feed carburetors was reduced due
to weather-related slow sales of outdoor power equipment in the spring and early
summer, resulting in reduced customer orders. The Dyno Acquisition had only a
slight effect on third quarter results. Only August and September's results
accrued to Walbro and August is a holiday month in Europe.
3
<PAGE> 9
THE EXCHANGE OFFER
THE NEW NOTES................. The forms and terms of the New Notes are
identical in all material respects to the terms
of the Old Notes for which they may be
exchanged pursuant to the Exchange Offer,
except for certain transfer restrictions and
registration rights relating to the Old Notes
and except for certain penalty interest
provisions relating to the Old Notes described
below under "--Terms of New Notes."
THE EXCHANGE OFFER............ The Company is offering to exchange up to
$110,000,000 aggregate principal amount of
9 7/8% Senior Notes due 2005, Series B (the
"New Notes") for up to $110,000,000 aggregate
principal amount of its outstanding 9 7/8%
Senior Notes due 2005, Series A (the "Old
Notes"). Old Notes may be exchanged only in
integral multiples of $1,000.
EXPIRATION DATE; WITHDRAWAL OF
TENDER........................ The Exchange Offer will expire at 5:00 p.m.,
New York City time, on December 8, 1995, or
such later date and time to which it is
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 NOTE
EXCHANGE OFFER................ The Exchange Offer is subject to certain
customary conditions, which may be waived by
the Company. 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. By executing the Letter of Transmittal,
each holder will represent to the Company that,
among other things, (i) any Exchange Notes to
be received by it will be acquired in the
ordinary course of its business, (ii) it has no
arrangement with any person to participate in
the distribution of the New Notes and (iii) it
is not an "affiliate," as defined in Rule 405
of the Securities Act, of the Company or, if it
is an affiliate, it will comply with the
registration and prospectus delivery
requirements of the Securities Act to the
extent applicable.
INTEREST ON THE NEW NOTES..... The New Notes will bear interest at the rate of
9 7/8% per annum, payable semiannually on
January 15 and July 15, commencing January 15,
1996 to holders of record on the immediately
preceding January 1 and July 1, respectively.
Holders of the New Notes will receive interest
on January 15, 1996 from the date of initial
issuance of the New Notes, plus an amount equal
to the accrued interest on the Old Notes from
the most recent date to which interest has been
paid to the date of exchange thereof. Interest
on
4
<PAGE> 10
the Old Notes accepted for exchange will cease
to accrue upon issuance of the New Notes.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS............. Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender such Old Notes in the
Exchange Offer should contact such registered
holder promptly instruct such registered holder
to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to
completing and executing the Letter of
Transmittal and delivering his Old Notes,
either make appropriate arrangements to
register ownership of the Old Notes in such
owner's name or obtain a properly completed
bond power from the registered holder. The
transfer of registered ownership may take
considerable time and may not be able to be
completed prior to the Expiration Date.
GUARANTEED DELIVERY
PROCEDURES.................... Holders of Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old
Notes, the Letter of Transmittal or any other
documents required by the Letter of Transmittal
to the Exchange Agent, prior to the Expiration
Date, must tender their Old Notes according to
the guaranteed delivery procedures set forth in
"The Exchange Offer--Guaranteed Delivery
Procedures."
REGISTRATION REQUIREMENTS..... The Company has agreed to use its best efforts
to consummate by November 15, 1995 the
registered Exchange Offer pursuant to which
holders of the Old Notes will be offered an
opportunity to exchange their Old Notes for the
New Notes which will be issued without legends
restricting the transfer thereof. In the event
that applicable interpretations of the staff of
the Commission do not permit the Company to
effect the Exchange Offer or in certain other
circumstances, the Company has agreed to file a
Shelf Registration Statement covering resales
of the Old Notes and to use its best efforts to
cause such Shelf Registration Statement to be
declared effective under the Securities Act
and, subject to certain exceptions, keep such
Shelf Registration Statement effective until
three years after the effective date thereof.
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS................ For a discussion of certain federal income tax
considerations relating to the exchange of the
New Notes for the Old Notes, see "Certain
Federal Income Tax Considerations Relating to
the Exchange Offer."
USE OF PROCEEDS............... There will be no proceeds to the Company from
the exchange of Notes pursuant to the Exchange
Offer.
EXCHANGE AGENT................ Bankers Trust Company is the Exchange Agent.
The address and telephone number of the
Exchange Agent are set forth in "The Exchange
Offer--Exchange Agent."
5
<PAGE> 11
TERMS OF THE NEW NOTES
The form and terms of the New Notes are the same as the form and terms of
the Old Notes except that the New Notes are registered under the Securities Act
and, therefore, will not bear legends restricting the transfer thereof. See
"Description of the Old Notes."
NEW NOTES..................... $110 million aggregate principal amount of
9 7/8% Senior Notes due 2005, Series B of the
Company.
MATURITY...................... July 15, 2005.
INTEREST PAYMENT DATES........ January 15 and July 15, commencing January 15,
1996.
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 unsecured obligations of the
Company and are effectively subordinated in
right of payment to all existing and future
secured indebtedness of the Company and its
subsidiaries. As of June 30, 1995, after giving
effect to the Transactions, the Company and its
subsidiaries had approximately $96.9 million of
secured indebtedness outstanding, including
$36.4 million of indebtedness outstanding under
the New Credit Facility and the $45 million
aggregate principal amount of the Company's
7.68% Senior Notes due 2004 (the "2004 Notes"),
which are secured by the inventory, accounts
receivable and certain intangibles of the
Company and its domestic subsidiaries and by a
pledge of 100% of the capital stock of the
Company's wholly-owned domestic subsidiaries
and of up to 65% of the capital stock of the
Company's wholly-owned foreign subsidiaries,
including the subsidiaries which will own Dyno.
In addition, the New Notes will be effectively
subordinated in right of payment to all
existing and future liabilities, including
trade payables, of the Company's subsidiaries
which are not Guarantors, which, as of June 30,
1995, after giving effect to the Transactions,
would have totalled approximately $79 million
(excluding intercompany liabilities).
GUARANTEES.................... The New Notes will be guaranteed on a senior
unsecured basis, jointly and severally, by the
Company's principal wholly-owned domestic
operating subsidiaries, including Walbro
Automotive Corporation and Walbro Engine
Management Corporation. See "Description of New
Notes--Guarantees" and Note 20 of the Notes to
the Company's Consolidated Financial
Statements.
OPTIONAL REDEMPTION........... Except as provided below, the New Notes are not
redeemable at the Company's option prior to
July 15, 2000. Thereafter, the New 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 July
15, 1998, the Company may, at its option,
redeem up to an aggregate of 30% of the
principal amount of the combined Notes
originally issued with the net proceeds from
one or more Public Equity Offerings at the
redemption price set forth herein plus accrued
interest to the date of redemption. See
"Description of the Old Notes--Optional
Redemption."
CHANGE OF CONTROL............. In the event of a Change of Control, the
Company will be obligated to make an offer to
purchase all of the outstanding Notes at a
6
<PAGE> 12
redemption price of 101% of the principal
amount thereof plus accrued interest to the
date of repurchase. See "Description of the
Notes--Change of Control."
OFFER TO REPURCHASE........... The Company will be required in certain
circumstances to make an offer to repurchase
the New Notes at a price equal to 100% of the
principal amount thereof, plus accrued interest
to the date of repurchase, with the net cash
proceeds of certain asset sales. See
"Description of the New Notes--Certain
Covenants--Disposition of Proceeds of Asset
Sales."
CERTAIN COVENANTS............. The indenture under which Old Notes were issued
and the New Notes will be issued (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 the New
Notes--Certain Covenants."
INVESTMENT CONSIDERATIONS..... Holders of Old Notes should carefully consider
the matters set forth under the caption
"Investment Considerations" prior to making a
decision with respect to the Exchange Offer.
See "Investment Considerations."
7
<PAGE> 13
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The following table sets forth summary historical financial data of the
Company (excluding Dyno) and pro forma condensed consolidated financial data of
the Company and Dyno. The summary historical financial data of the Company for
each of the five years ended December 31 was derived from the audited
consolidated financial statements of the Company. The summary historical
financial data of the Company for both of the six-month periods ended June 30
derived from the unaudited consolidated financial statements of the Company
which, in the opinion of the Company's management, reflect all adjustments
necessary for a fair presentation of the financial position and results of
operations for the periods. The information contained in this table should be
read in conjunction with "Pro Forma Unaudited Condensed Consolidated Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Walbro Corporation," "Selected Financial and Operating
Data--Dyno," "Management's Discussion and Analysis of Results of
Operations--Dyno," and the consolidated financial statements of the Company and
the combined financial statements of Dyno included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------------------------- --------------------------------------------------------------------------
PRO FORMA PRO FORMA
1995(1) 1995 1994 1994(1) 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
INCOME DATA:
Net sales....... $ 296,123 $ 188,291 $ 166,181 $ 472,352 $ 325,205 $ 273,463 $ 241,416 $ 200,130 $ 166,678
Cost of sales... 234,991 150,585 131,308 374,745 261,501 216,804 185,712 158,743 134,295
Gross profit.... 61,132 37,706 34,873 97,607 63,704 56,659 55,704 41,387 32,383
Selling and
administrative
expenses....... 41,510 24,152 19,353 67,909 39,318 33,043 33,614 26,961 20,946
Reorganization
and
restructuring
charges........ -- -- -- -- -- 1,760 -- 2,230 --
Operating
income......... 19,622 13,554 15,520 29,698 24,386 21,856 22,090 12,196 11,437
Interest
expense, net... 9,486 2,538 1,537 17,530 3,771 2,559 3,113 6,014 6,474
Equity in
(income) loss
of joint
ventures....... (2,074) (2,074) (592) (2,609) (2,609) 89 (179) 465 2,128
Net income(2)... 8,044 8,923 8,960 6,009 14,595 9,667 12,526 4,838 1,097
Net income per
share(3)....... .94 1.04 1.04 .70 1.70 1.13 1.63 .98 .26
Weighted average
shares
outstanding.... 8,599,490 8,599,490 8,608,474 8,602,077 8,602,077 8,537,375 7,675,974 4,952,951 4,289,161
Ratio of
earnings to
fixed charges.. 1.8x 4.2x 7.3x 1.4x 4.6x 6.4x 4.7x 2.0x 1.6x
OTHER DATA:
Depreciation and
amortization... 12,667 7,838 6,935 24,330 14,672 11,339 10,339 6,996 7,708
Capital
expenditures... 26,861 20,730 7,280 27,548 18,844 20,260 14,681 9,717 6,621
EBITDA(4)....... 31,758 20,861 21,798 51,315 36,345 31,128 31,513 19,192 19,145
Ratio of EBITDA
to interest
expense,
net(4)......... 3.4x 8.2x 14.2x 2.9x 9.6x 12.2x 10.1x 3.2x 3.0x
BALANCE SHEET
DATA:
(at end of
period)
Total assets.... $ 468,484 $ 287,489 $ 238,244 $ 257,366 $ 215,295 $ 193,020 $ 161,243 $ 143,026
Total long-term
debt, less
current
portion........ 221,719 86,322 59,690 66,136 52,392 49,638 62,777 83,443
Total debt...... 234,708 94,354 67,445 81,548 58,175 59,349 70,922 85,529
Total
stockholders'
equity(5)(6)... 136,190 136,230 122,695 127,915 114,146 99,910 50,339 27,424
</TABLE>
- -------------------------
(1) The summary unaudited pro forma condensed consolidated statements of
operations and other data for the period ended June 30, 1995 and the year
ended December 31, 1994 gives effect to the Transactions as if they had
occurred on January 1, 1994. The summary unaudited pro forma financial data
are not necessarily indicative of future operating results or financial
position.
(2) The Company adopted SFAS 106 as of January 1, 1993. As a result, the Company
recorded a one-time after tax charge of $2,900 for the cumulative effect of
this accounting change in the year ended December 31, 1993.
(3) Primary and fully diluted income per share were the same in all periods
presented except the year ended December 31, 1992 when fully diluted income
per share was $1.58 based on weighted average shares outstanding of
8,160,472.
(4) "EBITDA" represents, for any period, the sum of operating income (minus
foreign currency exchange losses and other expenses, net) and depreciation
and amortization. EBITDA is not intended to be a performance measure that
should be regarded as an alternative either to operating income or net
income as an indicator of operating performance or to cash flow as a measure
of liquidity. The Company has included information concerning EBITDA as it
understands that it is used by certain investors as one measure of an
issuer's historical ability to service its debt.
(5) Reflects cash dividends declared of $1,713, $1,712, $3,426, $3,403, $3,192,
$610 and $1,836 in the six months ended June 30, 1995 and 1994 and the years
ended December 31, 1994, 1993, 1992, 1991 and 1990, respectively.
(6) The Company adopted SFAS 115 as of January 1, 1994. As a result, the Company
recorded an increase to stockholders' equity of $2,096 (net of income taxes)
as of January 1, 1994.
8
<PAGE> 14
INVESTMENT CONSIDERATIONS
Prospective investors should consider carefully the following factors
regarding an investment in the New Notes.
SUBSTANTIAL LEVERAGE
After giving effect to the Transactions on a pro forma basis, the Company
has consolidated indebtedness that is substantial in relation to its
stockholders' equity and significantly greater than its existing indebtedness.
After giving effect to the Transactions on a pro forma basis, as of June 30,
1995, the Company would have $234.7 million of total debt and $136.2 million of
stockholders' equity.
Additionally, as of June 30, 1995, after giving effect to the Transactions
on a pro forma basis, the Company and its subsidiaries would have approximately
$96.9 million of secured indebtedness outstanding, including $36.4 million of
borrowings under the New Credit Facility and the $45 million aggregate principal
amount of the 2004 Notes. Such secured indebtedness, though ranking pari passu
with the Notes, has a lien on specified assets of the Company or its
subsidiaries, as the case may be. As a result, in an insolvency proceeding,
holders of secured indebtedness would have claims against the assets of the
Company or its subsidiaries, as the case may be, securing their indebtedness to
satisfy their claims, and such assets would be applied to the payment of such
claims before claims of holders of unsecured senior indebtedness, such as the
Notes, would be satisfied. Because the inventory, accounts receivable and
certain intangibles of the Company and its domestic subsidiaries and capital
stock of the Company's subsidiaries have been pledged to the lenders under the
New Credit Facility and the 2004 Notes to secure the Company's borrowings
thereunder, in the event of an insolvency of the Company, such lenders would
have a claim to such assets, while the holders of the New Notes would have no
claim over specific assets of the Company and its subsidiaries.
The Company's indebtedness will have several important consequences for the
holders of the Notes, including but not limited to the following: (i) a
substantial portion of the Company's cash flow from operations must be dedicated
to debt service requirements (principal and interest) on its indebtedness and
will not be available for other purposes; (ii) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions, or to refinance the New Notes or for general corporate purposes
may be impaired; (iii) the Company's leverage may increase its vulnerability to
economic downturns and limit its ability to withstand competitive pressures; and
(iv) the Company's ability to capitalize on significant business opportunities
may be limited.
The Company's ability to make payments with respect to the Notes and to
satisfy its other debt obligations will depend on its future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond the Company's
control. The Company believes, based on current circumstances, that the
Company's cash flow, together with available borrowings under the New Credit
Facility, will be sufficient to permit the Company to meet its operating
expenses and to service its debt requirements as they become due. Significant
assumptions underlie this belief, including, among other things, that the
Company will succeed in implementing its business strategy and there will be no
material adverse developments in the business, liquidity or capital requirements
of the Company. 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--Walbro Corporation--Liquidity and Capital
Resources." The Indenture will, among other things, limit the incurrence of
additional indebtedness by the Company and its subsidiaries. However, this
limitation is subject to a number of important qualifications.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture restricts the ability of the Company and its subsidiaries to,
among other things, incur additional indebtedness, pay dividends or make certain
other restricted payments or investments, consummate certain asset sales, enter
into certain transactions with affiliates, incur liens, or merge or consolidate
with any
9
<PAGE> 15
other person or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of their assets. The Indenture also imposes limitations
on the Company's ability to restrict the ability of its subsidiaries to pay
dividends or make certain payments to the Company or any of its subsidiaries. In
addition, the New Credit Facility contains other and more restrictive covenants.
The agreement under which the 2004 Notes were issued (the "2004 Note Agreement")
requires, and the New Credit Facility requires the Company to maintain specified
financial ratios and satisfy certain financial tests. The Company's ability to
meet such financial ratios and tests may be affected by events beyond its
control, and there can be no assurance that the Company will meet such tests. A
breach of any of these covenants could result in an event of default under the
2004 Note Agreement or the New Credit Facility. In an event of default under the
2004 Note Agreement or the New Credit Facility, the lenders thereunder could
elect to declare all amounts borrowed, together with accrued interest, to be
immediately due and payable and the lenders under the New Credit Facility could
terminate all commitments thereunder. If any such indebtedness were to be
accelerated, there can be no assurance that the assets of the Company would be
sufficient to repay in full such indebtedness and the other indebtedness of the
Company, including the New Notes. See "Description of the New Notes--Certain
Covenants" and "Description of Other Indebtedness."
FRAUDULENT CONVEYANCE CONSIDERATIONS
Under applicable provisions of the federal bankruptcy law or comparable
provisions of state fraudulent transfer laws, if any Guarantor, at the time it
incurs a Guarantee, (a)(i) was or is insolvent or rendered insolvent by reason
of such incurrence, (ii) was or is engaged in a business or transaction for
which the assets remaining with such Guarantor constituted unreasonably small
capital or (iii) intended or intends to incur, or believed or believes that it
would incur, debts beyond its ability to pay such debts as they mature and (b)
received or receives less than reasonably equivalent value or fair
consideration, the obligations of such Guarantor under its Guarantee could be
avoided, or claims in respect of such Guarantee could be subordinated to all
other debts of such Guarantor. Among other things, a legal challenge of a
Guarantee on fraudulent conveyance grounds may focus on the benefits, if any,
realized by such Guarantor as a result of the issuance by the Company of the Old
Notes. To the extent that any Guarantee were a fraudulent conveyance or held
unenforceable for any other reason, the holders of the Notes would cease to have
any claim in respect of a Guarantor and would be solely creditors of the Company
and any other Guarantors whose Guarantees were not avoided or held
unenforceable. In such event, the claims of the holders of the Notes would be
subject to the prior payment of all liabilities of the Guarantor whose Guarantee
was avoided. There can be no assurance that, after providing for all prior
claims, there would be sufficient assets to satisfy the claims of the holders of
the Notes relating to any avoided portion of a Guarantee.
Each Guarantor agrees, jointly and severally with the other Guarantors, to
contribute to the obligations of any Guarantor under a Guarantee of the Notes.
Further, the Guarantee of each Guarantor will provide that it is limited to an
amount that would not render the Guarantor thereunder insolvent. The Company
believes that the Guarantors will receive equivalent value at the time the
indebtedness is incurred under the Guarantees. In addition, the Company believes
that none of the Guarantors will be, at the time of or as a result of the
issuance of the Guarantees, insolvent, that none of the Guarantors is or will be
engaged in a business or transaction for which its remaining assets constitute
unreasonably small capital and that none of the Guarantors will have intended or
will intend to incur debts beyond its ability to pay such debts as they mature.
Since each of the components of the question of whether a Guarantee is a
fraudulent conveyance is inherently fact based and fact specific, there can be
no assurance that a court passing on such questions would agree with the
Company.
HOLDING COMPANY STRUCTURE
The Company derives all of its operating income and cash flow from its
subsidiaries. The Company must rely upon cash distributions from its
subsidiaries to generate the funds necessary to meet its obligations, including
the payment of principal and interest on the Notes.
Any right of the holders of the Notes to participate in the assets of a
non-Guarantor subsidiary of the Company upon any liquidation or reorganization
of such subsidiary will be subject to the prior claims of such subsidiary's
creditors, including the lenders under the New Credit Facility, holders of the
2004 Notes and
10
<PAGE> 16
trade creditors. Accordingly, the Notes are structurally subordinated to all
liabilities, including trade payables, of the non-Guarantor subsidiaries of the
Company. As of June 30, 1995, after giving effect to the Transactions on a pro
forma basis, the non-Guarantors would have outstanding liabilities, including
trade payables, of approximately $79 million. In addition, 100% of the capital
stock of the Company's wholly-owned domestic subsidiaries and up to 65% of the
capital stock of its wholly-owned foreign subsidiaries are pledged as collateral
to the lenders under the New Credit Facility and the holders of the 2004 Notes.
Accordingly, upon any liquidation or reorganization of the Company, the holders
of the New Notes will have no claim against such capital stock until the lenders
under the New Credit Facility and the holders of the 2004 Notes are paid in
full.
DEPENDENCE ON PRINCIPAL CUSTOMERS
Sales to the Company's two largest customers, Ford and Chrysler, accounted
for the following respective percentages of the Company's consolidated net
sales, excluding Dyno: 30% and 23% in 1994; 30% and 21% in 1993; and 33% and 20%
in 1992. On a pro forma basis, including Dyno, Ford and Chrysler accounted for
21% and 16% of the Company's consolidated net sales in 1994, respectively.
Although the Company has ongoing supply relationships with both Ford and
Chrysler, there can be no assurance that sales to either of these customers will
continue at the same levels; further, continuation of the relationships is
dependent upon the customers' satisfaction with the price, quality and delivery
of the Company's products. While management believes its relationships with its
customers are mutually satisfactory, if either of these customers were to reduce
substantially or discontinue its purchases, the Company would be adversely
affected. See "Business-- Walbro Automotive Corporation--Automotive Markets and
Customer Base."
COMPETITION
The automotive fuel system and small engine supply industries in which the
Company operates are highly competitive. There can be no assurance that the
Company's products will continue to compete successfully with the products of
other companies, including the automotive OEMs themselves, many of whom are
significantly larger and have greater financial and other resources available to
them. In addition, the Company is under constant pressure from its major
customers to reduce product costs. Management believes that the Company's
experience in engineering and implementing cost reduction programs and its
ability to develop proprietary new products and to control manufacturing and
development costs should allow the Company's product prices to remain
competitive. However, there can be no assurance that the Company will be able to
improve or maintain its profit margins on sales to vehicle manufacturers and
small engine producers.
CYCLICAL NATURE OF AUTOMOTIVE AND SMALL ENGINE INDUSTRIES
The Company's principal operations are related directly to domestic and
foreign automotive vehicle and small engine consumer product sales. Sales and
production of automobiles and small engine products are cyclical and can be
affected by the strength of a country's general economy, prevailing interest
rates and by other factors which may have an adverse effect on the level of the
Company's sales to automobile and small engine product manufacturers.
IMPACT OF ENVIRONMENTAL REGULATIONS
The manufacturers of small engine products, such as lawn mowers and chain
saws, are confronting emission regulations for the first time. In 1992, the
California Air Resources Board promulgated comprehensive air quality regulations
limiting small engine emissions, which regulations became effective in August
1995. A more stringent phase is scheduled to become effective in 1999. In
addition, the Environmental Protection Agency ("EPA") has proposed similar
regulations scheduled to become effective in August 1996, with the more
stringent phase expected to become effective during the 1999 to 2001 period. The
implementation of the 1999 California air quality regulations and proposed EPA
regulations could significantly reduce the number of units the Company sells of
its current carburetor models, especially diaphragm carburetors, and the
Company's resulting net sales. Hand-held power equipment is most vulnerable to a
decrease in demand because the cost of compliance with these emission standards
could force manufacturers
11
<PAGE> 17
to replace gasoline-powered lawn and garden equipment with electric-powered
equipment. The Company is attempting to produce products and systems which meet
these emissions requirements; however, there can be no assurance that the
Company will develop cost effective products to meet all of these regulations or
that the ultimate customer might not select electric-powered equipment instead.
See "Business--Walbro Engine Management Corporation--Small Engine Industry
Overview."
WARRANTY EXPOSURE AND RECALLS
The Company warrants to its OEM customers that its products are free from
defect and that they meet certain OEM designated specifications. The OEMs in
turn offer product warranties to their retail customers. In some instances of
common complaint, the automobile manufacturer will institute a voluntary recall
or will be required by a governmental agency to conduct a recall. As a result,
from time to time, the Company and Dyno have received claims against them and
requests for payment from their OEM customers to remedy complaints made by the
ultimate consumers. The Company plans to implement product recall insurance in
selected European markets. There can be no assurance that the Company will not
incur substantial warranty or recall expense in the future. Such complaints and
the related expenses may have a material adverse effect on the Company's
relationship with its OEM customers, its financial condition and results of
operations. See "Business--Walbro Automotive Corporation--Automotive Warranty
and Other Product Exposure."
INTEGRATION OF DYNO; INCREASED FOREIGN OPERATIONS
As a result of the Dyno Acquisition, management will have to integrate into
its current business a large, complex manufacturing operation in six countries
which was previously connected with a large Norwegian company. Management
believes that it has or can obtain the resources necessary to integrate this
business and capitalize on the strengths of Dyno. Walbro's implementation
strategies, however, are subject to numerous contingencies, some of which are
beyond management's control. These contingencies include general and regional
economic conditions, competition and changes in regulation and interest rates.
Even if management is able to successfully integrate this business, Walbro will
significantly increase its dependence on international operations, specifically
those in Europe, and therefore the Company is subject to various political,
economic and other uncertainties. Among others, the Company's operations are
subject to the risks of taxation policies, foreign exchange restrictions,
changing political conditions and governmental regulations. Accordingly, no
assurance can be given that any of the Company's strategies will prove to be
effective or that management's goals will be achieved. In addition, the Company
will receive a substantial portion of its revenues in currencies other than U.S.
Dollars. Fluctuations in the exchange rates of these currencies with respect to
the U.S. Dollar could have an adverse effect on the Company's financial results.
From time to time the Company engages in hedging programs intended to reduce the
Company's exposure to currency fluctuations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Walbro
Corporation--Foreign Currency Transactions."
CONSEQUENCES OF FAILURE TO EXCHANGE; POSSIBLE ADVERSE EFFECT ON TRADING MARKET
FOR OLD 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 Notes as set forth in the legend thereon as a consequence of
the issuance of the Old Notes pursuant to exemptions from, or in transactions
not subject to, the registration requirements of the Securities Act and
applicable state securities laws. In general, the Old Notes may not be offered
or sold unless registered under the Securities Act and applicable state laws, or
pursuant to an exemption therefrom. Subject to the obligation by the Company to
file a Shelf Registration Statement covering resales of Old Notes in certain
circumstances, the Company does not intend to register the Old Notes under the
Securities Act and, after consummation of the Exchange Offer, will not be
obligated to do so. In addition, any holder of Old Notes who tenders in the
Exchange Offer for the purpose of participating in a distribution of the New
Notes may be deemed to have received restricted securities and, if so, will be
required to comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Additionally, as a
result of the Exchange Offer, it is expected that a
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<PAGE> 18
substantial decrease in the aggregate principal amount of Old Notes outstanding
will occur. As a result, it is unlikely that a liquid trading market will exist
for the Old Notes at any time. This lack of liquidity will make transactions
more difficult and may reduce the trading price of the Old Notes. See "The
Exchange Offer" and "Description of the Old Notes Registration Rights."
ABSENCE OF PUBLIC MARKET
There has not previously been any public market for the New Notes. Although
the Company has agreed pursuant to the Registration Rights Agreement to use its
best efforts to cause the New Notes to be listed on the New York Stock Exchange,
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.
USE OF PROCEEDS OF NEW NOTES
This Exchange Offer is intended to satisfy certain obligations of the
Company under the Registration Rights Agreement. The Company will not receive
any proceeds from the issuance of the New Notes offered hereby. In consideration
for issuing the New Notes as contemplated in this Prospectus, the Company will
receive, in exchange, Old Notes in like principal amount. The form and terms of
the New Notes are identical in all material respects to the form and terms of
the Old Notes, except as otherwise described herein under "The Exchange
Offer--Terms of the Exchange Offer." The Old Notes surrendered in exchange for
the New Notes will be retired and cancelled and cannot be reissued. Accordingly,
issuance of the New Notes will not result in any increase in the outstanding
debt of the Company.
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<PAGE> 19
CAPITALIZATION
The following table sets forth the Company's capitalization at June 30,
1995, and as adjusted to reflect: (a) the Initial Offering, (b) the Dyno
Acquisition and (c) the New Credit Facility.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1995
------------------------
AS ADJUSTED
FOR THE
ACTUAL TRANSACTIONS
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Total short-term debt............................................ $ 8,032 $ 12,989(1)(3)
Long-term debt, less current portion:
New Credit Facility............................................ -- 36,385
Existing Credit Facilities..................................... 11,000 --
7.68% Senior Notes due 2004.................................... 45,000 45,000(2)
9 7/8% Senior Notes due 2005................................... -- 109,615
Other long-term debt, net(3)................................... 30,322 30,719
Total long-term debt, net of current portion..................... 86,322 221,719
Total stockholders' equity(4).................................... 136,230 136,190(5)
Total capitalization............................................. 230,584 370,898
</TABLE>
- -------------------------
(1) Reflects cash overdraft and short-term notes payable assumed in connection
with the Dyno Acquisition.
(2) Pursuant to the 2004 Note Agreement, the 2004 Notes are equally and ratably
secured with the New Credit Facility by the Company's domestic inventory,
accounts receivable and certain intangibles and certain capital stock of the
Company's subsidiaries.
(3) Of these amounts, approximately $6,600 are secured by certain assets of the
Company or its subsidiaries.
(4) On June 30, 1995, the Company had 8,564,576 shares of common stock issued
and outstanding and the price of the Company's common stock was $18.00 per
share as reported on the Nasdaq Stock Market.
(5) Reflects the write-off of deferred financing fees related to the retirement
of certain credit facilities of $55.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Pursuant to the Registration Rights Agreement by and among the Company, the
Guarantors and the Initial Purchasers, the Company has agreed (i) to file a
registration statement with respect to an offer to exchange the Old Notes for
senior debt securities of the Company with terms substantially identical to the
Old Notes (except that the New Notes will not contain terms with respect to
transfer restrictions) within 60 days after the date of original issuance of the
Old Notes and (ii) to use best efforts to cause such registration statement to
become effective under the Securities Act within 120 days after such issue date.
In the event that applicable law or interpretations of the staff of the
Commission do not permit the Company to file the registration statement
containing this Prospectus or to effect the Exchange Offer, or if certain
holders of the Old Notes notify the Company that they are not permitted to
participate in, or would not receive freely tradeable New Notes pursuant to, the
Exchange Offer, the Company will use its best efforts to cause to become
effective the Shelf Registration Statement with respect to the resale of the Old
Notes and to keep the Shelf Registration Statement effective until three years
after the effective date thereof. The interest rate on the Old Notes is subject
to increase under certain circumstances if the Company is not in compliance with
its obligations under the Registration Rights Agreement. See "Old Notes
Registration Rights." Pursuant to the Registration Rights Agreement, the Company
has agreed to use its best efforts to cause the Exchange Notes to be listed on
the New York Stock Exchange.
Each holder of the Old Notes who wishes to exchange such Old Notes for New
Notes in the Exchange Offer will be required to make certain representations,
including representations that (i) any Exchange Notes to be received by it will
be acquired in the ordinary course of its business, (ii) it has no arrangement
with any
14
<PAGE> 20
person to participate in the distribution of the New Notes and (iii) it is not
an "affiliate," as defined in Rule 405 of the Securities Act, of the Company or,
if it is an affiliate, it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable. See "Old
Notes Registration Rights."
RESALE OF NEW NOTES
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third-parties, the Company believes that, except as
described below, New Notes issued pursuant to the Exchange Offer in exchange for
Old Notes may be offered for resale, resold and otherwise transferred by any
holder thereof (other than a holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) 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
holder's business and such holder does not intend to participate and has no
arrangement or understanding with any person to participate in the distribution
of such New Notes. Any holder who tenders in the Exchange Offer with the
intention or for the purpose of participating in a distribution of the New Notes
cannot rely on such interpretation by the staff of the Commission and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction. Unless an
exemption from registration is otherwise available, any such resale transaction
should be covered by an effective registration statement containing the selling
security holders information required by Item 507 of Regulation S-K under the
Securities Act. This Prospectus may be used for an offer to resell, resale or
other retransfer of New Notes only as specifically set forth herein. Each
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 that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept for exchange any and
all Old Notes properly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date. The Company will issue $1,000 principal
amount of New Notes in exchange for each $1,000 principal amount of outstanding
Old Notes surrendered pursuant to the Exchange Offer. Old Notes may be tendered
only in integral multiples of $1,000.
The form and terms of the New Notes will be the same as the form and terms
of the Old Notes except the New Notes will be registered under the Securities
Act and hence will not bear legends restricting the transfer thereof. The New
Notes will evidence the same debt as the Old Notes. The New Notes will be issued
under and entitled to the benefits of the Indenture, which also authorized the
issuance of the Old Notes, such that both series will be treated as a single
class of debt securities under the Indenture.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange.
As of the date of this Prospectus, $110 million aggregate principal amount
of the Old Notes are outstanding. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders of Old Notes. There will be
no fixed record date for determining registered holders of Old Notes entitled to
participate in the Exchange Offer.
The Company intends to conduct the Exchange Offer in accordance with the
provisions of the Registration Rights Agreement and the applicable requirements
of the Exchange Act, and the rules and regulations of the Commission thereunder.
Old Notes which are not tendered for exchange in the Exchange Offer will remain
outstanding and continue to accrue interest and will be entitled to the rights
and benefits such holders have under the Indenture and the Registration Rights
Agreement.
The Company shall be deemed to have accepted for exchange properly tendered
Notes when, as and if the Company shall have given oral or written notice
thereof to the Exchange Agent and complied with the provisions of Section 2 of
the Registration Rights Agreement. The Exchange Agent will act as agent for the
15
<PAGE> 21
tendering holders for the purposes of receiving the New Notes from the Company.
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 specified below under
"--Certain Conditions to the Exchange Offer."
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes described below, in connection with the
Exchange Offer. See "The Exchange Offer--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date," shall mean 5:00 p.m., New York City time on
December 8, 1995, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders of Old Notes an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the then Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting for exchange any Notes, to extend the Exchange Offer or to terminate
the Exchange Offer if any of the conditions set forth below under "The Exchange
Offer--Conditions" shall not have been satisfied, by giving oral or written
notice of such delay, extension or termination to the Exchange Agent or (ii) to
amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the registered holders of Old
Notes. If the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose such amendment
by means of a prospectus supplement that will be distributed to the registered
holders, and the Company will extend the Exchange Offer, depending upon the
significance of the amendment and the manner of disclosure to the registered
holders, if the Exchange Offer would otherwise expire during such period.
INTEREST ON THE NEW NOTES
The New Notes will bear interest at a rate of 9 7/8% per annum, payable
semi-annually, on each January 15 and July 15, commencing January 15, 1996.
Holders of New Notes will receive interest on January 15, 1996 from the date of
initial issuance of the New Notes, plus an amount equal to the accrued interest
on the Old Notes from the most recent date to which interest has been paid to
the date of exchange thereof for New Notes. Interest on the Old Notes accepted
for exchange will cease to accrue upon issuance of the New Notes.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange any New Notes for, any Old
Notes, and may terminate the Exchange Offer as provided herein before the
acceptance of any Old Notes for exchange, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the Company's sole judgment, might materially impair the ability
of the Company to proceed with the Exchange Offer; or
(b) any law, statute, rule or regulation is proposed, adopted or
enacted, or any existing law, statute, rule or regulation is interpreted by
the staff of the Commission, which, in the Company's sole judgment, might
materially impair the ability of the Company to proceed with the Exchange
Offer; or
(c) any governmental approval has not been obtained, which approval
the Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
16
<PAGE> 22
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 exchange of any Old Notes, by giving oral or
written notice of such extension to the holders thereof. During any such
extensions, 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 above under "--Certain Conditions to the Exchange Offer." The Company
will give oral or written 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.
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 sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any 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 (the
"TIA").
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or facsimile thereof, have the signature thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile to the Exchange Agent prior
to 5:00 p.m., New York City time, on the Expiration Date. In addition, either
(i) Old Notes must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of 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
(iii) the holder must comply with the guaranteed delivery procedures described
below. To be tendered effectively, the Letter of Transmittal and other required
documents must be received by the Exchange Agent at the address set forth below
under "The Exchange Offer--Exchange Agent" prior to 5:00 p.m., New York City
time, on the Expiration Date.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
17
<PAGE> 23
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder of Old Notes to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such owner's own behalf, such owner
must, prior to completing and executing the Letter of Transmittal and delivering
such owner's Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such owner's name or obtain a properly completed
bond power from the registered holder of Old Notes. The transfer of registered
ownership may take considerable time and may not be able to be completed prior
to the Expiration Date.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below, as the case be, must be guaranteed by an Eligible Institution (as defined
below) unless the Old Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter Transmittal or a notice of withdrawal, as the case may be, are required
to be guaranteed, such guarantor must be a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act which is a member of one of the recognized
signature guarantee programs identified in the Letter of Transmittal (an
"Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old Notes
with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers 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,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Old Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes must be cured within such time as the Company shall determine.
Although the Company intends to notify holders of defects or irregularities with
respect to tenders of Old Notes, neither the Company, the Exchange Agent nor any
other person shall incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
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 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 exchange 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 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
18
<PAGE> 24
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described below, such non-exchanged Notes will be credited to an
account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's system 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 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 the address set
forth below under "The Exchange Offer--Exchange Agent" on or prior to the
Expiration Date or, if the guaranteed delivery procedures described below are to
be complied with, within the time period provided under such procedures.
Delivery of documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the registered number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within three
(3) New York Stock Exchange trading days after the Expiration Date, the
Letter of Transmittal (or facsimile thereof) together with the Old Notes or
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
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered 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 three (3) New York Stock Exchange trading days after
the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on 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 were 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
19
<PAGE> 25
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, 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 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.
EXCHANGE AGENT
Bankers Trust Company has been appointed as Exchange Agent of the Exchange
Offer. Questions and request for assistance, request for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
By Overnight Courier or Hand Delivery:
Bankers Trust Company
Corporate Trust & Agency Group
Receipt & Delivery Window
123 Washington Street-1st Floor
New York, New York 10006
By Registered or Certified Mail:
Bankers Trust Company
Corporate Trust & Agency Group
Reorganization Department
P.O. Box 1458
Church Street Station
New York, New York 10008-1458
By Facsimile:
(212) 250-3290
(212) 250-6275
(For Eligible Institutions Only)
Confirm by Telephone:
(212) 250-6270
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to broker-dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$100,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs, and
related fees and expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Notes pursuant to the Exchange Offer. If, however, certificates representing
Old Notes for principal amounts not tendered or accepted for exchange are to be
delivered to, or are to be issued in the name of, any person other than the
20
<PAGE> 26
registered holder of Notes tendered, or if tendered Notes are registered in the
name of any person other than the person signing the Letter of Transmittal, or
if a transfer tax is imposed for any reason other than the exchange of Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.
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
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 laws. 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. Based on
interpretations by the staff of the Commission, New Notes issued pursuant to the
Exchange Offer may be offered for resale, resold or otherwise transferred by
holders thereof (other than any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) 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 respect to the distribution of the New Notes to be acquired pursuant to the
Exchange Offer. Any holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the New Notes (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. 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 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 New Notes reasonably requests in writing.
21
<PAGE> 27
THE COMPANY
Walbro is a global leader in the design, development and manufacture of
precision fuel systems and products for automotive and small engine markets
worldwide. The Company manufactures fuel pumps, fuel modules, fuel level
sensors, plastic fuel tanks and fuel rails for sale to OEMs. The Company
acquired Dyno, which is a leading European plastic fuel tank manufacturer, on
July 27, 1995. Products manufactured for the small engine market include
carburetors and ignitions for chain saws, outboard marine engines, two-wheeled
vehicles, industrial engines and lawn and garden equipment, such as lawn mowers
and weed trimmers. From 1989 to 1994, the Company (excluding Dyno) increased net
sales and EBITDA at the compound rates of approximately 19% and 21% per year,
respectively, despite an automotive industry downturn in 1990-1991. This growth
was primarily due to the introduction of new automotive products, penetration of
additional automotive platforms and a recovery in the small engine industry. The
Company, including Dyno on a pro forma basis, had 1994 net sales of $472.4
million and EBITDA of $51.3 million.
Through its subsidiary, Walbro Automotive Corporation, the Company designs,
develops and manufactures fuel storage and delivery products for a broad range
of U.S. and foreign manufacturers of passenger automobiles and light trucks
(including minivans). The Company holds a strong market position in the U.S.
and, through the Dyno Acquisition and Walbro's joint ventures in France, Brazil,
Japan and South Korea, has diversified its business across a number of
geographic markets. Management believes that, in the North American automotive
market, the Company manufactures fuel pumps for approximately 40% of Ford's
automobiles and light trucks, including the Taurus, Explorer, Windstar and
F-Series Pickup. The Company manufactures all fuel module requirements for Ford
light trucks, and, according to management's estimates, manufactures
approximately 25% of Ford's fuel rail needs. In addition, management estimates
that the Company supplies Chrysler with approximately 70% of its fuel pump and
fuel module requirements, including all requirements for Chrysler's passenger
cars and minivans and most requirements for Chrysler's light trucks, including
the Dodge Ram Truck. Other automotive customers of the Company, including Dyno
and the Company's joint ventures, include Renault, Peugeot, Mercedes-Benz, Fiat,
Volvo, Rover, Saab, Volkswagen, Audi, Daewoo, Hyundai and Kia. Management
believes that the Company manufactures substantially all of the fuel tank
systems for Volvo and Saab and the fuel tank for the Mercedes 190/C Class,
Volkswagen Polo and Renault Twingo. Approximately 73% of the Company's 1994 net
sales, including Dyno on a pro forma basis, were generated by its automotive
operations.
Through its subsidiary, Walbro Engine Management Corporation, the Company
designs, develops and manufactures diaphragm carburetors for portable engines
(such as those used in chain saws and weed trimmers), float feed carburetors for
ground supported engines (such as those used in lawn mowers and generators) and
ignition systems and other components for a variety of small engine products.
The Company believes that it is the world's largest independent manufacturer of
small engine carburetors, with an approximate 76% share of the global diaphragm
carburetor market including sales to such leading chain saw and weed trimmer
manufacturers as Poulan/Weedeater (a Division of Electrolux, A.B.), Homelite (a
Division of Deere & Company), Stihl, Incorporated, McCulloch (a Division of Shop
Vac), Ryobi Ltd. and Kioritz (Echo) Corporation. Walbro believes it has an
approximate 14% share of the global float feed carburetor market, including
sales to Briggs & Stratton Corporation, the world's largest small engine
manufacturer, Kohler Company, Tecumseh Products Co., and to Mercury Marine (a
Division of Brunswick Corporation), a major manufacturer of outboard marine
engines. Walbro also manufactures replacement products for both the automotive
and small engine aftermarkets, sales of which are included within its small
engine product business. Approximately 27% of the Company's 1994 net sales,
including Dyno on a pro forma basis, were generated by its small engine
operations.
The Company was incorporated in Michigan in 1950 and reincorporated in
Delaware in 1972. The Company's principal executive offices are located at 6242
Garfield Street, Cass City, Michigan 48726-1325, and its telephone number is
(517) 872-2131.
22
<PAGE> 28
THE DYNO ACQUISITION
THE DYNO ACQUISITION
On July 27, 1995, the Company purchased Dyno for a purchase price equal to
approximately $124 million.
Concurrently with the consummation of the Dyno Acquisition, (i) the Company
completed the Initial Offering and (ii) the Company and certain of its
subsidiaries entered into the New Credit Facility with Comerica Bank, as agent,
and the other lenders named therein, providing for borrowings of up to $135
million.
USE OF PROCEEDS FROM THE INITIAL OFFERING
The gross proceeds from the Initial Offering were used, along with the
borrowings under the New Credit Facility, to acquire Dyno, retire certain
current credit facilities and pay fees and expenses relating to the Initial
Offering and New Credit Facility.
The following table sets forth the sources and uses of funds in: (a) the
Initial Offering, (b) the Dyno Acquisition and (c) the New Credit Facility:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
Sources:
Initial Offering............................................... $109,615
New Credit Facility............................................ 36,385
--------
Total sources............................................... $146,000
========
Uses:
Dyno Acquisition(1)............................................ $130,000
Retire certain credit facilities(2)............................ 11,000
Fees and expenses of the Initial Offering and New Credit
Facility.................................................... 5,000
--------
Total uses.................................................. $146,000
========
</TABLE>
- -------------------------
(1) Based on a purchase price of $124,000, adjusted to reflect estimated closing
adjustments and certain related fees and expenses of $6,000.
(2) Based on the outstanding principal balances as of June 30, 1995.
23
<PAGE> 29
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL DATA
The following Pro Forma Unaudited Condensed Consolidated Statements of
Operations for the six months ended June 30, 1995 and the year ended December
31, 1994 present pro forma operating results as if the Transactions had occurred
as of January 1, 1994. The Pro Forma Unaudited Condensed Consolidated Balance
Sheet as of June 30, 1995 gives effect to the Transactions as if they had
occurred on that date. The pro forma adjustments are described in the notes
thereto. The Pro Forma Unaudited Condensed Consolidated Financial Data should be
read in conjunction with the Company's and Dyno's historical financial
statements and related notes thereto included elsewhere in this Prospectus. The
Pro Forma Unaudited Condensed Consolidated Financial Data do not purport to
represent either future results or the results that would have occurred if the
Transactions had occurred on the dates indicated, nor do they give effect to any
matters other than those described in the notes thereto.
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1995
---------------------------------------------------------
COMPANY DYNO
HISTORICAL HISTORICAL(1) ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ---------
(UNAUDITED DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales...................................... $ 188,291 $ 107,832 $ -- $ 296,123
Cost of sales.................................. 150,585 85,065 (659)(2) 234,991
---------- -------- ------- ----------
Gross margin................................... 37,706 22,767 659 61,132
Selling and administrative expenses............ 24,152 17,358 -- 41,510
---------- -------- ------- ----------
Operating income............................... 13,554 5,409 659 19,622
Interest expense, net.......................... 2,538 1,036 5,912(3) 9,486
Other expense, net............................. 416 285 -- 701
---------- -------- ------- ----------
Income before taxes and other.................. 10,600 4,088 (5,253) 9,435
Provision for income taxes..................... 3,751 1,556 (1,842)(5) 3,465
Equity in (income) loss of joint ventures...... (2,074) -- -- (2,074)
---------- -------- ------- ----------
Net income..................................... $ 8,923 2,532 $ (3,411) 8,044
========== ======== ======= ==========
Net income per share........................... $1.04 $.94
Weighted average shares outstanding............ 8,599,490 8,599,490
EBITDA(6)...................................... $ 20,861 $ 10,897 $ -- $ 31,758
Ratio of EBITDA to interest expense, net....... 8.2x 3.4x
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
---------------------------------------------------------
COMPANY DYNO
HISTORICAL HISTORICAL(1) ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ---------
(UNAUDITED DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales...................................... $ 325,205 $ 147,147 $ -- $ 472,352
Cost of sales.................................. 261,501 112,514 730(2) 374,745
---------- -------- ------- ----------
Gross margin................................... 63,704 34,633 (730) 97,607
Selling and administrative expenses............ 39,318 29,541 (950)(4) 67,909
---------- -------- ------- ----------
Operating income............................... 24,386 5,092 220 29,698
Interest expense, net.......................... 3,771 2,792 10,967(3) 17,530
Other expense, net............................. 2,713 984 -- 3,697
---------- -------- ------- ----------
Income before taxes and other.................. 17,902 1,316 (10,747) 8,471
Provision for income taxes..................... 5,824 2,329 (3,174)(5) 4,979
Minority interest.............................. 92 -- -- 92
Equity in (income) loss of joint ventures...... (2,609) -- -- (2,609)
---------- -------- ------- ----------
Income (loss) before extraordinary item........ 14,595 (1,013) (7,573) 6,009
---------- -------- ------- ----------
Extraordinary item--gain on forgiveness of
debt......................................... -- 4,691 (4,691) --
---------- -------- ------- ----------
Net income..................................... $ 14,595 $ 3,678 $ (12,264) $ 6,009
========== ======== ======= ==========
Net income per share........................... $1.70 $.70
Weighted average shares outstanding............ 8,602,077 8,602,077
EBITDA(6)...................................... $ 36,345 $ 14,020 $ 950 $ 51,315
Ratio of EBITDA to interest expense, net....... 9.6x 2.9x
</TABLE>
24
<PAGE> 30
NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(1) The Dyno historical information represents amounts derived from the
unaudited combined financial statements of Dyno for the six months ended
June 30, 1995 and the audited combined financial statements of Dyno for the
year ended December 31, 1994, included elsewhere in this Prospectus,
translated from Norwegian Kroner ("NOK") to U.S. Dollars at the average
exchange rates of 6.38 NOK and 7.05 NOK to one U.S. Dollar for the six
months ended June 30, 1995 and the year ended December 31, 1994,
respectively.
(2) Adjustments consist of pro forma adjustments to the historical expenses of
Dyno to reflect estimated adjustments to depreciation and amortization
expense resulting from the revaluation of Dyno net assets acquired. The
adjustments include the following items:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31, 1994
---------------- -----------------
<S> <C> <C>
Depreciation and amortization expense on revalued
assets.................................................. $ 4,829 $ 9,658
Elimination historical depreciation and amortization
expense on assets....................................... (5,488) (8,928)
------- -------
Elimination of interest expense on certain credit
facilities.............................................. $ (659) $ 730
======= =======
</TABLE>
(3) Reflects interest expense changes resulting from new indebtedness incurred
in conjunction with the Transactions. Amortization of deferred financing
fees was calculated based on a ten year amortization period for fees related
to the Initial Offering and a five year amortization period for fees related
to the New Credit Facility. In addition, the remaining balance of deferred
financing fees on the existing credit agreement is assumed to be written
off. In connection with the Dyno Acquisition, certain liabilities are not
being assumed by the Company, consisting principally of certain borrowings
of long-term debt, amounts payable to related entities, certain notes
payable and subordinated loans. As such, interest expense incurred on these
borrowings not being assumed has been eliminated in the pro forma
presentation.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31, 1994
---------------- -----------------
<S> <C> <C>
Interest expense on the Old Notes, at 9 7/8%, including
amortization of original issue discount of $10 and $39,
respectively............................................ $ 5,450 $10,901
Estimated interest on New Credit Facility borrowings...... 1,988 4,294
Elimination of interest expense on certain credit
facilities.............................................. (452) (1,629)
Elimination of interest expense on Dyno borrowings not
assumed................................................. (1,326) (3,104)
Fee amortization on Old Notes............................. 218 436
Fee amortization on New Credit Facility................... 64 129
Write-off of unamortized deferred financing fees.......... (30) (60)
------- -------
$ 5,912 $10,967
======= =======
</TABLE>
(4) Reflects the elimination of a $950 charge recorded in 1994 related to a
litigation claim against Dyno Industrier A.S in France which is still
pending. In accordance with the agreement to acquire Dyno, Dyno Industrier
A.S will retain all obligations related to this claim.
25
<PAGE> 31
(5) Reflects estimated income tax adjustments resulting from the pro forma
adjustments as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1995 DECEMBER 31, 1994
---------------- -----------------
<S> <C> <C>
Income tax effects of adjustments in Notes 2 and 4 above
at
Dyno's estimated effective income tax rate of 38.1% and
177.1%, respectively.................................... $ 251 $ 390
Income tax effects of adjustments in Note 3 above at the
Company's estimated effective income tax rate of 35.4%
and
32.5%, respectively..................................... (2,093) (3,564)
------- -------
$ (1,842) $(3,174)
======= =======
</TABLE>
(6) "EBITDA" represents, for any period, the sum of operating income (minus
foreign currency exchange losses and other expenses, net) and depreciation
and amortization. EBITDA is not intended to be a performance measure that
should be regarded as an alternative either to operating income or net
income as an indicator of operating performance or to cash flow as a measure
of liquidity. The Company has included information concerning EBITDA as it
understands that it is used by certain investors as one measure of an
issuer's historical ability to service its debt.
26
<PAGE> 32
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF JUNE 30, 1995
----------------------------------------------------------
COMPANY DYNO
HISTORICAL HISTORICAL(1) ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ---------
(UNAUDITED DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash......................................... $ 3,419 $ 8,921 $ -- $ 12,340
Accounts receivable, net..................... 69,928 37,522 -- 107,450
Inventories.................................. 33,939 15,924 -- 49,863
Other current assets......................... 8,688 7,025 -- 15,713
-------- -------- -------- --------
Total current assets.................... 115,974 69,392 -- 185,366
-------- -------- -------- --------
Property, plant and equipment................ 163,692 111,871 (21,173)(2) 254,390
Accumulated depreciation..................... (57,209) (47,525) 47,525(2) (57,209)
-------- -------- -------- --------
Net property, plant and equipment............ 106,483 64,346 26,352 197,181
-------- -------- -------- --------
Goodwill..................................... 19,025 1,574 13,737(2) 34,336
Other assets................................. 46,007 3,183 2,411(3)(4) 51,601
-------- -------- -------- --------
Total other assets...................... 65,032 4,757 16,148 85,937
-------- -------- -------- --------
Total assets.......................... $ 287,489 $ 138,495 $ 42,500 $ 468,484
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt.............................. $ 8,032 $ 15,330 $ (10,373)(4) $ 12,989
Other current liabilities.................... 43,272 46,701 (7,976)(4) 81,997
-------- -------- -------- --------
Total current liabilities............... 51,304 62,031 (18,349) 94,986
-------- -------- -------- --------
Total long-term debt, less current portion... 86,322 18,003 117,394(4)(5) 221,719
Other long-term liabilities.................. 13,633 8,467 (6,511)(4)(6) 15,589
-------- -------- -------- --------
Total long-term liabilities............. 99,955 26,470 110,883 237,308
-------- -------- -------- --------
Total stockholders' equity................... 136,230 49,994 (50,034)(2)(3) 136,190
-------- -------- -------- --------
Total liabilities and stockholders'
equity................................ $ 287,489 $ 138,495 $ 42,500 $ 468,484
======== ======== ======== ========
</TABLE>
NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(1) The Dyno historical information represents amounts derived from the
unaudited combined financial statements of Dyno for the six months ended
June 30, 1995, included elsewhere in this Prospectus, translated from NOK to
U.S. Dollars at the June 30, 1995 exchange rate of 6.16 NOK to one U.S.
Dollar.
(2) The purchase price of $130,000 in cash includes provisions for estimated
closing adjustments and fees and expenses estimated at $6,000. The Dyno
Acquisition was accounted for using the purchase method of accounting and
the total purchase cost was allocated first to assets and liabilities based
upon their respective fair market values, with the remainder allocated to
goodwill. Historical Dyno equity balances are eliminated for purposes of the
pro forma consolidated balance sheet. The allocation of the purchase price
reflected above is based on estimates and may differ from the final
allocation.
(3) Reflects fees of $5,000 related to the Initial Offering and the New Credit
Facility, net of the write-off of unamortized fees of $40 on the retirement
of borrowings under certain credit facilities.
(4) The assets acquired and liabilities assumed by the Company in the Dyno
Acquisition excluded certain long-term assets, a portion of long-term debt
(both current and non-current portions), amounts payable to related
entities, income taxes payable, deferred income taxes and certain long-term
liabilities.
(5) Reflects the effects of the Transactions as follows:
<TABLE>
<S> <C>
Issuance of the Old Notes..................................................... $109,615
Borrowings under the New Credit Facility...................................... 36,385
Retirement of the borrowings outstanding under certain credit facilities...... (11,000)
--------
Net increase in long-term debt................................................ $135,000
========
</TABLE>
(6) Reflects the recognition of deferred income taxes on the write-up of
property, plant and equipment computed at the statutory tax rate in effect
in each country where the stock is being acquired as follows: Belgium --
40%, France -- 33% and Spain -- 35%.
27
<PAGE> 33
SELECTED FINANCIAL AND OPERATING DATA--WALBRO CORPORATION
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The following table sets forth selected historical financial and operating
data of the Company, excluding Dyno. The selected historical financial data as
of and for each of the five years ended December 31 was derived from the audited
consolidated financial statements of the Company. The selected historical
financial data as of and for the six months ended June 30 was derived from the
unaudited consolidated financial statements of the Company which, in the opinion
of management, include all adjustments necessary for a fair presentation of the
financial position and results of operations for the periods. The information
set forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Walbro Corporation"
and the consolidated financial statements of the Company and the notes thereto,
included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales........................ $ 188,291 $ 166,181 $ 325,205 $ 273,463 $ 241,416 $ 200,130 $ 166,678
Cost of sales.................... 150,585 131,308 261,501 216,804 185,712 158,743 134,295
Gross profit..................... 37,706 34,873 63,704 56,659 55,704 41,387 32,383
Selling and administrative
expenses....................... 24,152 19,353 39,318 33,043 33,614 26,961 20,946
Reorganization and restructuring
charges........................ -- -- -- 1,760 -- 2,230 --
Operating income................. 13,554 15,520 24,386 21,856 22,090 12,196 11,437
Interest expense, net............ 2,538 1,537 3,771 2,559 3,113 6,014 6,474
Equity in (income) loss of joint
ventures....................... (2,074) (592) (2,609) 89 (179) 465 2,128
Net income(1).................... 8,923 8,960 14,595 9,667 12,526 4,838 1,097
Net income per share(2).......... 1.04 1.04 1.70 1.13 1.63 .98 .26
Weighted average shares
outstanding.................... 8,599,490 8,608,474 8,602,077 8,537,375 7,675,974 4,952,951 4,289,161
Ratio of earnings to fixed
charges........................ 4.2x 7.3x 4.6x 6.4x 4.7x 2.0x 1.6x
OTHER DATA:
Depreciation and amortization.... 7,838 6,935 14,672 11,339 10,339 6,996 7,708
Capital expenditures............. 20,730 7,280 18,844 20,260 14,681 9,717 6,621
EBITDA(3)........................ 20,861 21,798 36,345 31,128 31,513 19,192 19,145
Ratio of EBITDA to interest
expense, net(3)................ 8.2x 14.2x 9.6x 12.2x 10.1x 3.2x 3.0x
BALANCE SHEET DATA:
(at end of period)
Total assets..................... $ 287,489 $ 238,244 $ 257,366 $ 215,295 $ 193,020 $ 161,243 $ 143,026
Total long-term debt, less
current portion................ 86,322 59,690 66,136 52,392 49,638 62,777 83,443
Total debt....................... 94,354 67,445 81,548 58,175 59,349 70,922 85,529
Total stockholders'
equity(4)(5)................... 136,230 122,695 127,915 114,146 99,910 50,339 27,424
</TABLE>
- -------------------------
(1) The Company adopted SFAS 106 as of January 1, 1993. As a result, the Company
recorded a one-time after tax charge of $2,900 for the cumulative effect of
this accounting change in the year ended December 31, 1993.
(2) Primary and fully diluted income per share were the same in all periods
presented except the year ended December 31, 1992 when fully diluted income
per share was $1.58 based on weighted average shares outstanding of
8,160,472.
(3) "EBITDA" represents, for any period, the sum of operating income (minus
foreign currency exchange losses and other expenses, net) and depreciation
and amortization. EBITDA is not intended to be a performance measure that
should be regarded as an alternative either to operating income or net
income as an indicator of operating performance or to cash flow as a measure
of liquidity. The Company has included information concerning EBITDA as it
understands that it is used by certain investors as one measure of an
issuer's historical ability to service its debt.
(4) Reflects cash dividends declared of $1,713, $1,712, $3,426, $3,403, $3,192,
$610 and $1,836 in the six months ended June 30, 1995 and 1994 and the years
ended December 31, 1994, 1993, 1992, 1991 and 1990, respectively.
(5) The Company adopted SFAS 115 as of January 1, 1994. As a result, the Company
recorded an increase to stockholders equity of $2,096 (net of income taxes)
as of January 1, 1994.
28
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--WALBRO CORPORATION
The Company's business is operated in two segments: automotive and small
engine. Selected financial information about the Company's (excluding Dyno)
continuing operations by business segment is set forth below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------
1995 1994 1994 1993 1992
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net Sales
Automotive.............................. $113,298 $ 98,370 $198,260 $167,201 $152,347
Small Engine............................ 74,993 67,811 126,945 106,262 89,069
-------- -------- -------- -------- --------
Total................................ $188,291 $166,181 $325,205 $273,463 $241,416
======== ======== ======== ======== ========
Cost of Sales
Automotive.............................. $ 92,188 $ 79,459 $161,649 $133,989 $114,953
Small Engine............................ 58,397 51,849 99,852 82,815 70,759
-------- -------- -------- -------- --------
Total................................ $150,585 $131,308 $261,501 $216,804 $185,712
======== ======== ======== ======== ========
Gross Margin
Automotive.............................. $ 21,110 $ 18,911 $ 36,611 $ 33,212 $ 37,394
Small Engine............................ 16,596 15,962 27,093 23,447 18,310
-------- -------- -------- -------- --------
Total................................ $ 37,706 $ 34,873 $ 63,704 $ 56,659 $ 55,704
======== ======== ======== ======== ========
</TABLE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO SIX MONTHS ENDED JUNE 30, 1994
Net Sales. Net sales for the first six months of 1995 increased 13.3% to
$188.3 million compared to $166.2 million for the same period of 1994. Sales of
automotive products increased 13.5% to $111.7 million for the 1995 period
compared to $98.4 million for the 1994 period. The increased automotive product
sales were primarily the result of increased sales during the first quarter of
1995, with strong demand for fuel modules used in light trucks which had a sales
increase during the first quarter of 1995 at 0.6%, while passenger car sales
declined by 7.0% compared to the first quarter of 1994.
Sales of small engine products increased 10.8% to $61.4 million for the
first six months of 1995 compared to $55.4 million for the same period of 1994.
Sales of diaphragm carburetors increased by 13.3% for the first six months of
1995 while sales of float feed carburetors decreased by 6.0% compared to the
same period of 1994. Most of the increased sales of diaphragm carburetors
occurred in the second quarter and were derived primarily from international
sales. Approximately 55% of the increased sales during the first six months of
1995 resulted from foreign currency fluctuations. The weather related decline in
U.S. sales of float feed carburetors during the second quarter of 1995 more than
offset the small increase in sales during the first quarter of 1995. Ignition
products and carburetors for two-wheeled vehicles in China represented a
significant portion of the small engine product sales increase for the first six
months of 1995.
Sales to the aftermarket increased 9.7% to $13.6 million for the first six
months of 1995 compared to $12.4 million for the same period of 1994. Sales
increased in all product are as due to the same reasons stated above for the
second quarter. Automotive fuel system products accounted for most of the
increased aftermarket sales.
Cost of Sales. Cost of sales for the first six months of 1995 increased
14.7% to $150.6 million compared to $131.3 million for the same period of 1994.
Cost of sales as a percent of net sales was 80.0% compared to 79.0% for the
first half of 1994. In automotive products, the cost of sales as a percent of
net sales increase resulted from lower sales volumes of fuel pumps and fuel
rails. In small engine products, the higher cost of
29
<PAGE> 35
sales as a percent of net sales was due to lower float feed carburetor sales
volume in the U.S. in conjunction with higher cost of sales in Japan and
Singapore caused by the weaker U.S. Dollar.
Selling and Administrative Expenses. Selling and Administrative expenses
("S & A") S & A expenses increased by 24.8% for the first six months of 1995
compared to the same period of 1994. S & A expenses increased because of
increased spending for research and development and for expansion of the
Company's automotive systems center in Auburn Hills, Michigan. In addition, S &
A expenses increased in Japan and Singapore because of the weaker U.S. Dollar.
Net Interest Expense. Net interest expense was 65.1% higher for the first
six months of 1995 compared to the same period of 1994. Interest expense
increased because of increased borrowings for capital expenditures and because
of higher interest rates paid on the October, 1994 senior notes (7.68%).
Provision for Income Taxes. The provision for income taxes was 24.3% lower
for the first six months of 1995 compared to the same period of 1994 because of
lower taxable income and a lower effective tax rate of 35.4% for the 1995
six-month period compared to 37.2% for the same 1994 period.
Joint Venture Income. The equity in income from joint ventures was $2.07
million for the first six months of 1995 compared to the 1994 income of $.59
million for the same period, primarily because of increased sales and improved
profitability at Marwal Systems (in France) and Marwal do Brasil.
Net Income and Income Per Share. Net income for the first six months of
1995 was $8.9 million, a decrease of 1.1% compared to net income of $9.0 million
for the same period of 1994. The decrease was due to the reasons described
above. Net income per share was $1.04, unchanged from the first six months of
1994.
1994 COMPARED TO 1993, 1993 COMPARED TO 1992
Net Sales. The Company reported record sales in 1994 of $325.2 million, an
increase of 18.9%. The 1994 sales increase represents the 12th consecutive year
of sales increases. Sales in 1993 were $273.5 million compared to sales of
$241.4 million in 1992. The $51.7 million of additional sales in 1994 was
divided between the automotive market with $31.1 million of the increase, the
small engine market with $14.4 million of the increase and a $6.3 million
increase from aftermarket sales. On a percentage basis, automotive market sales
increased 18.6% in 1994 compared to a 9.8% increase in 1993, while sales in the
small engine market increased 16.5% in 1994 compared to a 21.3% increase in
1993. Aftermarket sales increased 33.2% in 1994 compared to an increase of 10.9%
in 1993.
Sales of the Company's original equipment automotive products hit a record
level of $198.3 million in 1994, up from $167.2 million in 1993 and $152.3
million in 1992. The U.S. light vehicle sales market grew by 1.2 million units
in 1994 to reach 15.1 million vehicles, an 8.4% increase. U.S. light vehicle
sales increased by 8.0% in 1993 and by 4.5% in 1992. In 1994, the Company was
able to increase automotive product sales by 18.6% while the U.S. light vehicle
market grew by 8.4%. Automotive product sales benefited from the overall market
growth, from increased penetration of existing products and from the development
of new products for new models in 1994. In addition, the Company sold its first
multi-layer plastic fuel tanks in 1994. For 1994, fuel pumps reported a modest
sales increase while fuel rail sales increased by 22.3% and fuel module (in-tank
reservoir with fuel pump assembled) sales increased by 32.2%. The Company
expects the growth in sales of fuel modules to continue as OEMs use fuel modules
on more platforms. Fuel modules have also gained acceptance in the European and
the South American markets. The Company currently produces primarily steel fuel
rails. In the future, the Company expects continued growth in the newer
composite plastic fuel rails which the Company also produces.
Although the U.S. light vehicle market grew significantly in 1993, the
Company's sales growth in 1993 was the result of many dynamic forces in the
marketplace, some positive and some negative. Sales by one major domestic
customer grew by 19.5% in 1993, resulting in increased demand for the Company's
products for existing platforms, and new models introduced during the year.
Another major domestic customer chose to restrict the growth of its purchases of
one of the Company's products because of increased in-house production. In 1993,
fuel pumps and fuel rails reported modest sales increases, while fuel module
sales increased by 25.8%. Sales to the Company's unconsolidated joint venture in
Europe, Marwal Systems,
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<PAGE> 36
declined by $4.0 million in 1993 because the joint venture increased its own
internal production of components formerly supplied by the Company to the
European automotive market. Sales to the Company's joint venture in Brazil,
Marwal do Brasil (formed in 1993), helped to partially offset some of the
decline in U.S. sales to Europe.
Automotive product sales in 1992 increased by 18.7% in a market which grew
by 4.5%, but the Company's two major domestic customers increased their own
sales by an average of 12% during the year. In addition, automotive product
sales were helped by a positive change in the product mix, the introduction of
new applications for all customers and increased sales to the Company's
unconsolidated European joint venture.
Sales of the Company's small engine products also hit a record level of
$101.8 million in 1994, up from $87.4 million in 1993 and $72.1 million in 1992.
Overall sales growth of small engine products was 16.5% in 1994 compared to
21.3% during 1993. Sales of diaphragm carburetors increased 7.4% in 1994
compared to 24.4% for 1993, from $46.9 million in 1992 to $58.3 million in 1993
to $62.6 million in 1994. U.S. diaphragm carburetor sales declined in the second
half of 1994 and were adversely affected by customer order delays related to
delays in the Company's customers' engine certifications by the California Air
Resources Board. U.S. sales increases in the first half of 1994 combined with
increases in Europe and Asia during all of 1994 more than offset the second half
decline in the U.S. Sales growth in 1992 and 1993 for diaphragm carburetors was
the result of increased worldwide market penetration for the Company's products
resulting in part from one of the Company's major competitors being adversely
affected by the strong Yen.
Sales of float feed carburetors increased 27.7% in 1994 compared to a 7.7%
increase for 1993, with $30.0 million of sales in 1994 versus $23.5 million in
1993 and $21.8 million in 1992. In 1994, float feed carburetor sales increased
to most customers with a 36% increase to the Company's largest lawn and garden
customer and a 36% increase in sales of marine carburetors. In 1993, sales of
float feed carburetors were flat to the Company's two largest customers compared
to 1992.
Sales of small engine ignition systems added $7.1 million to small engine
sales in 1994 compared to $5.1 million in 1993 and $2.4 million in 1992 as
customer demand grew for this expanding family of products, new to the Company
since 1992. In addition, sales from the Company's new subsidiary in The People's
Republic of China, Fujian Hualong Carburetor, added $1.9 million to small engine
sales in 1994.
Management believes that ignition systems will play a more significant role
in the future as small engines become subject to more stringent emissions
regulations. These regulations could significantly affect unit sales of existing
products due to a shifting of the low cost segment of the portable power
equipment market from internal combustion engines to electric motors. In
addition, these regulations will require new levels of technology within the
tight cost constraints required by the small engine market. The Company,
however, believes it has the capability to assist engine manufacturers by
designing and producing ignition systems and fuel systems capable of meeting
these emission standards. Although certain of these regulations may have the
effect of reducing unit sales, the more sophisticated products required by
stringent emissions regulations are expected to command higher unit prices. See
"Business--Walbro Engine Management Corporation--Small Engine Industry
Overview."
Since 1991, the Company's aftermarket business for both automotive products
and carburetors has been consolidated as a business unit within Walbro Engine
Management Corporation. Aftermarket sales have grown at an increasingly higher
rate with sales of $17.0 million in 1992, $18.9 million in 1993 and $25.1
million in 1994. Each year, aftermarket sales have represented approximately 7%
to 8% of total Company sales. The 33.2% increase in 1994 sales was the result of
the addition of several new aftermarket customers and the expansion of the
product offering for aftermarket sales.
Cost of Sales. The Company's cost of sales is composed primarily of
material, labor, and manufacturing and engineering overhead. Cost of sales was
$261.5 million in 1994 compared to $216.8 million in 1993 and $185.7 million in
1992. Cost of sales as a percent of sales was 80.4% in 1994 compared to 79.3% in
1993 and 76.9% in 1992. In 1991, the Company reorganized its business into
Walbro Automotive Corporation and Walbro Engine Management Corporation. The
reorganization was designed to foster decentralized
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<PAGE> 37
decision-making, improved focus, accountability and to empower managers to adopt
programs responsive to their respective industries.
In 1993, cost of sales as a percent of sales for small engine products
continued the favorable trend downward. However, for automotive products,
percentage cost of sales increased resulting in an overall increase in the
percentage for the Company. The increased cost of sales for automotive products
resulted primarily from the Company's decision to enter the multi-layer plastic
fuel tank business by building a new manufacturing facility in Ossian, Indiana,
and its decision to consolidate two small fuel rail manufacturing plants into
one larger facility in Ligonier, Indiana. The plastic fuel tank is a critical
element of the Company's long-term strategy of supplying fuel storage and
delivery systems to the automotive market. However, the short-term effect of
building this facility was to increase cost of sales in 1993 without any
significant sales. Start-up expenses associated with the fuel rail plant
consolidation caused higher cost of sales for that year. Automotive cost of
sales was also adversely impacted by customer recall expenses, some of which
resulted from the start-up at the Ligonier facility.
Cost of sales as a percent of sales increased for both automotive and small
engine products in 1994. The increase for automotive products resulted from
continuing start-up costs at the Company's Ossian, Indiana plant, slightly less
than break-even results at the Company's Ligonier, Indiana plant and additional
costs of expanding production capacity at the Company's Meriden, Connecticut
plant. The start-up costs at the Company's Ossian, Indiana plant are expected to
continue through the remainder of 1995 as the production orders for multi-layer
plastic fuel tanks have not reached the break-even level. The additional costs
of expanding production at the Company's Meriden, Connecticut plant are expected
to decline in 1995 as new capacity comes on line and sales volumes expand. The
increase for small engine products was primarily the result of the decline in
U.S. diaphragm carburetor sales in the second half of 1994. A secondary factor
for the increase for small engine products was the higher cost of manufacturing
carburetors in Japan and Singapore in light of the weaker U.S. Dollar during
1994.
In December 1990, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 106 (SFAS 106), Employer's Accounting for
Post Retirement Benefits Other Than Pensions, and the Company changed its method
of accounting for these benefits in 1993 as required by SFAS 106. See Note 10 of
the Company's Notes to Consolidated Financial Statements for a detailed
discussion of the impact of this change.
Selling and Administrative Expenses. Selling and administrative expenses
were $39.3 million in 1994, an increase of 19.0% compared to $33.0 million in
1993. The 1993 selling and administrative expenses decreased by 1.7% compared to
$33.6 million in 1992. As a percent of sales, selling and administrative
expenses were 12.1% in 1994, 12.1% in 1993 and 13.9% in 1992. In 1994, most
expense categories increased to support the sales growth. Research and
development spending increased in 1994 by 28.6% to support the new product
development efforts required by emission regulations in both the small engine
and automotive industries. The accrual for incentive compensation at Walbro
Engine Management Corporation was increased in 1994 because of increased
profitability. The percentage decrease in 1993 resulted from strong sales growth
coupled with modest increases in most selling and administrative expense
categories, including research and development, which were offset by an increase
in miscellaneous income and a decline in the accruals for incentive compensation
tied to stockholder value.
Reorganization Charges. In 1993, the Company recorded a $1.8 million
reorganization charge reflecting the Company's actual and anticipated expenses
from reorganization of the executive management team at Walbro Automotive
Corporation. $1.0 million was paid in 1993 and the remaining $0.8 million was
paid in 1994. The Company does not anticipate incurring any additional
reorganization or restructuring charges in the near future. See Note 5 of the
Company's Notes to Consolidated Financial Statements.
Write Down of Long-Term Marketable Securities. In 1990, the Company
acquired 207,000 shares of Common Stock of Mitsuba Electric Company, its joint
venture partner in Mitsuba-Walbro Corporation located in Japan. The investment
was treated as a long-term marketable security for financial statement
presentation. In 1992, management determined that the decline in market value
was likely to be permanent
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<PAGE> 38
and a charge to earnings of $1.1 million was recorded. See Note 3 of the
Company's Notes to Consolidated Financial Statements.
Loss on Foreign Exchange Transactions. Foreign exchange contracts are used
primarily to manage the exposure to foreign currency losses from operations in
foreign countries, from investments in foreign joint ventures and from
commitments in foreign currencies. In 1992, the Company entered into forward
foreign exchange contracts to hedge currency exposure related to a sales
commitment to a foreign customer. The loss on these contracts was treated as a
hedge for accounting purposes and recorded as a deferred asset, which is being
recognized in income as the hedged transaction occurs. In 1993 and 1994, the
Company entered into forward currency exchange contracts to reduce its exposure
against fluctuations in foreign currency rates and the losses on these contracts
were recorded as foreign currency exchange loss in 1993 and 1994. The foreign
currency exchange loss in 1994 was $2.6 million, $1.5 million in 1993 and $0.6
million in 1992. See Note 12 of the Company's Notes to Consolidated Financial
Statements.
Net Interest Expense. Net interest expense was $3.8 million in 1994, an
increase of $1.2 million, compared to $2.6 million in 1993. Net interest expense
declined by $0.5 million in 1993, continuing the trend from 1992, when net
interest expense declined by $2.9 million. The 1994 increase resulted from
higher interest rates and increased borrowings for additional working capital
and the full year effect of financing the Company's Ossian, Indiana plant.
During the fourth quarter of 1994, the Company issued $45 million of the 2004
Notes which contributed to the higher net interest expenses. The 1992 decline
resulted from improved operating results, lower short-term interest rates and a
net debt reduction of $11.6 million from the application of proceeds from the
Company's common stock offering of $22.1 million in March 1992. The 1993 decline
in net interest expense resulted from lower short-term interest rates and a debt
reduction for part of the year. During the first half of 1993, the remaining
$6.6 million of 8% Convertible Subordinated Promissory Notes were converted to
shares of common stock. Later in 1993, additional debt was issued to finance the
Company's facility in Ossian, Indiana. The average cost of borrowing was 7.9% in
1992, 4.9% in 1993 and 5.9% in 1994.
Net Income and Income Per Share. Net income for 1994 was $14.6 million, an
increase of 16.1% compared to $12.6 million income before cumulative effect of
accounting change in 1993. Net income was $12.5 million for 1992. The Company's
adoption of SFAS 106 during 1993, resulted in a cumulative charge of $2.9
million ($0.34 per share), net of tax. Therefore, net income for common
stockholders was $9.7 million in 1993. Net income per share was $1.70 for 1994
compared with income per share before cumulative effect of accounting change of
$1.47 for 1993 and $1.58 net income per share for 1992. Net income per share for
1993 was $1.13. All per share data is fully diluted. Net income as a percent of
sales was 4.5% in 1994, 4.6% in 1993 (income before accounting change as a
percent of sales), and 5.2% in 1992. The decline in net income as a percent of
sales during 1994 was the result of higher cost of sales, higher interest
expense and foreign exchange losses as explained above. Although sales increased
by 13.3% in 1993, income was basically unchanged from 1992. The 1993 income
results reflected increased costs and expenses. Cost of sales as a percentage
increased because of start-up expenses at the Ligonier and Ossian facilities,
and because of automotive customer recall expenses. Other factors affecting 1993
income were costs incurred from the reorganization at Walbro Automotive
Corporation and losses at joint ventures.
Joint Venture Income. As detailed below, the Company has actively pursued
joint venture opportunities as a means of expanding into new regions of the
world market. The joint venture structure allows the Company to share the risks,
capital requirements and early stage start-up losses with a partner, while
gaining access to new markets and the knowledge and relationships of its joint
venture partners.
The Company reported equity in income of joint ventures in 1992 of
$179,000, losses of $89,000 in 1993 and income of $2.6 million in 1994. The loss
in 1993 was due primarily to first year losses of $538,000 in Brazil and the
significant income in 1994 resulted from profits in all the Company's joint
ventures. The Company's income from Marwal Systems was $1.1 million in 1994
compared to a small profit in 1993 based on sales growth of 52.9% during 1994.
The Company's income from Marwal do Brasil was $1.1 million in 1994 compared to
the loss of $500,000 in 1993. Marwal do Brasil was in the start-up phase of
operations during 1993 with total sales of $2.3 million which grew to $22
million in 1994.
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<PAGE> 39
In February 1993, the Company acquired a 49% interest in Marwal do Brasil,
a Brazilian joint venture with Magneti Marelli S.p.A. of Italy, to manufacture
and market electronic fuel injection system components for the South American
automotive market.
In March 1993, the Company acquired all of the outstanding shares of Walbro
Korea Ltd., a joint venture with Siemens A.G. of Germany and Daesung Ltd. of
South Korea. This joint venture was originally formed to manufacture and market
electronic fuel injection system components for the South Korean automotive
market. In December 1994, the Company announced the signing of an agreement to
form a joint venture with Daewoo Precision Industries, Ltd. of South Korea to
manufacture electronic fuel pumps, fuel level sensors and fuel modules for the
Korean automobile market.
In January 1993, the Company sold its 50% interest in Orbital-Walbro
Corporation to its joint venture partner, Orbital Engine Company Ltd. of
Australia, in exchange for 3.7 million shares of Orbital Engine Company, Ltd.
stock and $5.5 million in cash.
INFLATION
Inflation potentially affects the Company in two principal ways. First, a
portion of the Company's debt is tied to prevailing short-term interest rates
which may change as a result of inflation rates, translating into changes in
interest expense. Second, general inflation can impact labor, parts and supply
costs. The Company has limited ability to pass on inflation-related cost
increases to its customers on a short-term basis. In addition, the markets
served by the Company are competitive in nature, and competition limits the
pass-through of inflation-related cost increases in many cases. In the past
three years, however, inflation has not been a significant factor for the
Company.
FOREIGN CURRENCY TRANSACTIONS
Approximately 24% of the Company's sales during the first six months of
1995 were derived from international manufacturing operations in Japan, The
People's Republic of China, Singapore and Mexico. The financial position and the
results of operations of the Company's subsidiaries in Japan, Walbro Japan, Inc.
and Walbro Automotive Japan, Inc. (8% of sales) and in The People's Republic of
China, Fujian Hualong Carburetor Co., Ltd. (1% of sales) are measured in local
currency of the countries in which they operate and translated into U.S.
Dollars. The effects of foreign currency fluctuations in Japan and The People's
Republic of China are somewhat mitigated by the fact that expenses are generally
incurred in the same currencies in which sales are generated and the reported
income of these subsidiaries will be higher or lower depending on a weakening or
strengthening of the U.S. Dollar.
For the Company's subsidiary in Singapore, Walbro Singapore Pte. Ltd., (6%
of sales), the expenses are generally incurred in the local currency, but sales
are generated in U.S. Dollars; therefore, results of operations are more
directly influenced by a weakening or strengthening of the local currency. The
Company's subsidiary in Mexico, Walbro de Mexico, S.A. DE C.V. (9% of sales)
operates as a Maquiladora, or contract manufacturer, where only certain direct
manufacturing expenses are incurred in the local currency and sales are
generated in U.S. Dollars. Thus, results of operations of the Company's
subsidiary in Mexico are also more directly influenced by a weakening or
strengthening of the local currency.
Approximately 13% of the Company's net assets at June 30, 1995, are based
in its foreign operations and are translated into U.S. Dollars at foreign
currency exchange rates in effect as of the end of each period. Accordingly, the
Company's consolidated shareholders' equity will fluctuate depending upon the
weakening or strengthening of the U.S. Dollar. In addition, the Company has
equity investments in unconsolidated joint ventures in France, Brazil, Japan and
Korea. The Company's reported income from these joint ventures will be higher or
lower depending upon a weakening or strengthening of the U.S. Dollar.
The acquisition of Dyno in July 1995 will result in a significant increase
in the foreign component of the Company's operations. Specifically, giving
effect to the Dyno Acquisition on a pro forma basis, approximately 47% of the
Company's net sales for the six months ended June 30, 1995 and approximately 39%
of the Company's net assets at June 30, 1995 would have been related to foreign
operations.
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<PAGE> 40
The Company's strategy for management of currency risk relies primarily
upon the use of forward currency exchange contracts to manage its exposure to
foreign currency fluctuations related to its operations in foreign countries, to
manage its firm transaction commitments in foreign currencies and to hedge its
equity investment in certain foreign joint ventures. See Note 12 of the Notes to
the Company's Consolidated Financial Statements for a detailed discussion of the
Company's forward currency exchange contracts.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1995, the Company had outstanding $8.0 million in short-term
debt, including current portion of long-term debt, and $86.3 million in
long-term debt. As of June 30, 1995, the approximate minimum principal payments
required on the Company's long-term debt in each of the five fiscal years
subsequent to December 31, 1994 are $8.5 million in 1995, $1.0 million in 1996,
$1.4 million in 1997, $7.5 million in 1998 and $7.1 million in 1999.
On July 27, 1995, the Company, through certain of its wholly-owned
subsidiaries, acquired Dyno. The net purchase price of the Dyno Acquisition was
approximately $124 million (approximately $138 million less approximately $14
million in cash acquired by the Company). The Company financed the acquisition
through the combination of a private placement of $110 million in aggregate
principal amount of the Old Notes and the New Credit Facility with a group of
commercial banks. At August 1, 1995, the Company had available to it
approximately $86 million under the New Credit Facility. See Note 1 of the Notes
to consolidated Financial Statements for further discussion.
The Company's (including Dyno's) plans for 1995 capital expenditures for
facilities, equipment and tooling total approximately $45.1 million, of which
approximately $23.4 million represents maintenance expenditures. The Company
intends to finance the capital expenditures with the New Credit Facility and
cash from operations.
Management believes that the Company's long term cash needs will continue
to be provided principally by operating activities supplemented, to the extent
required, by borrowing under the Company's existing and future credit
facilities. Management expects to replace these credit facilities as they expire
with comparable facilities.
As of June 30, 1995, accounts receivable amounted to $69.9 million, an
increase of $11.6 million, compared to $58.3 million at June 30, 1994. The
average collection period at June 30, 1995 was 63.3 days, slightly higher than
the average collection period during calendar 1994 and increased for the reasons
listed below for 1994. The average collection period in calendar year 1994 was
62.3 days compared to 56.8 days in 1993 and 55.0 days in 1992.
Approximately 55% of the accounts receivable increase in 1994 was due to
increased sales in 1994, while the remaining increase was due to long collection
periods. The average collection period in 1994 increased primarily because of a
substantial increase in fuel pump sales to the Company's Marwal joint ventures,
which received longer payment terms consistent with customary payment practices
in Europe and South America.
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SELECTED FINANCIAL AND OPERATING DATA--DYNO
(DOLLARS IN THOUSANDS)
The following table presents certain selected historical combined financial
information of Dyno, prepared in accordance with United States generally
accepted accounting principles, as of the dates and for the periods indicated
below and should be read in conjunction with the financial statements of Dyno
and the related notes thereto included elsewhere in this Prospectus. The Dyno
historical information represents amounts derived from the unaudited combined
financial statements of Dyno for the six months ended June 30, 1995 and 1994 and
the audited combined financial statements of Dyno for the years ended December
31, 1994 and 1993, included elsewhere in this Prospectus. The statement of
income data was translated from NOK to U.S. Dollars at the average exchange
rates of 6.38, 7.29, 7.05 and 7.09 NOK to one U.S. Dollar for the six months
ended June 30, 1995 and 1994 and the years ended December 31, 1994 and 1993,
respectively. The balance sheet data was translated from NOK to U.S. Dollars at
the end of period exchange rates of 6.16, 6.93, 6.76 and 7.52 NOK to one U.S.
Dollar as of June 30, 1995 and 1994, December 31, 1994 and 1993, respectively.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER
JUNE 30, 31,
-------------------- --------------------
1995 1994 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues............................................ $107,832 $ 67,243 $147,147 $ 87,140
Cost of goods sold.................................. 85,065 52,248 112,514 68,396
Gross profit........................................ 22,767 14,995 34,633 18,744
Selling, general and administrative expenses........ 17,358 13,929 29,541 24,055
Operating income (loss)............................. 5,409 1,066 5,092 (5,311)
Interest expense, net............................... 1,036 1,338 2,792 2,516
Net income (loss)................................... $ 2,532 $ (1,658) $ 3,678 $ (7,720)
OTHER DATA:
Depreciation and amortization....................... 5,488 4,234 8,928 6,361
Capital expenditures................................ 6,131 4,945 8,704 25,673
EBITDA(1)........................................... 10,897 5,300 14,020 1,050
BALANCE SHEET DATA:
(at end of period)
Total assets........................................ $138,495 $119,170 $124,146 $105,602
Long-term debt, less current portion................ 18,003 13,056 14,796 20,785
Shareholders' and divisional equity................. 49,994 19,327 42,540 10,293
</TABLE>
- -------------------------
(1) "EBITDA" represents, for any period, the sum of operating income plus
depreciation and amortization. EBITDA is not intended to be a performance
measure that should be regarded as an alternative either to operating income
or net income as an indicator of operating performance or to cash flow as a
measure of liquidity. The Company has included information concerning EBITDA
as it understands that it is used by certain investors as one measure of an
issuer's historical ability to service its debt.
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<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS--DYNO
RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis was prepared by management of the
Company. The management of Dyno Industrier A.S did not participate in the
preparation of this discussion or analysis. The combined financial statements of
Dyno are presented elsewhere herein in NOK. The percentage comparisons listed
below are based on NOK results.
SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO SIX MONTHS ENDED JUNE 30, 1994
Revenues. Dyno reported revenues of NOK 688 million ($108 million) in the
first six months of 1995, an increase of 40.4% compared to revenues of NOK 490
million ($67 million) for the same period in 1994. The increased revenues were
primarily the result of increased shipments of plastic fuel tanks and plastic
tank systems from plants in Spain, Belgium and Norway. These increases represent
the continued growth of new automotive platforms recently started in those
countries. European automobile sales increased by only 1.4% during the first six
months of 1995.
Cost of Goods Sold. Cost of goods sold consists mostly of material, labor
and overhead expenses. Cost of goods sold in the first six months of 1995 was
NOK 543 million ($85 million) compared to NOK 381 million ($52 million) for the
same period in 1994, an increase of 42.5%. Cost of goods sold as a percent of
revenues was 78.9% for the first six months of 1995 compared to 77.8% for the
same period in 1994. The higher costs of goods sold as a percent of revenues
resulted in a lower gross margin of 21.1% for the first six months of 1995
compared to 22.2% for the first six months of 1994. The lower gross profit
margin was primarily caused by the additional costs associated with the startup
of operations in Spain which began in the second half of 1994. There were no
revenues from Dyno's Spanish facility during the first six months of 1994 while
the revenues during the first six months of 1995 contained lower gross margins
as compared to the other Dyno facilities. In addition, higher material prices
for plastic resin contributed to the higher cost of goods sold during the first
six months of 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses were NOK 111 million ($17 million) for the
first six months of 1995, an increase of 8.8% compared to NOK 102 million ($14
million) for the same period in 1994. As a percentage of revenues, SG&A expenses
were 16.1 the first six months of 1995, down significantly from 20.8% for the
same period in 1994 due to a small increase in SG&A expenses combined with the
40.4% increase in revenues for the same period.
Provision for Income Taxes and Net Income. Income taxes increased the
amount of net loss for the first six months of 1994 because taxes were paid in
the countries where profits were earned but tax credits were not available in
the countries where losses were incurred. For the first six months of 1995, the
effective tax rate was 38.1%. As a result of the factors described above, net
income was NOK 16.2 million ($2.5 million) for the first six months of 1995
compared to a net loss of NOK 12.1 million ($1.7 million) for the first six
months of 1994.
1994 COMPARED TO 1993
Revenues. Dyno reported revenues in 1994 of NOK 1,038 million ($147
million), an increase of 68% compared to 1993 revenues of NOK 618 million ($87
million). The NOK 420 million ($60 million) of increased revenues in 1994 was
generated in part by Dyno plants in Germany - NOK 175 million ($25 million);
Belgium - NOK 128 million ($18 million); Spain - NOK 52 million ($7 million);
United Kingdom - NOK 20 million ($3 million), while revenues in France were
unchanged in 1994.
Almost all of the increased revenues were from plastic fuel tanks and
plastic tank systems. The increase in revenues in 1994 in Germany, Belgium and
Spain was attributed to the installation of Dyno fuel tanks on new automotive
platforms introduced in those countries. In Belgium, 1994 represented the first
full year of
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<PAGE> 43
tank production and in Spain, tank production began in the fourth quarter. In
addition, 1994 marked the first significant upturn in European auto sales, which
increased by 6.1% for the year, after two years of recession.
Cost of Goods Sold. Cost of goods sold was NOK 793 million ($113 million)
in 1994 compared to NOK 485 million ($68 million) in 1993, a 63.6% increase. As
a result, cost of goods sold as a percent of revenues was 76.5% in 1994,
compared to 78.5% in 1993. Start-up costs in Spain and Belgium and expansion at
its German plant contributed to the higher percentage cost of goods sold in
1993. In addition, higher revenues in 1994 helped reduce the percentage cost of
goods sold in 1994. These factors resulted in a higher gross profit in absolute
terms, NOK 244 million ($35 million) in 1994 compared to NOK 133 million ($19
million) in 1993, as well as a higher gross profit percentage, 23.5% in 1994
versus 21.5% in 1993.
Selling, General and Administrative Expenses. SG&A expenses were NOK 208
million ($30 million) in 1994, an increase of 22.1% compared to NOK 171 million
($24 million) in 1993. As a percentage of revenues, SG&A expenses were 20.1% in
1994, down significantly from 27.6% in 1993. The decline in percentage SG&A
expenses resulted from the substantial growth in sales during 1994.
Substantially all of the NOK 37 million ($6 million) increase in SG&A expenses
in 1994 was due to start-up costs at Dyno's Belgian and Spanish plants and
expansion at its German plant.
Provision for Income Taxes and Net Income. Income taxes had a significant
impact on net income (loss) in both 1994 and 1993. In 1993, tax credits were not
available to reduce the net loss. Also in 1994, the effective tax rate was very
high because tax credits were not available from France and Spain to reduce the
taxes paid in other countries resulting in income taxes which were greater than
taxable income. Net income for 1994 was NOK 26 million ($3.7 million) compared
to a net loss of NOK 55 million ($7.7 million) in 1993. In 1994, Dyno benefited
from an extraordinary gain on forgiveness of debt in the amount of NOK 33
million ($4.7 million), as intercompany debt at Dyno's subsidiary in France was
forgiven by its parent company. Before this extraordinary item in 1994, Dyno
reported a loss of NOK 7 million ($1.0 million).
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<PAGE> 44
BUSINESS
GENERAL
Walbro is a global leader in the design, development and manufacture of
precision fuel systems and products for automotive and small engine markets
worldwide. The Company manufactures fuel pumps, fuel modules, fuel level
sensors, plastic fuel tanks and fuel rails for sale to OEMs. On July 27, 1995,
the Company acquired Dyno, which is a leading European plastic fuel-tank
manufacturer. Products manufactured for the small engine market include
carburetors and ignitions for chain saws, outboard marine engines, two-wheeled
vehicles, industrial engines and lawn and garden equipment, such as lawn mowers
and weed trimmers. From 1989 to 1994, the Company (excluding Dyno) increased net
sales and EBITDA at the compound rates of approximately 19% and 21% per year,
respectively, despite an automotive industry downturn in 1990-1991. This growth
was primarily due to the introduction of new automotive products, penetration of
additional automotive platforms and a recovery in the small engine industry. The
Company had 1994 net sales of $472.4 million and EBITDA of $51.3 million.
Through its subsidiary, Walbro Automotive Corporation, the Company designs,
develops and manufactures fuel storage and delivery products for a broad range
of U.S. and foreign manufacturers of passenger automobiles and light trucks
(including minivans). The Company holds a strong market position in the U.S.
and, through the Dyno Acquisition and Walbro's joint ventures in France, Brazil,
Japan and South Korea, has diversified its business across a number of
geographic markets. Management believes that, in the North American automotive
market, the Company manufactures fuel pumps for approximately 40% of Ford's
automobiles and light trucks, including the Taurus, Explorer, Windstar and
F-Series Pickup. The Company manufactures all fuel module requirements for Ford
light trucks, and, according to management's estimates, manufactures
approximately 25% of Ford's fuel rail needs. In addition, management estimates
that the Company supplies Chrysler with approximately 70% of its fuel pump and
fuel module requirements, including all requirements for Chrysler's passenger
cars and minivans and most requirements for Chrysler's light trucks, including
the Dodge Ram Truck. Other automotive customers of the Company, including Dyno
and the Company's joint ventures, include Renault, Peugeot, Mercedes-Benz, Fiat,
Volvo, Rover, Saab, Volkswagen, Audi, Daewoo, Hyundai and Kia. Management
believes that the Company manufactures substantially all of the fuel tank
systems for Volvo and Saab and the fuel tank for the Mercedes 190/C Class,
Volkswagen Polo and Renault Twingo. Approximately 73% of the Company's 1994 net
sales, including Dyno on a pro forma basis, were generated by its automotive
operations.
Through its subsidiary, Walbro Engine Management Corporation, the Company
designs, develops and manufactures diaphragm carburetors for portable engines
(such as those used in chain saws and weed trimmers), float feed carburetors for
ground supported engines (such as those used in lawn mowers and generators) and
ignition systems and other components for a variety of small engine products.
The Company believes that it is the world's largest independent manufacturer of
small engine carburetors, with an approximate 76% share of the global diaphragm
carburetor market including sales to such leading chain saw and weed trimmer
manufacturers as Poulan/Weedeater (a Division of Electrolux, A.B.), Homelite (a
Division of Deere & Company), Stihl, Incorporated, McCulloch (a Division of Shop
Vac), Ryobi Ltd. and Kioritz (Echo) Corporation. Walbro believes it has an
approximate 14% share of the global float feed carburetor market, including
sales to Briggs & Stratton Corporation, the world's largest small engine
manufacturer, Kohler Company, Tecumseh Products Co., and to Mercury Marine (a
Division of Brunswick Corporation), a major manufacturer of outboard marine
engines. Walbro also manufactures replacement products for both the automotive
and small engine aftermarkets, sales of which are included within its small
engine product business. Approximately 27% of the Company's 1994 net sales,
including Dyno on a pro forma basis, were generated by its small engine
operations.
DYNO
On July 27, 1995, the Company acquired Dyno for approximately $124 million.
Dyno is a leading designer, manufacturer and marketer of plastic mono-layer fuel
tank systems and components to many European vehicle manufacturers, including
Renault, Mercedes-Benz, Volvo, Peugeot, Saab, Rover, Volkswagen and Audi, and
has operations in France, Norway, Germany, Great Britain, Spain and Belgium.
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<PAGE> 45
Dyno produced approximately 1.5 million plastic fuel tanks in 1994, which
management estimates to be approximately 17% of the European plastic fuel tank
market.
In addition to manufacturing fuel tanks, Dyno manufactures plastic fill
pipes, fuel overflow containers, and other automobile blow-molded components for
cooling, heating and air conditioning systems. Management expects these
products, in the aggregate, to account for approximately 10% of Dyno's 1995
revenues.
Dyno has increased its revenues and EBITDA from $87.1 million and $1.1
million, respectively, in 1993 to $147.1 million and $14.0 million,
respectively, in 1994 (based on the average Norwegian Kroner/U.S. Dollar
exchange rates for each of 1993 and 1994). Dyno has achieved this growth by
capitalizing on the European OEMs' increased use of plastic instead of steel
fuel tanks. Plastic blow molding techniques are especially suited for the short
automobile production runs common in Europe. In addition, Dyno's results have
improved as production in its Spanish, Belgium and German plants has increased
to absorb the fixed start-up costs associated with the first two of these
locations and the expansion costs at its German facility and as Dyno has added
new platforms.
The Dyno Acquisition is a continuation of the Company's efforts to
strengthen its position as a key supplier of integrated fuel systems to the
global automotive market, and it will create the only integrated provider of
plastic fuel tank and fuel pump systems in Europe. The Dyno Acquisition is
expected to provide Walbro with a number of benefits, including:
- - Further diversification of the Company's geographic markets and the increased
ability to participate in the current European automotive market recovery.
Walbro's international sales, on a pro forma basis for the Dyno Acquisition,
would have been 47% of the Company's net sales (excluding joint ventures) in
1994 compared to 24% without Dyno.
- - An increased opportunity for Walbro to sell its fuel system products to Dyno's
European-based OEM customers and for Dyno to sell its products to the European
operations of Chrysler, Ford and General Motors.
- - The ability to share blow molding process technology, especially with respect
to the eventual transfer of Walbro's multi-layer blow molding technology to
Dyno's European facilities.
WALBRO AUTOMOTIVE CORPORATION
AUTOMOTIVE INDUSTRY OVERVIEW
A number of trends within the global automotive market have had and will
continue to have a fundamental impact on the Company's future profitability and
growth prospects, including: the shift by OEMs to the purchase of "systems"
rather than individual components, the globalization of the OEM supplier base,
the expansion of OEM supplier responsibilities and increased emissions
regulation. These trends have contributed to a consolidation of OEM suppliers
which the Company expects will continue.
Purchase of Integrated Systems. North American automotive OEMs are relying
increasingly on suppliers who can provide entire systems rather than a number of
different parts. OEMs can reduce internal engineering efforts and their number
of suppliers by assembling systems rather than components. Management believes
the engineering and technological challenges facing systems suppliers will
continue to grow as these systems become more complex. To strengthen the
Company's position as a major supplier of automotive fuel systems, the Company
is investing in its engineering and testing capabilities and actively pursuing
its systems philosophy. The Company believes that the systems approach will also
be adopted outside North America and that the acquisition of Dyno, which shares
the Company's systems philosophy, will allow the Company to provide systems to
the European market in the future.
Globalization of the OEM Supplier Base. Several OEMs, including Ford,
Walbro's largest customer, are introducing automobile models which are designed
for the world automotive market ("World Cars"). This departure from the
historical practice of designing separate models for each regional market will
require suppliers to establish international development and manufacturing
facilities capable of providing system components with consistent quality on a
worldwide basis. Through the Dyno Acquisition and the Company's
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<PAGE> 46
joint ventures, the Company believes it is well positioned as a major supplier
of fuel systems to the world automotive markets.
Expansion of OEM Supplier Responsibilities. Since the 1980s, Ford, Chrysler
and General Motors have been actively reducing their supplier base to key
suppliers who accept significant responsibility for product management and meet
increasingly strict standards for product quality, on time delivery and
manufacturing costs. These suppliers are expected to control all aspects of
production of system components, including design, development, component
sourcing, manufacturing, quality assurance, testing and delivery to the
customer's assembly plant. The Company believes that many suppliers do not have
the resources to meet these OEM requirements and that the automotive OEM
supplier market will be divided among a smaller group of high quality key
suppliers. The Company has received a number of quality awards from its OEM
customers, including the Ford Q1 Award and Chrysler QE Award, and believes that
this supplier consolidation provides an opportunity for the Company's increased
penetration of the OEM market.
Increasing Emissions Regulation. Beginning in the late 1970s, U.S.
environmental regulations, including fuel economy regulations and the Clean Air
Act and its Amendments, have had a significant impact on fuel systems and the
controls placed on mobile source emissions. As a result, U.S. automotive fuel
systems have evolved from mechanically controlled carbureted systems to more
sophisticated, electronically controlled systems. The resulting system is
composed of an electronic fuel injection system and several subsystems which
provide emission control functions as well as improved performance and fuel
economy. Governmental action in many other parts of the world is forcing a
similar transition to engine management systems which produce less emissions.
For example, the European Economic Community, which previously had less
stringent automotive exhaust regulations, adopted exhaust standards effective
January 1, 1993 which are comparable to 1983 U.S. requirements.
Compliance with these regulations has resulted in efforts to recover vapor
emissions and the development of new "flexible" fuels such as ethanol and
methanol blends. In response to these changes, Walbro has developed a number of
products including ORVR systems, electric pumps designed for electronic fuel
injection systems and plastic fuel tanks which reduce hydrocarbon permeation and
are corrosion resistant to flexible fuels.
AUTOMOTIVE BUSINESS STRATEGY
The Company intends to capitalize on trends in the automotive industry
through the development of its fuel systems technology and expansion of its
product line and customer base. The key elements of the Company's strategy
include:
Systems Approach to Product Development. The Company is utilizing its
expertise in fuel pump technology to develop integrated fuel delivery systems
which reduce evaporative emissions, are compatible with the corrosive nature of
flexible fuels and provide customers with the cost savings and convenience of
purchasing complete systems rather than numerous individual components. The
Company's "systems" approach to product development is designed to allow the
Company to increase the Walbro product content on each vehicle in which Walbro's
products are installed while providing customers with substantial performance
and cost benefits. This system approach has provided the Company with the
capability to equip an automobile with up to $100 in Walbro products in 1995
compared to $15 in 1987, while providing quality improvements for its OEM
customers. The 1995 Ford Windstar with a three-liter engine, for example, is
equipped with $54 of Walbro products, whereas a similar Ford model was equipped
with only $15 of Walbro products in 1987. The Company's ability to assume
responsibility for the development of fuel delivery systems allows OEMs to
reduce internal engineering efforts and use fewer suppliers through the assembly
of systems rather than components.
Global Capabilities. The Company's international manufacturing and market
presence will allow the Company to offer its current and future fuel systems
technology to the global automotive market. The Dyno Acquisition significantly
expands Walbro's presence in Europe and provides the Company with additional
resources and marketing contacts to supply integrated fuel systems to both
European and North American OEMs assembling vehicles in Europe and European OEMs
assembling vehicles in the United States. Dyno's
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<PAGE> 47
plastic tank manufacturing capability will assist Walbro in pursuing its systems
strategy in Europe and in serving OEM customers as they confront new
environmental and regulatory challenges worldwide and introduce World Cars
designed for sale to the global automotive market. In addition, the Company has
entered into joint ventures with foreign manufacturers in Brazil, France, Japan
and South Korea which enable the Company to access those foreign markets. In the
future, the Company may make additional strategic acquisitions of, or enter into
strategic alliances with, fuel systems product manufacturers whose products
could be integrated with the Company's existing product line as part of the
Company's focus on systems development and global capabilities.
Technical and Product Development Capabilities. The Company's engineers
focus their research and development efforts to respond to the technical
challenges facing their customers. The Company has designed its current line of
FSDS products in response to U.S. fuel economy and emission regulations and
changing consumer demands over the past two decades. Management believes that
the Company is well positioned to capitalize on the emergence of more stringent
global emission regulations through the development of a new generation of
products and systems with greater fuel efficiency, reduced component weight,
improved durability, fuel vapor control and flexible fuel compatibility.
Examples of these products include the idle air solenoid, which regulates engine
idle speed in concert with the engine management system, and ORVR systems, which
capture fuel vapors generated in the fuel tank and systematically route them to
the carbon canister for storage and use.
The Company has made substantial investments in fuel system technology,
product design and test capability and technical personnel to lead the
advancement of FSDS technology and respond to customer needs. The Company's new
state-of-the-art systems center in Auburn Hills, Michigan provides the Company
with the full-service product management capability which OEMs require of key
suppliers and provides the Company with a competitive advantage in the
development of proprietary fuel systems technology. Similarly, the Company
intends to build a new systems center in Europe to provide product design and
test capabilities to both Dyno and the Company's Marwal Systems joint venture,
thereby enabling the Company to be a full-service FSDS supplier to European and
North American OEMs manufacturing vehicles in Europe.
AUTOMOTIVE PRODUCTS
The Company's product development engineers design fuel storage and
delivery systems in response to customer needs and in anticipation of evolving
trends in the market. Today's electronic fuel injection system equipped engines
demand an uninterrupted supply of fuel under pressure and some vehicles require
complex fuel tank configurations. The Company specializes in technology employed
in the FSDS and currently manufactures and sells fuel pumps, fuel modules, fuel
level sensors, plastic fuel tanks, bracket assemblies and fuel rails.
In response to the environmental and fuel efficiency demands on today's
automobiles, the Company has developed, and is continually taking steps to
improve, an electric pump designed to deliver fuel under pressure to electronic
fuel injection equipped engines. The pump is fastened to a bracket and flange
assembly, which allows the pump to be mounted in the fuel tank. The assembly has
been increasingly replaced with a single integrated unit, called a fuel module,
which performs all of the functions of the assembly described above. The fuel
module is a complete, value-added package for specific applications composed of
a fuel pump, plastic reservoir, fuel level sensor and related parts. These
injection-molded plastic units fit inside the fuel tank, ensuring continuous
fuel delivery under low fuel conditions, maximum vehicle driving range and
enhanced fuel delivery under high temperature conditions, all at a reduced noise
level. Although vehicles were not equipped with fuel modules until 1988,
approximately 28% of cars and light trucks currently sold by General Motors,
Ford and Chrysler in North America use fuel modules. Walbro supplies
approximately 70% of all of the fuel modules purchased in North America,
principally to Ford and Chrysler.
Approximately 20% of North American automobiles and 65% of European
automobiles produced in 1994 contain plastic fuel tanks. Plastic fuel tanks
offer several advantages over conventional steel tanks, including lighter
weight, greater corrosion resistance to new, cleaner-burning fuels like methanol
and the ability to be produced in unusual shapes to better use available space.
In anticipation of customer demand in North
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<PAGE> 48
America for more sophisticated fuel tanks, the Company built a new facility in
Ossian, Indiana in 1993 to produce plastic multi-layer fuel tanks. Walbro began
production of three-layer plastic fuel tanks during the third quarter of 1994
for the 1995 Ford Windstar. The multi-layer construction of Walbro's new,
six-layer plastic tank substantially eliminates fuel permeation, making this one
of the first plastic tanks which complies with future EPA permeability
requirements due to become effective beginning in model year 1996. The first
production run of six-layer tanks will begin in Fall of 1995 for the 1996 GM
T600 Truck.
Through Dyno, the Company is currently producing single-layer plastic tanks
for the Mercedes-Benz 190/C Class, Audi V8, Saab 900, Volvo 850, Volkswagen
Polo, Renault Twingo, Peugeot 306 and Peugeot 309. As Dyno's customers require
more sophisticated fuel tanks, the Company will likely supplement a portion of
Dyno's single-layer blow molding machines with multi-layer blow-molding machines
to provide the Company's OEM customers in Europe with advanced, plastic fuel
tank process technology.
The Company also produces metal and plastic fuel rails suitable for a
variety of engine applications. An extension of the FSDS concept, these
under-hood components, located on the engine, deliver fuel to the individual
fuel injectors used in electronic multi-point fuel injection systems. Some of
the Company's fuel rails include a patented, award-winning "low profile" design
that allows lower hood lines for better aerodynamics and improved fuel economy,
as well as offering cost savings. Extending the Company's fuel rail technology,
the Company has designed a plastic fuel rail which is superior to metal fuel
rails in cost, weight and handling of more corrosive flexible fuels. In 1994,
Ford began to install this new rail on the three-liter engine in the Windstar.
In 1995, Chrysler began to install this rail on the V-8 engine for its Dodge Ram
and Dakota trucks.
An important advantage of the Company's systems philosophy is that it
assists customers in responding to developments in safety and environmental
standards. For example, current safety and environmental regulations call for a
FSDS that minimizes or eliminates the escape of fuel vapors during refueling,
storage and operation. In January 1994, the EPA announced regulations governing
ORVR systems as mandated by the 1990 Clean Air Act. The regulations require
installation of devices which trap hydrocarbon vapors on a phase-in basis for
passenger cars beginning in model year 1998 and for light trucks in model year
2001. In anticipation of these regulations, the Company developed a variety of
ORVR devices which help prevent fuel vapor loss from fuel delivery systems.
These devices are expected to enter production during 1996.
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AUTOMOTIVE MARKETS AND CUSTOMER BASE
The Company currently provides a wide variety of products to a diverse
customer base in a number of geographic areas. The following table depicts a
summary of the various customers and platforms for which the Company will supply
products during 1995:
<TABLE>
<CAPTION>
CUSTOMER PLATFORM PRODUCT
- ------------------------- ---------------------------------------------------- ---------------------
<S> <C> <C>
Ford..................... Aerostar, Cougar, Econoline, Escort/Lynx, Explorer, Fuel Pump
F-Series Pickup, Mustang, Ranger, Sable,
Thunderbird, Taurus, Windstar
Econoline, F-Series Pickup Fuel Module
Aerostar, Cougar, Crown Victoria, Grand Marquis, Fuel Rail
Mustang, Ranger, Sable, Taurus, Thunderbird, Town
Car, Windstar
Mustang, Ranger Oil Separator
Windstar Fuel Tank
Ford(1).................. F-100, BE-6 Fuel Module
Chrysler................. Cirrus/Stratus, Dodge Ram Truck, K-Base Passenger Fuel Pump/Module
Car, LH (Intrepid, Vision, Concord, New Yorker and Assembly
LHS), Minivan, Neon
Minivan Service Pump/Module
Dodge Dakota and Dodge Ram Truck Plastic Fuel Rail
General Motors........... T600 Truck Fuel Tank
Firebird/Camaro V6 Steel Fuel Rail
Bosch GM Saturn.......... Reservoir without Pump
Hyundai.................. Various Platforms Fuel Pump
KIA...................... Various Platforms Fuel Pump
Daewoo................... J-Car, T-Car (Lemans), V-Car Fuel Pump
Renault(1)............... R19, CL10 Fuel Module
Renault(2)............... R5, R9/R11, R-19, Twingo, X-54, X-06 Fuel Pump/Module
Peugeot(2)............... 106, 205, 306, 405, 504, 505, 605 Fuel Pump, Bracket
Assembly and Level
Sensor
Fiat(2).................. Dedra, Miero, Panda, Punto, Tempra, Tipo, Uno Fuel Pump, Bracket
Assembly and Level
Sensor
Volvo and Nedcar(2)...... 300, 400 Fuel Module, Fuel
V40/D40 Pump, Bracket
Assembly and Level
Sensor
Saab(2).................. 900, 9000, I16 Fuel Pump
Rover(2)................. R8, 200, 400 Fuel Pump, Bracket
Assembly and Level
Sensor
Autolatina(1)............ BE-6 (Escort/Logas) Fuel Sending Unit
Fiasa(1)................. Tempra, Uno, 178 Fuel Module
Volkswagen(1)............ AB9 (Golf Family), Santana Family, CE-14 Fuel Sending Unit
Weber USA................ Harley Davidson Motorcycle Fuel Pump
</TABLE>
- -------------------------
(1) South American customers supplied by Marwal do Brasil.
(2) European customers supplied by Marwal Systems, S.A.
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<PAGE> 50
The following table depicts a summary of the various customers and
platforms for which Dyno will supply products during 1995:
<TABLE>
<CAPTION>
CUSTOMER PLATFORM PRODUCT
- ------------------------- -------------------------------------------------- ----------------------
<S> <C> <C>
Mercedes-Benz............ 190/C Class, Truck Glendewagen, Light Truck Fuel Tank, Filler
Pipe, Expansion Tank
Renault.................. Twingo, Safrane, Espace Fuel Tank, Filler
Pipe, Air Duct
Volvo and Nedcar......... 850, 940/960, DX400 Fuel Tank,
Condensor, Water
Container, Expansion
Tank, Air Ducts, Air
Inlets, Connecting
Pipe
Saab..................... 900, 9000, 640 Fuel Tank, Air Hose,
Air Duct
Peugeot.................. 306, 309, 405, 505 Fuel Tank
Land Rover............... Discovery, Defender Fuel Tank, Air
Intake, Demister
Nozzle, Filler Pipe,
Catchment Bottle
Volkswagen............... Polo Fuel Tank
Audi..................... 100 Diesel, V8 Fuel Tank
</TABLE>
North America. Net sales (excluding Dyno) to the Company's largest
customer, Ford, accounted for 30% of the Company's consolidated net sales in
1994, 30% in 1993 and 33% in 1992. Net sales (excluding Dyno) to Chrysler
accounted for 23%, 21% and 20% of the Company's consolidated net sales in 1994,
1993 and 1992, respectively. Including the Dyno Acquisition, on a pro forma
basis net sales to Ford and Chrysler would have accounted for 21% and 16%,
respectively, of the Company's consolidated net sales in 1994. Both of these
customers have ongoing supply relationships with the Company which are subject
to continued satisfactory price, quality and delivery. The Company is the
primary outside supplier of fuel pumps, the core of the FSDS, to Ford and
Chrysler. In the past, the Company has capitalized on its fuel system components
penetration to supply additional fuel system products, such as fuel modules and
fuel rails, to Ford and Chrysler, and to assume a key role in the development of
new fuel system products, such as ORVR devices. General Motors currently
develops and produces substantially all of its fuel storage and delivery systems
internally.
Europe. In 1991, Walbro began operations in Europe with the establishment
of its Marwal Systems joint venture with Magneti Marelli S.p.A. of Italy in
France. This joint venture has expanded to pursue ventures in Brazil and Mexico.
Marwal's net sales were $104.4 million in 1994 to customers which included
Peugeot, Renault, Fiat, Rover, Volvo, Saab and Nissan. Following the Dyno
Acquisition, on a pro forma basis, Walbro's international sales (excluding joint
ventures) have increased from approximately 24% to approximately 47% of the
Company's consolidated net sales, and Walbro will become the only integrated
FSDS company in Europe. Dyno will provide Walbro with the immediate opportunity
to increase its participation in the improving European automotive market. In
addition, Walbro intends to use its relationships with Chrysler and Ford to
increase Dyno's sales to American manufacturers in Europe. Similarly, Walbro
intends to take advantage of Dyno's relationships with Mercedes-Benz, Renault,
Volkswagen, Peugeot and other European manufacturers to enhance Walbro's
marketing efforts with these European manufacturers.
South America and East Asia. In South America and East Asia, the Company
has established joint ventures to expand its presence in these automotive
manufacturing markets. In January 1993, operations began at the Company's Marwal
do Brasil joint venture in Brazil, which targets the South American automotive
market of approximately two million units per year. In November 1994, the
Company established Korea Automotive Fuel Systems Ltd., a joint venture with
Daewoo Precision Industries Ltd. in South Korea, to manufacture and market fuel
sending units (which include a fuel pump, bracket and level sensor) for the
domestic Korean automotive market (estimated at approximately 1.5 million units
per year) and additional
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<PAGE> 51
export markets established by Korean OEMs. In December 1986, the Company entered
into a joint venture in Japan known as Mitsuba-Walbro, Inc. with Mitsuba
Electric Manufacturing Company. Although the Company does not currently supply
products to the Japanese manufacturing plants located in the U.S., management
believes that the Mitsuba-Walbro joint venture and its marketing efforts in the
Japanese market will enhance the Company's long-term prospects of obtaining
future business from the U.S. operations of the Japanese OEMs.
AUTOMOTIVE COMPETITION
The Company competes with several other manufacturers, including the OEMs
themselves, all of which have greater sales and financial resources than the
Company. In the fuel pump market, the Company's major competitors include Robert
Bosch GmbH, Nippondenso Co., Ltd., VDO (a division of Mannesmann) and Delphi
Automotive Systems (GM's component group). In the fuel rail market, the
Company's major competitors include Delphi, Ford, Handy & Harman and Siemens
A.G. Walbro believes that it has limited competition in the fuel module market.
The Company's largest competitors in the plastic fuel tank market include Kautex
Werke Reinold Hagen A.G., Solvay S.A., Plastic Omnium Industries, Inc. and Ford.
Steel tanks, manufactured primarily by the OEMs, also compete with the Company's
plastic fuel tanks.
The Company principally competes for new business both at the beginning of
the development of new models and upon the redesign of existing models. New
model development generally begins two to five years prior to a product
introduction. Once a producer has been designated to supply parts for a new
program, an OEM usually will continue to purchase those parts from the
designated producer for the life of the program, although not necessarily for a
redesign. Competitive factors in the market for fuel storage and delivery
products include product quality and reliability, cost and timely delivery,
technical expertise and development capability and new product innovation.
AUTOMOTIVE SALES AND ENGINEERING SUPPORT
Sales of the Company's FSDS products to automotive OEMs are made directly
by the Company's sales/engineering force, who not only sell the products but
assist customers with related engineering matters. Because of the automobile
design process, Walbro is able to determine a few years in advance the models
for which it will supply products. Walbro's sales/engineering force works
closely with the Company's engineering departments and systems center in Auburn
Hills in the research, design, development and improvement of new products. Upon
completion of the Company's systems center in Europe, Dyno and Marwal will also
have additional design and research capabilities to provide OEMs in Europe with
full-service product management. Because the Company has the capacity to provide
comprehensive engineering resources with respect to its product line and assume
increasing responsibility for the development of FSDS products, the Company has
been successful in responding to the decisions by OEMs to consolidate suppliers
and reduce internal engineering resources.
AUTOMOTIVE WARRANTY AND OTHER PRODUCT EXPOSURE
The design and manufacture of fuel systems entails an inherent risk that a
governmental authority or a customer may require the recall of one of the
Company's products or a product in which one of the Company's products has been
installed. The Company has taken and intends to continue to take all reasonable
precautions to avoid the risk of exposure to an expensive recall campaign which
could have a material adverse effect on the business and financial condition of
the Company. Dyno through its former parent, Dyno Industrier A.S, carried recall
insurance against losses of up to 50 million NOK, or approximately $7 million,
which insurance covered certain costs incurred in connection with a recall. The
Company is uncertain whether it will insure its European operations against
recall losses following the Dyno Acquisition, and does not believe that recall
insurance in the United States is cost effective.
46
<PAGE> 52
AUTOMOTIVE ACQUISITION AND JOINT VENTURE STRATEGY
As part of a long-term strategy for growth and expansion into new
geographic and product markets, the Company may undertake select acquisitions
and strategic alliances in the form of joint ventures. The Company may make
select acquisitions of fuel system product manufacturers such as Dyno whose
products can be integrated with the Company's traditional products as part of
the Company's system development focus. These acquisitions would contribute new
product technology and open new markets to the Company. In evaluating these
acquisitions, the Company seeks high quality operations which fit with the
Company's expertise in markets where the Company has an established customer
base and a clear vision of opportunities, thus decreasing transition costs and
other financial risks associated with corporate acquisitions. Similarly, each of
the Company's joint ventures provides the Company with the opportunity to
benefit from established customer relationships or a unique technological
advancement which the Company could not develop on its own without the risk and
expense of establishing marketing and manufacturing organizations alone. In
management's opinion, the Company's joint ventures ultimately reduce the cost of
penetrating new markets and limit the Company's financial exposure with respect
to these operations. At the present time the Company has no specific agreements
with respect to any such acquisitions or joint ventures.
WALBRO ENGINE MANAGEMENT CORPORATION
SMALL ENGINE INDUSTRY OVERVIEW
The small engine industry is facing a number of environmentally driven
changes which will require an increased emphasis on fuel systems technology and
the development of new fuel systems products. Growth opportunities outside of
the U.S. are expected to be driven by growth in the use of two-wheeled vehicles
and the increased use of gasoline-powered portable equipment in developing
countries.
Emphasis on Engine Management Systems and New Product
Development. Historically, exhaust emission of gasoline-powered small engines
was unregulated. In 1992, the California Air Resources Board promulgated
comprehensive air quality regulations limiting small engine emissions, which
regulations became effective in August 1995. A more stringent phase is scheduled
to become effective in 1999. In addition, the EPA has proposed similar
regulations scheduled to become effective in August 1996, with the more
stringent phase expected to become effective during the 1999 to 2001 period. The
products designed to meet these new emission standards in the small engine
market will require more sophisticated product research and new product
capabilities. The increased technological content and sophistication required to
meet emission regulations is expected to result in lower unit sales with greater
value added per product and higher unit prices.
Growing Demand in Developing Countries. The Company expects significant
growth in the demand for float feed carburetors in developing countries as per
capita income increases and two-wheeled vehicles become more affordable.
Production of two-wheeled vehicles in The People's Republic of China, for
example, increased from approximately 49,000 units in 1980 to approximately 3.4
million in 1993 and approximately 5.2 million in 1994. In addition, management
believes demand for diaphragm carburetors used in gasoline-powered portable
tools is also expected to grow in these developing countries. The
inaccessibility of electrical power distribution and geographic isolation of
many of these projects, such as the clearing of land and highway construction,
hinder the use of electric-powered equipment.
SMALL ENGINE BUSINESS STRATEGY
To respond to the promulgation of increasingly strict emission regulations
in the small engine industry, the Company is working to develop a small engine
management system which will comply with new emission standards. As the leading
developer of fuel systems technology for portable engines, Walbro is well
positioned to draw upon its expertise in carburetor and ignition system design
and development, as well as its experience in responding to emissions-driven
challenges in the automotive sector. The Company's advanced product design and
development facilities in Michigan and Japan, which are equipped with
sophisticated emission measurement instruments, provide the Company with the
facilities necessary to develop more sophisticated small engine management
systems.
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<PAGE> 53
In addition to developing new technologies, the Company intends to grow its
small engine business through expansion into foreign markets. Walbro's presence
in developing countries such as The People's Republic of China will allow it to
benefit from the growing market for carburetors for two-wheeled vehicles and
from infrastructure development which requires portable power tools.
SMALL ENGINE PRODUCTS
The Company was founded as a manufacturer of carburetors for small engine
products such as lawn mowers and marine engines, and later expanded its customer
base to include manufacturers of chain saws, weed trimmers, snow blowers and
two-wheeled vehicles. The Company's carburetor technology has continually
evolved, with the Company now manufacturing diaphragm and float feed
carburetors, ignition systems and other components for small engine products and
aftermarket applications. Walbro's diaphragm carburetor, float feed carburetor
and ignition system sales accounted for 49%, 25% and 6%, respectively, of the
Company's 1994 small engine revenues. The remaining 20% of small engine revenue
consisted of aftermarket sales.
The diaphragm carburetor uses a diaphragm and a series of interconnected
passages to draw and regulate the amount of fuel delivered to the engine from
the fuel tank. The Company manufactures several basic models of diaphragm
carburetors from which are derived numerous variations. Diaphragm carburetors
are used on chain saw and weed trimmer engines because they will operate in any
position and minimize vapor lock. The Company believes that it is the world's
largest manufacturer of small engine diaphragm carburetors.
The float feed carburetor uses a float in a reservoir of fuel to regulate
the amount of fuel delivered to the engine. In contrast to the diaphragm
carburetor, which operates in all positions, the float feed carburetor operates
only in an upright position. The Company manufactures several basic models of
float feed carburetors from which are derived numerous variations. The Company's
float feed carburetors are used on engines for lawn mowers, garden tractors,
two-wheeled vehicles, marine outboard engines, generators and industrial
engines.
The ignition system uses rotating magnets in a flywheel, which induce an
electrical charge in the ignition module. The ignition module releases this
charge to the spark plug. The Company's ignition systems are used predominantly
in chain saw and weed trimmer applications.
In response to California and proposed EPA air quality regulations, the
Company began to integrate its carburetor and ignition technology to develop an
engine management system which will electronically control both fuel delivery
and ignition functions to limit exhaust emissions. The Company has successfully
refined existing carburetors through the incorporation of extremely close
tolerances which provide more accurate control of the fuel/air mixture to meet
the first set of standards due to take effect in California in 1995 and
nationwide in 1996. Company engineers are developing new technology to meet the
subsequent requirements which will become effective in California in 1999 and
nationwide during the period 1999 to 2001. This development effort focuses on
complete engine management systems that control air flow, fuel delivery and
ignition timing to enhance fuel efficiency and reduce pollution.
SMALL ENGINE MARKETS AND CUSTOMER BASE
The Company sells its small engine products in a global market. Carburetors
and small engine ignitions are sold by Walbro's sales/engineering staff directly
to engine manufacturers. The Company sells a major portion of its diaphragm
carburetors to most of the leading chain saw and weed trimmer manufacturers,
including Poulan/Weedeater (a Division of Electrolux, A.B.), Homelite (a
Division of Deere & Company), Stihl, Incorporated, McCulloch (a Division of Shop
Vac), Ryobi Ltd. and Kioritz (Echo) Corporation. The Company sells float feed
carburetors to several of the leading manufacturers of small engines, including
Briggs & Stratton Corporation, the world's largest small engine manufacturer.
Mercury Marine (a Division of Brunswick Corporation), a major outboard engine
manufacturer, buys all of its outboard engine carburetors from the Company.
Eight of the Company's small engine customers in 1994 collectively accounted for
approximately 60% of small engine product sales and approximately 16% of the
Company's net sales, including Dyno on a pro forma basis.
48
<PAGE> 54
One of Walbro's opportunities for growth in the small engine industry is
the Chinese market. In January 1994, the Company acquired a 60% interest in
Fujian Hualong Carburetor Co., Ltd. (Fujian) which manufactures and markets
carburetors for two-wheeled vehicles in The People's Republic of China. In
addition, the Company is building a new manufacturing facility near Beijing to
provide additional capacity to take advantage of growth in the two-wheeled
vehicle market.
SMALL ENGINE COMPETITION
The Company has several competitors that manufacture diaphragm carburetors
for the global small engine market, including Zama Industries, Ltd., Tillotson
Commercial Motors Ltd. and Dell' orto, some of which are divisions of large
diversified organizations which have total sales and financial resources
exceeding those of the Company. In the market for float feed carburetors, the
Company has several competitors, including Briggs & Stratton and Tecumseh, both
of which have greater sales and financial resources than the Company. The
Company's major competitor in the ignition systems market is Phelon.
AFTERMARKET PRODUCTS
The Company's aftermarket sales of both automotive and small engine
products are consolidated within the small engine business. The Company sells
automotive aftermarket products for both carbureted vehicle applications and
electronic fuel injection vehicle applications through independent distributors,
such as Federal Mogul and Standard Motor Products, and jobbers and dealers
worldwide. Some automotive products are also sold to national manufacturing and
distribution organizations for sale under private brand names or to industrial
customers for use in special applications. Aftermarket sales accounted for $25.1
million in 1994 compared to $11.3 million in 1990.
The Company sells automotive aftermarket products to support its OEM
customers and to benefit from higher margins on aftermarket sales. Management
believes that the overall market size for automotive electronic fuel injection
systems components sold to the aftermarket will continue to grow as the
population of vehicles equipped with electronic fuel injection systems ages.
The Company sells its own brand name small engine aftermarket products
through independent distributors, jobbers and dealers worldwide. Some of these
products are also sold to national manufacturing and distribution organizations
for sale under private brand names or to industrial customers for use in special
applications.
MANUFACTURING AND FACILITIES
The Company (including Dyno and the Company's joint ventures) conducts
operations in approximately 1.65 million square feet of space in a total of 25
locations. The Company believes that substantially all of its property and
equipment is in good condition. The Company has not experienced significant
limitations on its ability to transfer products between, or sell products in,
various countries.
Each of the Company's manufacturing facilities practices advanced inventory
control procedures and has installed statistical process controls to insure high
levels of quality. In that regard, some of Walbro's factories have received the
Ford Q1 Award and the Chrysler QE Award. In connection with its sales to Saab,
which is partially owned by General Motors, Dyno's Norway facility has been
named a General Motors Supplier of the Year four years in a row beginning in
1991. Various other Company factories have been recognized by Mercury Marine,
Stihl and Federal Mogul for excellence in product quality and delivery.
When justified by volume, the Company has invested in labor-saving
automated machining, assembly and testing equipment. For example, the operation
in Meriden, Connecticut employs computer controlled molding machines to form the
Company's plastic in-tank reservoirs. These machines are individually
programmable so that variations can be reduced and refined as part of the
continuous control process. Another example is the Caro, Michigan manufacturing
facility's automated fuel pump assembly line, which is capable of producing
1,000 pumps per hour using only six persons. Over the past several years, the
Company has reduced the cost to manufacture its fuel pumps at this facility by
reducing both labor and material costs. In
49
<PAGE> 55
Ettlingen, Germany Dyno uses a fully automated assembly line for production of
plastic fuel tanks for the Mercedes-Benz 190/C Class. In addition to these
examples of purchased automation, the Company designs and builds major portions
of its own machining and assembly equipment. This in-house capability permits
close control over the manufacturing process and helps the Company stay
competitive in both cost and quality.
PATENTS, RESEARCH AND PRODUCT DEVELOPMENT
The Company owns approximately 150 U.S. patents and 600 international
patents in the fuel systems field and has a number of applications pending.
These patents include proprietary ownership of designs for control devices for
engines and engine systems, fuel pumps, fuel rails, fuel regulators, fuel level
sensors, fuel reservoirs and fuel system vapor control devices, carburetors and
throttle bodies, as well as ancillary devices for engine and vehicle
applications.
Although these patents are significant to the Company, management believes
that in many cases the adaptation and use of the technology involved and the
proprietary process technology employed to manufacture these products are more
important. The Company maintains a systems center in Michigan for the research,
design and development of new products. The Company's engineering departments
also engage in design, development and testing. In 1994, 1993 and 1992, the
Company (excluding Dyno) spent approximately $12.2 million, $9.5 million and
$9.0 million, respectively, for engineering and research and product
development. After giving effect to the Dyno Acquisition on a pro forma basis,
the Company has spent approximately $13.8 million in 1994 for engineering and
research and product development.
COMPONENTS, MATERIALS AND INVENTORY
The Company has a number of sources for the components used in
manufacturing its products. The suppliers who manufacture components often
utilize tools and dies owned by the Company. If a supplier were to discontinue
supplying any component, it could take the Company some time to replace the
supplier; however, the Company believes its operations would not be materially
adversely affected.
The Company's principal customers provide it with estimates of their annual
needs and make monthly purchase commitments. As a result, the Company does not
experience material backlog. Consequently, the Company manages its manufacturing
facilities on a just-in-time supply basis and does not maintain a finished
product inventory of any significance. The Company does not believe the Dyno
Acquisition will have a material effect on the Company's materials sourcing or
inventory management.
EMPLOYEES
As of November 1, 1995, the Company, including Dyno, had approximately
4,100 employees. The Company believes that its relations with its employees are
satisfactory. All of Dyno's approximately 900 plant employees are unionized. All
of the Company's United States plant employees are non-unionized except
approximately 450 employees at its Michigan locations. The Company's three-year
contract with the bargaining unit for these Michigan plants expires in November
1998. Management anticipates that it will be able to renegotiate this union
contract successfully without a material adverse effect on the Company.
REGULATION
The Company's operations are subject to increasingly stringent
environmental laws and regulations governing air emissions, waste water
discharges, the generation, treatment, storage, disposal and remediation of
hazardous substances and wastes, and employee health and safety. Certain of
these laws can impose joint and several liability for releases or threatened
releases of material upon certain statutorily defined parties, including the
Company, regardless of fault or the lawfulness of the original activity or
disposal.
The Company believes it is currently in material compliance with applicable
environmental laws and regulations. The Company's compliance with environmental
laws and regulations has not materially affected the results of its operations
or the conduct of its business; however, the Company cannot predict the future
effects of such laws and regulations.
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<PAGE> 56
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The directors and principal executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------ ---- --------------------------------------------------------
<S> <C> <C>
Lambert E. Althaver........... 64 Chairman of the Board, President, Chief Executive
Officer and Director
Robert H. Walpole............. 55 Vice President and a Director; President of Walbro
Engine Management Corporation
Gary L. Vollmar............... 44 Vice President; President of Walbro Automotive
Corporation
Richard H. Whitehead, III..... 51 Vice President
Daniel L. Hittler............. 60 Chief Administrative Officer and Secretary
Michael A. Shope.............. 51 Chief Financial Officer and Treasurer
William T. Bacon, Jr.......... 72 Director
Frank E. Bauchiero............ 60 Director
Herbert M. Kennedy............ 66 Director
Vernon E. Oechsle............. 52 Director
Robert D. Tuttle.............. 70 Director
John E. Utley................. 54 Director
</TABLE>
The Company's Board of Directors consists of three classes of directors
serving three-year terms with one class standing for election at each annual
meeting of stockholders. Messrs. Bacon, Bauchiero and Oechsle have been elected
to serve for a term expiring in 1996. Messrs. Kennedy, Tuttle and Walpole have
been elected to serve for a term expiring in 1997. Mr. Althaver and Mr. Utley
have been elected to serve for a term expiring in 1998.
Lambert E. Althaver has been President since 1977, and Chief Executive
Officer of the Company since 1982 and became Chairman of the Board of the
Company in 1987. Mr. Althaver joined the Company in 1954 and has served as a
Director since 1968. Robert H. Walpole is the brother-in-law of Mr. Althaver.
Robert H. Walpole has been a Vice President of the Company since 1983 and
President of Walbro Engine Management Corporation since 1991. Mr. Walpole joined
the Company in 1970 and has served as a Director since 1983. Mr. Walpole is the
brother-in-law of Lambert E. Althaver.
Gary L. Vollmar has been President of Walbro Automotive Corporation since
1993. He has served as a Vice President of the Company since 1989 and was Chief
Financial Officer from 1989 to 1993. Prior to joining the Company in 1978 as
Controller, Mr. Vollmar was a practicing Certified Public Accountant.
Richard H. Whitehead, III became a Vice President of the Company in 1988.
From 1988 to 1990, Mr. Whitehead served as the Vice President/General Manager of
the Company's Meriden, Connecticut operations. Mr. Whitehead was the President
of Whitehead Engineered Products, Inc. from 1980 to 1988, prior to its
acquisition by the Company.
Daniel L. Hittler has served as Chief Administrative Officer since 1994 and
Secretary of the Company since 1993. He was Director of Administration from 1992
to 1994. He was the Director of Technical Planning from 1989 to 1992.
Michael A. Shope has served as Chief Financial Officer of the Company since
December 1993 and as Treasurer since April 1994. From 1986 to 1993 he was the
Treasurer of Libbey-Owens-Ford Co., a manufacturer of glass for automotive and
industrial applications.
William T. Bacon, Jr. has served as a Director of the Company since 1972.
Mr. Bacon has been associated with the Chicago Corporation since 1994. Mr. Bacon
also served as an Honorary Director of Stifel
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<PAGE> 57
Financial Corp. (the parent of Stifel, Nicolaus & Company, Incorporated, one of
the Initial Purchasers) from 1984 to 1994. Prior to that, he was a Managing
Partner of Bacon Whipple & Co., Inc. He is a director of Safecard Services,
Incorporated.
Frank E. Bauchiero became a Director of the Company in 1990. Mr. Bauchiero
has been the President-Industrial, North American Operations, Dana Corporation
since December 1990. Mr. Bauchiero was a Dana Group Vice President from 1987 to
1990. Dana Corporation manufactures automotive product systems, mobile
off-highway equipment and industrial equipment. Mr. Bauchiero also serves as a
director for Regal Beloit, M&I Bank of Beloit, Madison Kipp Corp. and Rockford
Products Corporation.
Herbert M. Kennedy has served as a Director of the Company since 1981. In
July 1995, Mr. Kennedy retired as a Professor of Business Administration at
Principia College, a position Mr. Kennedy had held since before 1989.
Vernon E. Oechsle became a Director of the Company in October 1994. He has
been Chief Operating Officer of Quanex Corporation, a manufacturer of specialty
steel and aluminum products, since 1993. From 1990 to 1992, he was Chief
Executive Officer of Allied Signal Automotive. Before that he was Group
Executive of Automotive and Trucks for Dana Corporation and President of
Hayes-Dana, Dana's Canadian subsidiary.
Robert D. Tuttle became a Director of the Company in 1981. Mr. Tuttle is
also a Director of FMB Corp., CMS Energy Corporation, Woodhead Industries, Inc.
and Guardsman Products, Inc. From before 1989 to 1991, Mr. Tuttle was Chairman
and Chief Executive Officer of SPX Corporation, which produces specialty tools
and diagnostic equipment and distributes automotive components.
John E. Utley became a Director of the Company in 1993. Mr. Utley has also
served as a director and Chairman of the Board of Kelsey-Hayes Company since
1991 and was its President from 1989 to 1991. He is a Senior Vice President of
Varity Corporation. Kelsey-Hayes Company produces anti-lock braking systems,
traction systems and wheel assemblies for the automotive industry. He also
serves as Chairman of the Board of Hayes Wheels International, Inc.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Pursuant to the provisions of the Delaware General Corporation Law
("DGCL"), the Company has adopted provisions in its Certificate of Incorporation
which eliminate the personal liability of its directors to the Company or its
stockholders for monetary damages for breach of their duty of due care to the
fullest extent permitted by the DGCL, and which require the Company to indemnify
its directors and permit the Company to indemnify its officers or employees to
the fullest extent permitted by the DGCL, including those circumstances in which
indemnification would otherwise be discretionary, except that the Company shall
not be obligated to indemnify any such person (i) with respect to proceedings,
claims or actions initiated or brought voluntarily by any such person and not by
way of defense, or (ii) for any amounts paid in settlement of an action
indemnified against by the Company without the prior written consent of the
Company. The Company has a directors' and officers' liability insurance policy.
52
<PAGE> 58
EXECUTIVE COMPENSATION
The table below provides information concerning the annual and long-term
compensation for services in all capacities to the Company for the fiscal years
ended December 31, 1994, 1993 and 1992 of the persons who were at December 31,
1994 (i) the Chief Executive Officer and (ii) the four other most highly
compensated (based upon combined salary and bonus) executive officers of the
Company (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS(1)
ANNUAL COMPENSATION ------------
-------------------- SECURITIES ALL OTHER
NAME AND SALARY BONUS UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) OPTIONS(#) ($)(2)
- ----------------------------------------- ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Lambert E. Althaver,..................... 1994 $330,000 $ 0 14,559 $ 11,575
Chairman, President and 1993 305,000 0 11,244 11,229
Chief Executive Officer 1992 280,008 13,147 8,076 2,220
Robert H. Walpole,....................... 1994 242,000 0 0 11,725
Vice President 1993 235,000 0 0 10,244
1992 220,008 9,260 0 1,200
Gary L. Vollmar,......................... 1994 200,000 0 8,824 8,849
Vice President 1993 166,670 0 6,452 7,705
1992 125,004 11,832 3,605 1,563
Richard H. Whitehead, III,............... 1994 170,000 0 7,500 5,006
Vice President 1993 165,000 0 6,083 6,866
1992 165,000 192,752 0 0
Daniel L. Hittler,....................... 1994 125,000 0 5,515 7,422
Secretary 1993 120,000 0 4,424 7,136
1992 112,008 0 3,230 1,750
</TABLE>
- -------------------------
(1) None of the Named Officers had any restricted stockholdings as of December
31, 1994.
(2) These amounts represent matching and retirement contributions made by the
Company pursuant to its salary savings plan, entitled the "Advantage Plan."
53
<PAGE> 59
The following table provides information on grants of stock options in 1994
to the Named Officers pursuant to the Company's Equity Based Long Term Incentive
Plan (the "Equity Plan"). No stock appreciation rights were granted under the
Equity Plan during 1994.
OPTION GRANTS IN 1994
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS FOR
OPTIONS GRANTED TO EXERCISE OPTION TERMS(2)
GRANTED EMPLOYEES PRICE EXPIRATION --------------------
NAME (#)(1) IN 1994 ($/SH) DATE 5%($) 10%($)
- --------------------------------- ---------- ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Lambert E. Althaver.............. 14,559 16.4% $17.00 12/6/2004 $155,636 $394,403
Robert H. Walpole................ 0 0 -- -- -- --
Gary L. Vollmar.................. 8,824 9.9 17.00 12/6/2004 94,329 239,042
Richard H. Whitehead, III........ 7,500 8.5 17.00 12/6/2004 80,175 203,175
Daniel L. Hittler................ 5,515 6.2 17.00 12/6/2004 58,955 149,401
</TABLE>
- -------------------------
(1) These options were granted under the Equity Plan, approved, as amended, by
the stockholders on April 19, 1995. The Named Officers may exercise the
options at a price of $17.00 per share at any time after June 5, 1995
through December 6, 2004. Each option includes the grant of a stock
performance award under the terms of which the Named Officer will receive a
target number of shares of Common Stock if the $17.00 share price
appreciates to $37.27 per share by December 6, 1999.
(2) Gains are reportable net of the option exercise price but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on stock option exercise are
dependent on the future performance of Common Stock, as well as the option
holder's continued employment throughout the vesting period. The amounts
reflected in the Table may not necessarily be achieved.
The following table provides information for the Named Officers'
unexercised options at December 31, 1994. Included are options granted under the
Equity Plan and the 1983 Incentive Stock Option Plan. No options were exercised
by the Named Officers in 1994.
AGGREGATED OPTION EXERCISES IN 1994
AND YEAR-END 1994 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1994(#) DECEMBER 31, 1994($)(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Lambert E. Althaver............................ 40,790 14,559 $ 135,563 $29,118
Robert H. Walpole.............................. 2,400 0 19,488 0
Gary L. Vollmar................................ 19,916 8,824 63,671 17,648
Richard H. Whitehead, III...................... 6,083 7,500 0 15,000
Daniel L. Hittler.............................. 9,154 5,515 12,180 11,030
</TABLE>
- -------------------------
(1) Based upon the difference between the exercise prices and the $19.00 closing
price of the Common Stock on the Nasdaq National Market on December 30,
1994.
54
<PAGE> 60
The following table provides information on awards in 1994 to the Named
Officers pursuant to the Company's Equity Plan and its Engine Management
Corporation Incentive Compensation Plan.
LONG-TERM INCENTIVE PLANS AWARDS IN 1994
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER
NON-STOCK PRICE-BASED
PLANS
PERFORMANCE OR OTHER ------------------------
NUMBER OF SHARES, PERIOD UNTIL TARGET
NAME UNITS OR OTHER RIGHTS(#) MATURATION OR PAYOUT ($)
- --------------------------------- ------------------------ -------------------- ------------------------
<S> <C> <C> <C>
Lambert E. Althaver.............. 0 N/A N/A
Robert H. Walpole................ 24 Units(1) 1 1/2 years $362,779
Gary L. Vollmar.................. 0 N/A N/A
Richard H. Whitehead, III........ 0 N/A N/A
Daniel L. Hittler................ 0 N/A N/A
</TABLE>
- -------------------------
(1) Award granted under the Company's Engine Management Incentive Compensation
Plan, which provides an opportunity for participants to share a pool of
money (the "Pool") if Walbro Engine Management Corporation meets cumulative
financial performance goals ("EBIT Target") over a five year period,
commencing July 1, 1991. A total of 500 units are being granted under the
Plan, 100 each fiscal year. Each participant, including the Named Officer,
is entitled to the percentage of the Pool calculated by dividing his total
units granted by 500. Threshold before any dollars are assigned to the Pool
is 70% of the EBIT Target. The value of the Pool as of the determination
date is equal to the product of the fair market value of Walbro Engine
Management Corporation (as determined by an independent investment advisor)
and a target percentage. If the cumulative EBIT Target is achieved or
exceeded, the target percentage is 15%. If the performance is between 70%
and 100% of the EBIT Target, the target percentage is decreased
proportionately.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company has entered into employment agreements with Messrs. Althaver,
Hittler and Vollmar which have terms expiring on August 5, 1996 and provide them
minimum base salaries of $305,000, $120,000 and $150,000, respectively, subject
to review and increase by the Board of Directors Compensation Committee (the
"Compensation Committee"). Each employment agreement is renewable automatically
for twelve months, subject to cancellation by the Company prior to the
anniversary date. In addition, each is entitled to participate in the Equity
Plan. The Company has also entered into an employment agreement with Mr. Walpole
which has a term expiring on September 30, 1996 and provides him a minimum base
salary of $235,000, subject to review and increase by the Compensation
Committee. In addition, he is entitled to participate in the Engine Management
Incentive Compensation Plan. The Company also entered into an employment
agreement with Mr. Whitehead, which has a term expiring in May 1996 and provides
him with a minimum base salary of $180,000 per year subject to review by the
Compensation Committee.
Each employment agreement includes a severance clause under the terms of
which the employee is entitled to severance pay if during the initial term of
the agreement or a renewal term, his employment is terminated by the Company
other than as a result of his (i) permanent disability or (ii) termination for
cause. The severance pay payable under the agreements is an amount equal to the
annual base compensation being paid to the Named Officer at the date of
termination, offset by the amount due under the portion of the employment
agreement that had not yet been performed, if any, and the amount of
compensation the Named Officer may receive from any other employers during the
twelve months immediately following the date notice of termination is given to
him by the Company.
In 1990, the Company entered into Severance Compensation Consulting
Agreements (the "Severance Agreements") with over 40 senior employees, including
each of the Named Officers. The Severance Agreements were the result of a
determination by the Board of Directors that it was important to, and in the
best interests of the Company and its stockholders to ensure that, in the event
of a possible change in control
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of the Company, the stability and continuity of management will continue
unimpaired, free of distraction incident to any such change in control.
The Severance Agreements provide that if during a two-year period following
a Change in Control of the Company (as defined below), an employee's employment
is terminated by the Company other than for cause, death or permanent
disability, or if the employee terminates employment for good reason, the
employee will receive (1) a single sum payment equal to either three times or
two times (depending upon the individual employment agreement) the employee's
average compensation of the prior five calendar years (including incentive
bonus), and (2) 36 months of additional medical, dental, life, disability and
accident insurance and other perquisites substantially similar to that in effect
for the employee at the time of the Change in Control of the Company. However,
in no event can the payments and benefits exceed an amount which would render
them "parachute payments" under Section 280G of the Internal Revenue Code. In
order to assure an orderly transition in the event of a Change in Control of the
Company, the covered employees have agreed to remain in the employ of the
Company for a period of ninety (90) days following a Change in Control of the
Company. "Change in Control of the Company" is defined to include certain
reorganizations, consolidations or mergers of the Company, certain sales or
transfers of substantially all the assets of the Company, approval by the
stockholders of the Company of its liquidation or dissolution, a change in the
composition of the Company's Board of Directors such that it is comprised of
directors a majority of whom are not "Continuing Directors" as defined in the
agreements, or the acquisition by certain persons of thirty percent or more of
the combined voting power of the Company's outstanding securities.
The Severance Agreements further provide that following a Change in Control
of the Company, if the employee terminates employment other than for good reason
and the Company could not have terminated the employee for cause, death or
disability, the employee may elect to serve as a consultant to the Company for a
one-year period following the termination of employment and will be paid a
single sum amount equal to the annual compensation, including bonus, paid the
individual during the immediately preceding calendar year. The individual will
also be provided an additional year of coverage with respect to medical, dental,
life, disability and accident insurance and other perquisites substantially
similar to the insurance and other perquisites at the time the employee elects
to render consulting services.
The Severance Agreements have a term of two years, renewable automatically
for additional twelve month periods, subject to cancellation by the Company upon
six months advance notice. If there has been a Change in Control of the Company
during the term of the Severance Agreements they would expire two years after
the Change in Control of the Company.
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<PAGE> 62
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial
ownership of Common Stock by owners of more than five percent (5%) of the Common
Stock, each of the Directors, each of the Named Officers and all Directors and
executive officers of the Company as a group as of November 1, 1995:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENTAGE
NAMES OWNERSHIP(1) OF CLASS
- ------------------------------------------------------------------ ----------------- ----------
<S> <C> <C>
David L. Babson & Co., Inc. ...................................... 784,900(2) 9.2%
The Capital Guardian Trust Company and
The Capital Group Companies, Inc. .............................. 447,000(3) 5.2%
Lambert E. Althaver............................................... 214,108(4) 2.5%
William T. Bacon, Jr. ............................................ 67,775(5) *
Frank E. Bauchiero................................................ 11,000(6) *
Daniel L. Hittler................................................. 17,507(7) *
Herbert M. Kennedy................................................ 12,500(8) *
Vernon E. Oechsle................................................. 11,000(9) *
Robert D. Tuttle.................................................. 16,000(10) *
John E. Utley..................................................... 10,500(11) *
Gary L. Vollmar................................................... 33,883(12) *
Robert H. Walpole................................................. 194,455(13) 2.3%
Richard H. Whitehead, III......................................... 14,046(14) *
All Directors and Executive Officers as a Group (12 persons)...... 608,383(15) 7.1%
</TABLE>
- -------------------------
* Indicates that the percentage beneficially owned does not exceed one
percent.
(1) The named stockholders have sole voting and dispositive power over all
shares except as otherwise noted and except as to those shares over which
beneficial ownership is disclaimed.
(2) As reported on a Schedule 13G dated February 10, 1995 filed with the
Commission by David L. Babson & Co., Inc. According to such Schedule 13G,
David L. Babson & Co., Inc. has sole voting power with respect to 447,800
of these shares, shared voting power with respect to 337,100 of these
shares and sole dispositive power with respect to all 784,900 of these
shares. The address of the Stockholder is One Memorial Drive, Cambridge, MA
02142-1300.
(3) As reported on a Schedule 13G dated February 8, 1995 filed with the
Commission by The Capital Group Companies, Inc. and The Capital Guardian
Trust Company. The Capital Guardian Trust Company is a wholly-owned
subsidiary of The Capital Group Companies, Inc. According to such Schedule
13G, The Capital Group Companies, Inc. and The Capital Guardian Trust
Company each have sole voting power with respect to 277,000 of these shares
and no voting power with respect to the remaining 170,000 shares and have
sole dispositive power with respect to all 447,000 of these shares. The
address of the Stockholder is c/o 333 S. Hope Street, Los Angeles, CA
90071.
(4) Includes 74,643 shares owned by Mr. Althaver's wife. Mr. Althaver disclaims
beneficial ownership of these shares. Also includes 55,349 shares which are
covered by presently exercisable options under the Company's stock option
plans and 17,734 shares held for the account of Mr. Althaver by the trustee
of the Company's Advantage Plan.
(5) Includes 3,300 shares owned by Mr. Bacon's wife and 5,025 shares owned by
Mr. Bacon's son. Mr. Bacon disclaims beneficial ownership of these shares.
Also includes 10,000 shares over which Mr. Bacon shares voting power as
co-trustee of two trusts for the benefit of the beneficiaries of the estate
of his deceased mother. Includes 10,000 shares which are exercisable under
the Equity Plan.
(6) Includes 10,000 shares which are exercisable under the Equity Plan.
(7) Includes 1,600 shares owned by Mr. Hittler's wife and 1,500 shares owned by
Mr. Hittler. Mr. Hittler disclaims beneficial ownership of these shares.
Also includes 131,169 shares which are covered by
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<PAGE> 63
presently exercisable options under the Company's stock option plans
and 1,238 shares held for the account of Mr. Hittler by the trustee of the
Company's Employee Stock Ownership Plan.
(8) Includes 1,250 shares over which Mr. Kennedy has voting power as trustee of
a trust. Also includes 1,250 shares over which Mr. Kennedy's wife has sole
voting power as trustee of a trust and as to which Mr. Kennedy disclaims
beneficial ownership. Includes 10,000 shares which are exercisable under
the Equity Plan.
(9) Includes 10,000 shares which are exercisable under the Equity Plan.
(10) Includes 3,000 shares which Mr. Tuttle owns jointly with his wife, over
which Mr. Tuttle and his wife share voting and dispositive power. Includes
10,000 shares which are exercisable under the Equity Plan.
(11) Includes 10,000 shares which are exercisable under the Equity Plan.
(12) Includes 28,740 shares which are covered by presently exercisable options
under the Company's stock option plans and 3,643 shares held for the
account of Mr. Vollmar by the trustee of the Company's Advantage Plan.
(13) Includes 79,385 shares over which Mr. Walpole shares voting power as
co-trustee of a trust for the benefit of the beneficiaries of the estate of
his deceased father. Includes 13,325 shares owned by Mr. Walpole's wife.
Mr. Walpole disclaims beneficial ownership of these shares. Also includes
165 shares held for the account of Mr. Walpole by the trustee of the
Company's Advantage Plan.
(14) Includes 13,583 shares which are covered by presently exercisable options
under the Company's stock option plans. Also includes 463 shares held for
the account of Mr. Whitehead by the trustee of the Company's Advantage
Plan.
(15) Includes 178,050 shares which are covered by presently exercisable options
under the Company's stock option plans. Also includes 22,005 shares held
for the account of three officers of the Company by the trustee of the
Company's Advantage Plan and includes 1,238 shares held for one officer of
the Company by the trustee of the Company's Employee Stock Ownership Plan.
CERTAIN TRANSACTIONS
On November 1, 1995, Messrs. Althaver, Vollmar and Walpole were indebted to
the Company in the amount of $161,250, $145,125 and $112,875, respectively, and
each amount is the maximum indebtedness since January 1, 1994. The loans carry
interest at the prime rate in effect from time to time 8.75% on November 1,
1995. The principal amount of the indebtedness in each case relates to loans
made by the Company to the Named Officers and to approximately 24 other
employees (collectively, the "Borrowers") to permit them to repay individual
bank loans that came due. The bank loans originated approximately five years ago
to enable the Borrowers collectively to acquire approximately 84,500 shares of
the Company's common stock from UIS, Inc., which had acquired the shares in 1987
as part of an unsuccessful tender offer strategy.
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<PAGE> 64
DESCRIPTION OF OTHER INDEBTEDNESS
NEW CREDIT FACILITY
In connection with the Initial Offering, the Company entered into the New
Credit Facility among the Company, certain of its subsidiaries, Comerica Bank,
as agent, and the other lenders named therein. The New Credit Facility consists
of a $135 million multicurrency revolving loan facility for the Company and
certain of its wholly-owned domestic and foreign subsidiaries, including a $5
million swing line facility and a $17 million letter of credit facility. The New
Credit Facility has an initial term of five years, with annual one year
extensions of the revolving credit portion of the facility available in the
lenders' discretion.
At any time within three years after closing of the New Credit Facility,
the Company may convert up to $70 million of revolving loans under the New
Credit Facility to term loans in minimum amounts of $15 million and with
maturities not exceeding seven years from the closing of the New Credit
Facility.
Borrowings under the New Credit Facility bear interest at a per annum rate
equal to the agent's base rate or the prevailing interbank offered rate in the
applicable offshore currency market, plus an additional margin ranging from 0.5%
to 1.75% based on certain financial ratios of the Company. The annual letter of
credit fee ranges from 0.5% to 1.5% based on the same financial ratios. The
Company may upon notice convert the interest rate applicable to any term loan
for its remaining term from a floating rate to a fixed rate option, to be
determined at the time of such conversion, based on the lenders' funding rate in
the interbank swap market. The Company is also required to pay a quarterly
unused facility fee.
The New Credit Facility is secured by first liens on the inventory,
accounts receivable and certain intangibles (excluding intellectual property) of
the Company and certain of its wholly-owned domestic subsidiaries and by a
pledge of 100% of the stock of wholly-owned domestic subsidiaries, and up to 65%
of the stock of wholly-owned foreign subsidiaries. Collateral for the New Credit
Facility will secure the 2004 Notes on an equal and ratable basis. The Company
and its wholly-owned domestic subsidiaries guaranteed payment of domestic and
foreign borrowings under the New Credit Facility and the Company's wholly-owned
foreign subsidiaries guaranteed payment of foreign borrowings under the New
Credit Facility.
The New 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.
SENIOR NOTES DUE 2004
In October 1994, the Company sold $45 million in principal amount of the
2004 Notes. The 2004 Notes require quarterly interest payments due January 1,
April 1, July 1 and October 1. The agreement requires the Company to maintain
consolidated adjusted net worth of $85 million, plus 25% of cumulative net
income for each year beginning in 1995, and a funded debt to total capital ratio
not greater than .65 to 1. The agreement also prohibits the Company from
consolidating or merging with another corporation except under certain
circumstances and from disposing of substantially all of its assets. The 2004
Note Agreement gives the holders of the 2004 Notes the option of having their
2004 Notes repurchased at the principal amount thereof in the event of a Change
of Control (as defined in the 2004 Note Agreement). In addition, the 2004 Note
Agreement contains events of default including (i) a default in the payment of
interest, (ii) a default in the payment of any principal or required prepayment
or premium, (iii) defaults under certain other debt instruments, and (iv)
certain events of insolvency or bankruptcy of the Company or its subsidiaries.
The 2004 Notes will convert to secured notes upon the consummation of the
Transactions and will be secured equally and ratably with the New Credit
Facility by the Company's and its domestic subsidiaries' inventory, accounts
receivable and certain intangibles and by a pledge of 100% of the capital stock
of wholly-owned domestic subsidiaries and up to 65% of the capital stock of
wholly-owned foreign subsidiaries.
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<PAGE> 65
DESCRIPTION OF THE NEW NOTES
The New Notes will be issued, and the Old Notes were issued under an
Indenture dated as of July 27, 1995 (the "Indenture") among the Company, the
Guarantors and Bankers Trust Company, as trustee (the "Trustee"). For purposes
of the following summary, the Old Notes and the New Notes shall be collectively
referred to as the "Notes." The terms and conditions of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 as in effect on the date of the Indenture. The
following statements are summaries of the provisions of the Notes and the
Indenture and do not purport to be complete. Such summaries make use of certain
terms defined in the Indenture and are qualified in their entirety by express
reference to the Indenture. The definitions of certain capitalized terms used in
the following summary are set forth below under "--Certain Definitions." A copy
of the Indenture is filed as an exhibit to the Registration Statement of which
this Prospectus is a part.
GENERAL
The Notes will be general unsecured obligations of the Company. The maximum
aggregate principal amount of the Notes to be issued under the Indenture will be
$110,000,000. The Notes will be guaranteed by each of the Guarantors pursuant to
the guarantees (the "Guarantees") described below. The indebtedness represented
by the Notes rank pari passu in right of payment with all existing and future
senior unsecured obligations of the Company. Each Guarantee will be a general
unsecured obligation of the applicable Guarantor and will rank pari passu in
right of payment with all existing and future senior unsecured obligations of
such Guarantor.
The Notes will be effectively subordinate in right of payment to all
existing and future liabilities, including trade payables, of the Company's
Subsidiaries which are not Guarantors. In addition, the Notes and the Guarantees
will be effectively subordinate in right of payment to all existing and future
secured Indebtedness of the Company and its Subsidiaries.
Substantially all of the operations of the Company are conducted by
Subsidiaries of the Company. As a result, the Company is dependent upon the
earnings and cash flow of its Subsidiaries to meet its obligations with respect
to the Notes. The Subsidiaries of the Company which are not Wholly-Owned
Restricted Subsidiaries and the Subsidiaries of the Company which are not
incorporated in the United States, any state therein or the District of Columbia
will not guarantee the Notes. Therefore, the Indebtedness represented by the
Notes will be structurally subordinated to all obligations of such Subsidiaries.
See "Investment Considerations--Holding Company Structure."
The Notes will be issued only in registered form without coupons, in
denominations of $1,000 and integral multiples thereof. Principal of, premium,
if any, and interest on the Notes will be payable, and the Notes will be
transferable, at the office of the Company's agent in the City of New York
located at the corporate trust office of the Trustee. In addition, interest may
be paid at the option of the Company, by check mailed to the person entitled
thereto as shown on the register for the Notes. No service charge will be made
for any transfer, exchange or redemption of the Notes, except in certain
circumstances for any tax or other governmental charge that may be imposed in
connection therewith.
Any Notes that remain outstanding after the completion of the Exchange
Offer, together with the Exchange Notes issued in connection with the Exchange
Offer, will be treated as a single class of Securities under the Indenture.
MATURITY, INTEREST AND PRINCIPAL
The Notes will mature on July 15, 2005. Interest on the Notes will accrue
at the rate of 9 7/8% per annum and will be payable semiannually on each January
15 and July 15, commencing January 15, 1996, to the holders of record of Notes
at the close of business on the January 1 and July 1 immediately preceding such
interest payment date. Interest on the Old Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the original date of issuance (the "Issue Date"). Holders whose Old Notes
are accepted for exchange will receive accrued interest thereon to, but not
including, the
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<PAGE> 66
date of issuance of the New Notes, such interest to be payable with the first
interest payment on the New Notes, but will not receive any payment in respect
of interest on the Old Notes accrued after the issuance of the New Notes.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
The Notes will not be entitled to the benefit of any mandatory sinking
fund.
REDEMPTION
Optional Redemption. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after July 15, 2000. The Notes
may be so redeemed on not less than 30 nor more than 60 days' prior notice, at
the redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest, if any, to the redemption date, if
redeemed during the 12-month period beginning July 15 of the years indicated
below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C> <C>
2000................................................................ 104.938%
2001................................................................ 103.292%
2002................................................................ 101.646%
2003 and thereafter................................................. 100.000%
</TABLE>
Optional Redemption upon Public Equity Offerings. At any time, or from time
to time, on or prior to July 15, 1998, the Company may, at its option, use the
net cash proceeds of one or more Public Equity Offerings (as defined) to redeem
up to an aggregate of 30% of the principal amount of Notes originally issued, at
a redemption price equal to 110% of the principal amount thereof plus accrued
and unpaid interest, if any, to the date of redemption. In order to effect the
foregoing redemption with the proceeds of a Public Equity Offering, the Company
shall send the redemption notice not later than 60 days after the consummation
of such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Capital Stock (other than Redeemable Capital
Stock) of the Company pursuant to a registration statement filed with and
declared effective by the Securities and Exchange Commission in accordance with
the Securities Act.
Mandatory Redemption upon a Change of Control and Certain Asset Sales. In
addition, as described below, the Company is obligated (a) upon the occurrence
of a Change of Control, to make an offer to purchase all outstanding Notes at a
purchase price of 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase, and (b) to make an offer to purchase
Notes with a portion of the net cash proceeds of certain sales or other
dispositions of assets at a purchase price of 100% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase. See
"--Certain Covenants--Change of Control" and "--Disposition of Proceeds of Asset
Sales."
Selection and Notice. 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. 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 surrender for cancellation of the original Note. On and after the
redemption date, interest will cease to accrue on Notes or portions thereof
called for redemption, unless the Company defaults in the payment of the
redemption price therefor.
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THE GUARANTEES
Each of the Guarantors will (so long as they remain Subsidiaries of the
Company) unconditionally guarantee on a joint and several basis all of the
Company's obligations under the Notes, including its obligations to pay
principal, premium, if any, and interest with respect to the Notes. Except as
provided in "Certain Covenants" below, the Company is not restricted from
selling or otherwise disposing of any of the Guarantors.
The Indenture provides that each Wholly-Owned Restricted Subsidiary
incorporated in the United States, any state therein or the District of Columbia
which incurs (as defined below) Indebtedness (other than to the Company or a
Wholly-Owned Restricted Subsidiary) in an aggregate principal amount in excess
of $5,000,000 will be a Guarantor for so long as such Wholly-Owned Restricted
Subsidiary has Indebtedness outstanding in excess of $5,000,000 and, at the
Company's discretion, any other Subsidiary may be a Guarantor.
The Indenture provides that if all of the assets of any Guarantor or all of
the Capital Stock of any Guarantor is sold (including by issuance or otherwise)
by the Company or any of its Subsidiaries in a transaction constituting an Asset
Sale, and if the Net Cash Proceeds from such Asset Sale are used in accordance
with the covenant, "Disposition of Proceeds of Asset Sales," then such Guarantor
(in the event of a sale or other disposition of all of the Capital Stock of such
Guarantor) or the corporation or other entity acquiring such assets (in the
event of a sale or other disposition of all or substantially all of the assets
of such Guarantor) shall be released and discharged of its Guarantee
obligations.
CERTAIN COVENANTS
The Indenture contains the following covenants, among others:
Limitation on Indebtedness. The Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or in any manner become directly or indirectly liable,
contingently or otherwise, for the payment of (in each case, to "incur") any
Indebtedness (including, without limitation, any Acquired Indebtedness);
provided, however, that the Company or any Guarantor will be permitted to incur
Indebtedness (including, without limitation, Acquired Indebtedness) if, at the
time of such incurrence, and after giving pro forma effect thereto, the
Consolidated Fixed Charge Coverage Ratio of the Company is at least equal to
2:1.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may, to the extent specifically set forth below, incur each and all of the
following:
(a) Indebtedness of the Company evidenced by the Notes and
Indebtedness of any Guarantor evidenced by its Guarantee;
(b) Indebtedness of the Company and its Subsidiaries outstanding on
the Issue Date;
(c) Indebtedness of the Company and any Guarantor under the Credit
Agreement in an aggregate principal amount at any one time outstanding not
to exceed the greater of (x) the sum of (A) 80% of the accounts receivable
of the Company and its Restricted Subsidiaries on a consolidated basis and
(B) 60% of the inventory of the Company and its Restricted Subsidiaries on
a consolidated basis, and (y) $135,000,000;
(d)(i) Interest Rate Protection Obligations of the Company covering
Indebtedness of the Company or a Restricted Subsidiary of the Company and
(ii) Interest Rate Protection Obligations of any Restricted Subsidiary of
the Company covering Indebtedness of such Restricted Subsidiary; provided,
however, that, in the case of either clause (i) or (ii), (x) any
Indebtedness to which any such Interest Rate Protection Obligations relate
is otherwise permitted to be incurred under this covenant and (y) the
notional principal amount of any such Interest Rate Protection Obligations
does not exceed the principal amount of the Indebtedness to which such
Interest Rate Protection Obligations relate;
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(e) Indebtedness of a Wholly-Owned Restricted Subsidiary owed to and
held by the Company or another Wholly-Owned Restricted Subsidiary, in each
case which is not subordinated in right of payment to any Indebtedness of
such Wholly-Owned Restricted Subsidiary, except that (i) any transfer of
such Indebtedness by the Company or a Wholly-Owned Restricted Subsidiary
(other than to the Company or to a Wholly-Owned Restricted Subsidiary) and
(ii) the sale, transfer or other disposition by the Company or any
Wholly-Owned Restricted Subsidiary of Capital Stock of a Wholly-Owned
Restricted Subsidiary which is owed Indebtedness of another Wholly-Owned
Restricted Subsidiary such that it ceases to be a Wholly-Owned Restricted
Subsidiary shall, in each case, be an incurrence of Indebtedness by such
Wholly-Owned Restricted Subsidiary subject to the other provisions of this
covenant;
(f) Indebtedness of the Company owed to and held by a Wholly-Owned
Restricted Subsidiary which is unsecured and subordinated in right of
payment to the payment and performance of the Company's obligations under
the Indenture and the Notes except that (i) any transfer of such
Indebtedness by a Wholly-Owned Restricted Subsidiary (other than to another
Wholly-Owned Restricted Subsidiary) and (ii) the sale, transfer or other
disposition by the Company or any Wholly-Owned Restricted Subsidiary of
Capital Stock of a Wholly-Owned Restricted Subsidiary which holds
Indebtedness of the Company such that it ceases to be a Wholly-Owned
Restricted Subsidiary shall, in each case, be an incurrence of Indebtedness
by the Company, subject to the other provisions of this covenant;
(g) Indebtedness under Currency Agreements; provided that in the case
of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its
Restricted Subsidiaries outstanding other than as a result of fluctuations
in foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder;
(h) Indebtedness 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 two business days of incurrence;
(i) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business;
(j) Indebtedness of Restricted Subsidiaries of the Company which are
not Guarantors not to exceed the sum of (x) 90% of the accounts receivable
of any such Restricted Subsidiary, (y) 70% of the inventory of any such
Restricted Subsidiary and (z) 10% of the Net Worth of any such Restricted
Subsidiary; provided that if any such Subsidiary shall sell or otherwise
transfer any of its accounts receivable, the Net Cash Proceeds from any
such sale or transfer shall be used to repay any Indebtedness of such
Subsidiary incurred pursuant to this clause (j);
(k) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries during any period of time when the Notes are rated Investment
Grade by S&P and Moody's (or if either S&P or Moody's does not make a
rating of the Notes publicly available, by either S&P or Moody's and an
equivalent rating by another Rating Agency) and no Default or Event of
Default shall have occurred and be continuing;
(l) Indebtedness of the Company or any Guarantor in addition to that
described in clauses (a) through (k) above, in an aggregate principal
amount outstanding at any time not exceeding $20,000,000; and
(m)(i) Indebtedness of the Company the proceeds of which are used
solely to refinance (whether by amendment, renewal, extension or refunding)
Indebtedness of the Company or any of its Restricted Subsidiaries and (ii)
Indebtedness of any Restricted Subsidiary of the Company the proceeds of
which are used solely to refinance (whether by amendment, renewal,
extension or refunding) Indebtedness of such Restricted Subsidiary, in each
case other than the Indebtedness refinanced, redeemed or retired as
described under "Use of Proceeds" herein or incurred under clause (c), (d),
(e), (f), (g), (h), (i), (j)
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or (l) of this covenant; provided, however, that (x) the principal amount
of Indebtedness incurred pursuant to this clause (m) (or, if such
Indebtedness provides for an amount less than the principal amount thereof
to be due and payable upon a declaration of acceleration of the maturity
thereof, the original issue price of such Indebtedness) shall not exceed
the sum of the principal amount of Indebtedness so refinanced, plus the
amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of such Indebtedness or the amount of any
premium reasonably determined by the Board of Directors of the Company as
necessary to accomplish such refinancing by means of a tender offer or
privately negotiated purchase, plus the amount of reasonable expenses in
connection therewith, and (y) in the case of Indebtedness incurred by the
Company or any Guarantor pursuant to this clause (m), such Indebtedness (A)
has no scheduled principal payment prior to the earlier of (1) the final
maturity of the Indebtedness refinanced or (2) the 91st day after the Final
Maturity Date and (B) has an Average Life to Stated Maturity greater than
either (1) the Average Life to Stated Maturity of the Indebtedness
refinanced or (2) the remaining Average Life to Stated Maturity of the
Notes.
The Company will not, directly or indirectly, in any event 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 unless such Indebtedness is also by its terms (or by the terms of
any agreement governing such Indebtedness) made expressly subordinate in right
of payment to the Notes pursuant to subordination provisions that are
substantively identical to the subordination provisions of such Indebtedness (or
such agreement) that are most favorable to the holders of any other Indebtedness
of the Company.
Limitation on Restricted Payments. The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any other distribution or
payment on or in respect of Capital Stock of the Company or any of its
Restricted Subsidiaries or any payment made to the direct or indirect
holders (in their capacities as such) of Capital Stock of the Company or
any of its Restricted Subsidiaries (other than (x) dividends or
distributions payable solely in Capital Stock of the Company (other than
Redeemable Capital Stock) or in options, warrants or other rights to
purchase Capital Stock of the Company (other than Redeemable Capital
Stock), (y) the declaration or payment of dividends or other distributions
to the extent declared or paid to the Company or any Restricted Subsidiary
of the Company and (z) the declaration or payment of dividends or other
distributions by any Restricted Subsidiary of the Company to all holders of
Common Stock of such Restricted Subsidiary on a pro rata basis),
(b) purchase, redeem, defease or otherwise acquire or retire for value
any Capital Stock of the Company or any of its Restricted Subsidiaries
(other than any such Capital Stock owned by a Wholly-Owned Restricted
Subsidiary),
(c) make any principal payment on, or purchase, defease, repurchase,
redeem or otherwise acquire or retire for value, prior to any scheduled
maturity, scheduled repayment, scheduled sinking fund payment or other
Stated Maturity, any Subordinated Indebtedness (other than any such
Indebtedness owned by the Company or a Wholly-Owned Restricted Subsidiary),
or
(d) make any Investment (other than any Permitted Investment) in any
person
(such payments or Investments described in the preceding clauses (a), (b), (c)
and (d) are collectively referred to as "Restricted Payments"), unless, at the
time of and after giving effect to the proposed Restricted Payment (the amount
of any such Restricted Payment, if other than cash, shall be the Fair Market
Value on the date of such Restricted Payment of the asset(s) proposed to be
transferred by the Company or such Restricted Subsidiary, as the case may be,
pursuant to such Restricted Payment), (A) no Default or Event of Default shall
have occurred and be continuing, (B) immediately prior to and after giving
effect to such Restricted Payment, the Company would be able to incur $1.00 of
additional Indebtedness pursuant to the first paragraph of the covenant
described under "--Limitation on Indebtedness" above (assuming a market rate of
interest with respect to such additional Indebtedness) and (C) the aggregate
amount of all Restricted
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Payments declared or made from and after the Issue Date would not exceed the sum
of (1) 50% of the aggregate Consolidated Net Income of the Company accrued on a
cumulative basis during the period beginning on the first day of the fiscal
quarter of the Company during which the Issue Date occurs and ending on the last
day of the fiscal quarter of the Company immediately preceding the date of such
proposed Restricted Payment, which period shall be treated as a single
accounting period (or, if such aggregate cumulative Consolidated Net Income of
the Company for such period shall be a deficit, minus 100% of such deficit) plus
(2) the aggregate net proceeds (the amount of such proceeds, if other than cash,
shall be the Fair Market Value on the date such proceeds are received by the
Company of the asset(s) comprising such proceeds) received by the Company either
(x) as capital contributions to the Company after the Issue Date from any person
(other than a Subsidiary of the Company) or (y) from the issuance or sale of
Capital Stock (excluding Redeemable Capital Stock, but including Capital Stock
issued upon the conversion of convertible Indebtedness or from the exercise of
options, warrants or rights to purchase Capital Stock (other than Redeemable
Capital Stock)) of the Company to any person (other than to a Subsidiary of the
Company) after the Issue Date plus (3) in the case of the disposition or
repayment of any Investment constituting a Restricted Payment made after the
Issue Date (excluding any Investment described in clause (v) of the following
paragraph), an amount equal to the lesser of the return of capital with respect
to such Investment and the initial amount of such Investment, in either case,
less the cost of the disposition of such Investment. For purposes of the
preceding clause (C)(2), the value of the aggregate net proceeds received by the
Company upon the issuance of Capital Stock upon the conversion of convertible
Indebtedness or upon the exercise of options, warrants or rights will be the net
proceeds received upon the issuance of such Indebtedness, options, warrants or
rights plus the incremental proceeds received by the Company upon the conversion
or exercise thereof.
None of the foregoing provisions will prohibit (i) the payment of any
dividend within 60 days after the date of its declaration, if at the date of
declaration such payment would be permitted by the foregoing paragraph; (ii) so
long as no Default or Event of Default shall have occurred and be continuing,
the redemption, repurchase or other acquisition or retirement of any shares of
any class of Capital Stock of the Company or any Restricted Subsidiary of the
Company in exchange for, or out of the net proceeds of, a substantially
concurrent (x) capital contribution to the Company from any person (other than a
Subsidiary of the Company) or (y) issue and sale of other shares of Capital
Stock (other than Redeemable Capital Stock) of the Company to any person (other
than to a Subsidiary of the Company); provided, however, that the amount of any
such net proceeds that are utilized for any such redemption, repurchase or other
acquisition or retirement shall be excluded from clause (C)(2) of the preceding
paragraph; (iii) so long as no Default or Event of Default shall have occurred
and be continuing, any redemption, repurchase or other acquisition or retirement
of Subordinated Indebtedness by exchange for, or out of the net proceeds of, a
substantially concurrent (x) capital contribution to the Company from any person
(other than a Subsidiary of the Company) or (y) issue and sale of (1) Capital
Stock (other than Redeemable Capital Stock) of the Company to any person (other
than to a Subsidiary of the Company); provided, however, that the amount of any
such net proceeds that are utilized for any such redemption, repurchase or other
acquisition or retirement shall be excluded from clause (C)(2) of the preceding
paragraph; or (2) Indebtedness of the Company issued to any person (other than a
Subsidiary of the Company), so long as such Indebtedness is Subordinated
Indebtedness which (x) has no Stated Maturity earlier than the 91st day after
the Final Maturity Date, (y) has an Average Life to Stated Maturity equal to or
greater than the remaining Average Life to Stated Maturity of the Notes and (z)
is subordinated to the Notes in the same manner and at least to the same extent
as the Subordinated Indebtedness so purchased, exchanged, redeemed, acquired or
retired; (iv) so long as no Default or Event of Default shall have occurred and
be continuing, the making of any Restricted Payment by the Company or any
Restricted Subsidiary of the Company during any period of time when the Notes
are rated Investment Grade by S&P and Moody's (or if either S&P or Moody's does
not make a rating of the Notes publicly available, by either S&P or Moody's and
an equivalent rating by another Rating Agency); (v) Investments constituting
Restricted Payments made as a result of the receipt of non-cash consideration
from any Asset Sale made pursuant to and in compliance with the covenant
described under "Disposition of Proceeds of Asset Sales" below; (vi) so long as
no Default or Event of Default has occurred and is continuing, repurchases by
the Company of Common Stock of the Company from employees of the Company or any
of its
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Subsidiaries or their authorized representatives upon the death, disability or
termination of employment of such employees, in an aggregate amount not
exceeding $1,000,000 in any calendar year; and (vii) so long as no Default or
Event of Default has occurred and is continuing, other Restricted Payments in an
aggregate amount not exceeding $5,000,000. In computing the amount of Restricted
Payments previously made for purposes of clause (C) of the preceding paragraph,
Restricted Payments made under the preceding clauses (i), (iv), (vi) and (vii)
shall be included and clauses (ii), (iii) and (v) shall not be so included.
Limitation on Liens. The Company will not, and will not permit any of its
Restricted Subsidiaries to, create, incur, assume or suffer to exist any Liens
of any kind against or upon any of its property or assets, or any proceeds
therefrom, unless (x) in the case of Liens securing Subordinated Indebtedness,
the Notes are secured by a Lien on such property, assets or proceeds that is
senior in priority to such Liens and (y) in all other cases, the Notes are
equally and ratably secured, except for (a) Liens existing as of the Issue Date
and Liens under and as contemplated by agreements existing as of the Issue Date,
including Liens on Capital Stock of Subsidiaries of the Company, accounts
receivable, inventory and intangibles of the Company and its Restricted
Subsidiaries securing Indebtedness (including any guarantees) under the Credit
Agreement and the Note Agreement; (b) Liens securing the Notes or any Guarantee;
(c) Liens in favor of the Company; (d) Liens securing Indebtedness which is
incurred to refinance 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 its Restricted
Subsidiaries not securing the Indebtedness so refinanced; and (e) Permitted
Liens.
Change of Control. Upon the occurrence of a Change of Control, the Company
shall be obligated to make an offer to purchase (a "Change of Control Offer"),
and shall purchase, on a business day (the "Change of Control Purchase Date")
not more than 60 nor less than 30 days following the occurrence of the Change of
Control, all of the then outstanding Notes at a purchase price equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
Change of Control Purchase Date. The Company shall be required to purchase all
Notes properly tendered into the Change of Control Offer and not withdrawn. The
Change of Control Offer is required to remain open for at least 20 business days
and until the close of business on the Change of Control Purchase Date.
In order to effect such Change of Control Offer, the Company shall, not
later than the 30th day after the occurrence of the Change of Control, mail to
each holder of Notes notice of the Change of Control Offer, which notice shall
govern the terms of the Change of Control Offer and shall state, among other
things, the procedures that holders of Notes must follow to accept the Change of
Control Offer.
The occurrence of a Change of Control may result in the lenders under the
Note Agreement and the Credit Agreement having the right to require the Company
to repay all Indebtedness outstanding under the Note Agreement and the Credit
Agreement, respectively. There can be no assurance that the Company will have
adequate resources to repay or refinance all Indebtedness owing under the Note
Agreement and the Credit Agreement or to fund the purchase of the Notes upon a
Change of Control.
The Company shall not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements
applicable to a Change of Control Offer made by the Company and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
The Company will comply with 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 the event that a Change of Control occurs and the
Company is required to purchase Notes as described above.
Disposition of Proceeds of Asset Sales. The Company will not, and will not
permit any of its Restricted Subsidiaries to, make any Asset Sale during any
period when the Notes are not rated Investment Grade by S&P and Moody's (or if
either S&P or Moody's does not make a rating of the Notes publicly available, by
either S&P or Moody's and an equivalent rating by another Rating Agency (such
period, the "Non-Investment Grade Period")) unless (a) the Company or such
Restricted Subsidiary, as the case may be, receives consideration at the time of
such Asset Sale at least equal to the Fair Market Value of the shares or
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assets sold or otherwise disposed of and (b) at least 75% of such consideration
consists of cash or Cash Equivalents. To the extent the Net Cash Proceeds of any
Asset Sale consummated during the Non-Investment Grade Period are not required
(a) to repay any Indebtedness secured by the assets subject to such Asset Sale
pursuant to Liens permitted under the Indenture, (b) to repay Indebtedness
incurred pursuant to clause (j) under "--Limitation on Indebtedness" or (c) to
be applied to repay, and permanently reduce the commitments under, the Credit
Agreement (as required by the terms thereof), or, in each case, are not so
applied, the Company or such Restricted Subsidiary, as the case may be, may,
within 365 days of such Asset Sale, apply such Net Cash Proceeds to an
investment in properties and assets that replace the properties and assets that
were the subject of such Asset Sale or in properties and assets that will be
used in the businesses of the Company and its Restricted Subsidiaries existing
on the Issue Date or in businesses reasonably related thereto ("Replacement
Assets"). Any Net Cash Proceeds from any Asset Sale consummated during the
Non-Investment Grade Period that are neither used to repay Indebtedness, as
specified in the immediately preceding sentence, nor invested in Replacement
Assets within the 365-day period described above constitute "Excess Proceeds,"
subject to disposition as provided below.
When the aggregate amount of Excess Proceeds equals or exceeds $10,000,000,
the Company shall make an offer to purchase (an "Asset Sale Offer"), from all
holders of the Notes, not more than 40 business days thereafter, an aggregate
principal amount of Notes equal to such Excess Proceeds, at a price in cash
equal to 100% of the outstanding principal amount thereof plus accrued and
unpaid interest, if any, to the purchase date. To the extent that the aggregate
principal amount of Notes tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds, the Company may use such deficiency for general corporate
purposes. If the aggregate principal amount of Notes validly tendered and not
withdrawn by holders thereof exceeds the Excess Proceeds, Notes to be purchased
will be selected on a pro rata basis. Upon completion of such Asset Sale Offer,
the amount of Excess Proceeds shall be reset to zero.
The Company will comply with 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 the event that an Asset Sale occurs and the
Company is required to purchase Notes as described above.
Limitation on Issuances and Sale of Preferred Stock by Restricted
Subsidiaries. The Company (a) will not permit any of its Restricted Subsidiaries
to issue any Preferred Stock (other than to the Company or a Wholly-Owned
Restricted Subsidiary) and (b) will not permit any person (other than the
Company or a Wholly-Owned Restricted Subsidiary) to own any Preferred Stock of
any Restricted Subsidiary of the Company; provided, however, that this covenant
shall not prohibit the issuance and sale of (x) all, but not less than all, of
the issued and outstanding Capital Stock of any Restricted Subsidiary of the
Company owned by the Company or any of its Restricted Subsidiaries in compliance
with the other provisions of the Indenture or (y) the issuance or sale of any
Preferred Stock of a Restricted Subsidiary during any period of time when the
Notes are rated Investment Grade by S&P and Moody's (or if either S&P or Moody's
does not make a rating of the Notes publicly available, by either S&P or Moody's
and an equivalent rating by another Rating Agency), so long as no Default or
Event of Default shall have occurred and be continuing.
Limitation on Transactions with Interested Persons. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, enter into or suffer to exist any transaction or series of related
transactions (including, without limitation, the sale, transfer, disposition,
purchase, exchange or lease of assets, property or services) with, or for the
benefit of, any Affiliate of the Company, unless (a) such transaction or series
of related transactions is on terms that are no less favorable to the Company or
such Restricted Subsidiary, as the case may be, than those which could have been
obtained in a comparable transaction at such time from persons who are not
Affiliates of the Company, (b) with respect to a transaction or series of
transactions involving aggregate payments or value equal to or greater than
$5,000,000, the Company has obtained a written opinion from an Independent
Financial Advisor stating that the terms of such transaction or series of
transactions are fair to the Company or such Restricted Subsidiary, as the case
may be, from a financial point of view and (c) with respect to a transaction or
series of transactions involving aggregate payments or value equal to or greater
than $2,500,000, the Company shall have delivered an officers' certificate to
the Trustee certifying that such transaction or series of transactions complies
with the preceding clause (a) and, if applicable, certifying that the opinion
referred to in the preceding clause (b) has been
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delivered and that such transaction or series of transactions has been approved
by a majority of the Board of Directors of the Company; provided, however, that
this covenant will not restrict the Company from (i) paying dividends in respect
of its Capital Stock permitted under the covenant described under "--Limitation
on Restricted Payments" above, (ii) paying reasonable and customary fees to
directors of the Company who are not employees of the Company or (iii) making
loans or advances to officers, employees or consultants of the Company and its
Restricted Subsidiaries (including travel and moving expenses) in the ordinary
course of business for bona fide business purposes of the Company or such
Restricted Subsidiary not in excess of $5,000,000 in the aggregate at any one
time outstanding.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company to (a) pay dividends, in cash or otherwise,
or make any other distributions on or in respect of its Capital Stock or any
other interest or participation in, or measured by, its profits, (b) pay any
Indebtedness owed to the Company or any other Restricted Subsidiary of the
Company, (c) make loans or advances to, or any investment in, the Company or any
other Restricted Subsidiary of the Company, (d) transfer any of its properties
or assets to the Company or any other Restricted Subsidiary of the Company or
(e) guarantee any Indebtedness of the Company or any other Restricted Subsidiary
of the Company, except for such encumbrances or restrictions existing under or
by reason of (i) applicable law, (ii) customary non-assignment provisions of any
contract or any lease governing a leasehold interest of the Company or any
Restricted Subsidiary of the Company, (iii) customary restrictions on transfers
of property subject to a Lien permitted under the Indenture which could not
materially adversely affect the Company's ability to satisfy its obligations
under the Indenture and the Notes, (iv) any agreement or other instrument of a
person acquired by the Company or any Restricted Subsidiary of the Company (or a
Restricted Subsidiary of such person) in existence at the time of such
acquisition (but not created in contemplation thereof), 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) provisions contained in agreements or instruments relating to
Indebtedness which prohibit the transfer of all or substantially all of the
assets of the obligor thereunder unless the transferee shall assume the
obligations of the obligor under such agreement or instrument and (vi)
encumbrances and restrictions under and as contemplated by agreements governing
Indebtedness in effect on the Issue Date and encumbrances and restrictions in
permitted refinancings or replacements thereof which are no less favorable to
the holders of the Notes than those contained in the Indebtedness so refinanced
or replaced.
Limitation on Sale-Leaseback Transactions. The Company will not, and will
not permit any of its Restricted Subsidiaries to, enter into any Sale-Leaseback
Transaction with respect to any property of the Company or any of its Restricted
Subsidiaries. Notwithstanding the foregoing, the Company and its Restricted
Subsidiaries may enter into Sale-Leaseback Transactions with respect to property
acquired or constructed after the Issue Date; provided that (a) the Attributable
Value of such Sale-Leaseback Transaction shall be deemed to be Indebtedness of
the Company or such Restricted Subsidiary, as the case may be, and (b) after
giving pro forma effect to any such Sale-Leaseback Transaction and the foregoing
clause (a), the Company would be able to incur $1.00 of additional Indebtedness
pursuant to the first paragraph of the covenant described under "--Limitation on
Indebtedness" above (assuming a market rate of interest with respect to such
additional Indebtedness).
Reporting Requirements. The Company will file with the Commission the
annual reports, quarterly reports and other documents required to be filed with
the Commission pursuant to Sections 13 and 15 of the Exchange Act, whether or
not the Company has a class of securities registered under the Exchange Act. The
Company will be required to file with the Trustee and provide to each holder of
Notes within 15 days after it files them with the Commission (or if any such
filing is not permitted under the Exchange Act, 15 days after the Company would
have been required to make such filing) copies of such reports and documents.
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MERGER, SALE OF ASSETS, ETC.
Neither the Company nor any Guarantor will, in any transaction or series of
transactions, merge or consolidate with or into, or sell, assign, convey,
transfer, lease or otherwise dispose of all or substantially all of its
properties and assets as an entirety to, any person or persons, and the Company
will not permit any of its Restricted Subsidiaries to enter into any such
transaction or series of transactions if such transaction or series of
transactions, in the aggregate, would result in a sale, assignment, conveyance,
transfer, lease or other disposition of all or substantially all of the
properties and assets of the Company or the Company and its Restricted
Subsidiaries, taken as a whole, to any other person or persons, unless at the
time of and after giving effect thereto (a) either (i) if the transaction or
series of transactions is a merger or consolidation, the Company, the applicable
Guarantor or applicable Restricted Subsidiary shall be the surviving person of
such merger or consolidation, or (ii) the person formed by such consolidation or
into which the Company, such Guarantor or such Restricted Subsidiary is merged
or to which the properties and assets of the Company, such Guarantor or such
Restricted Subsidiary, as the case may be, are transferred (any such surviving
person or transferee person being the "Surviving Entity") shall be a corporation
organized and existing under the laws of the United States of America, any state
thereof or the District of Columbia and shall expressly assume by a supplemental
indenture executed and delivered to the Trustee, in form reasonably satisfactory
to the Trustee, all the obligations of the Company or such Guarantor, as the
case may be, under the Notes or such Guarantor's Guarantee, as the case may be,
and the Indenture, and in each case, the Indenture shall remain in full force
and effect; (b) immediately before and immediately after giving effect to such
transaction or series of transactions on a pro forma basis (including, without
limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction or series of transactions), no
Default or Event of Default shall have occurred and be continuing and the
Company or the Surviving Entity, as the case may be, after giving effect to such
transaction or series of transactions on a pro forma basis (including, without
limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction or series of transactions),
could incur $1.00 of additional Indebtedness pursuant to the first paragraph of
the covenant described under "--Certain Covenants--Limitation on Indebtedness"
above (assuming a market rate of interest with respect to such additional
Indebtedness); and (c) immediately after giving effect to such transaction or
series of transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), the Consolidated Net
Worth of the Company or the Surviving Entity, as the case may be, is at least
equal to the Consolidated Net Worth of the Company immediately before such
transaction or series of transactions. The foregoing provisions shall not apply
to a transaction involving the consolidation or merger of a Guarantor with or
into another person, or the sale, lease, conveyance or disposition of all or
substantially all of the assets of such Guarantor that results in such Guarantor
being released from its Guarantee as provided in "--The Guarantees").
In connection with any consolidation, merger, transfer, lease, assignment
or other disposition contemplated hereby, the Company shall deliver, or cause to
be delivered, to the Trustee, in form and substance reasonably satisfactory to
the Trustee, an officers' certificate and an opinion of counsel, each stating
that such consolidation, merger, transfer, lease, assignment or other
disposition and the supplemental indenture in respect thereof comply with the
requirements under the Indenture.
Upon any consolidation 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 corporation formed by
such a consolidation or into which the Company is merged or to which such
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Indenture with the same effect
as if such successor corporation had been named as the Company therein; provided
that solely for purposes of computing amounts described in subclause (C) of the
covenant described under "--Limitation on Restricted Payments" above, any such
successor person shall only be deemed to have succeeded to and be substituted
for the Company with respect to periods subsequent to the effective time of such
merger, consolidation or transfer of assets.
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EVENTS OF DEFAULT
The following are "Events of Default" under the Indenture:
(i) default in the payment of the principal of or premium, if any, on
any Senior Note when the same becomes due and payable (upon Stated
Maturity, acceleration, optional redemption, required purchase, scheduled
principal payment or otherwise); or
(ii) default in the payment of an installment of interest on any of
the Notes, when the same becomes due and payable, which default continues
for a period of 30 days; or
(iii) failure to perform or observe any other term, covenant or
agreement contained in the Notes or the Indenture or any Guarantee (other
than a default specified in clause (i) or (ii) above) and such default
continues for a period of 30 days after written notice of such default
requiring the Company to remedy the same shall have been given (x) to the
Company by the Trustee or (y) to the Company and the Trustee by holders of
25% in aggregate principal amount of the Notes then outstanding; or
(iv) default or defaults under one or more agreements, instruments,
mortgages, bonds, debentures or other evidences of Indebtedness under which
the Company or any Restricted Subsidiary of the Company then has
outstanding Indebtedness in excess of $5,000,000, individually or in the
aggregate, and either (a) such Indebtedness is already due and payable in
full or (b) such default or defaults have resulted in the acceleration of
the maturity of such Indebtedness; or
(v) one or more judgments, orders or decrees of any court or
regulatory or administrative agency of competent jurisdiction for the
payment of money in excess of $5,000,000, either individually or in the
aggregate, shall be entered against the Company or any Restricted
Subsidiary of the Company or any of their respective properties and shall
not be discharged or fully bonded and there shall have been a period of 60
days after the date on which any period for appeal has expired and during
which a stay of enforcement of such judgment, order or decree shall not be
in effect; or
(vi) either (i) the collateral agent under the Credit Agreement or
(ii) any holder of at least $5,000,000 in aggregate principal amount of
Indebtedness of the Company or any of its Restricted Subsidiaries shall
commence judicial proceedings to foreclose upon assets of the Company or
any of its Restricted Subsidiaries having an aggregate Fair Market Value,
individually or in the aggregate, in excess of $5,000,000 or shall have
exercised any right under applicable law or applicable security documents
to take ownership of any such assets in lieu of foreclosure; or
(vii) any Guarantee ceases to be in full force and effect or is
declared null and void, or any Guarantor denies that it has any further
liability under any Guarantee or gives notice to such effect (other than by
reason of the termination of the Indenture or the release of any such
Guarantee in accordance with the Indenture) and such condition shall have
continued for a period of 60 days after written notice of such failure
(which notice shall specify the Default, demand that it be remedied and
state that it is a "Notice of Default") requiring the Guarantor and the
Company to remedy the same shall have been given (x) to the Company by the
Trustee or (y) to the Company and the Trustee by holders of at least 25% in
aggregate principal amount of the Notes then outstanding; or
(viii) certain events of bankruptcy, insolvency or reorganization with
respect to the Company or any Significant Subsidiary of the Company shall
have occurred.
If an Event of Default (other than as specified in clause (viii) above)
shall occur and be continuing, the Trustee, by notice to the Company, or the
holders of at least 25% in aggregate principal amount of the Notes then
outstanding, by notice to the Trustee and the Company, may declare the principal
of, premium, if any, and accrued and unpaid interest, if any, on all of the
outstanding Notes due and payable immediately, upon which declaration, all
amounts payable in respect of the Notes shall be immediately due and payable. If
an Event of Default specified in clause (viii) above occurs and is continuing,
then the principal of, premium, if any, and accrued and unpaid interest, if any,
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 of the Notes.
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After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may rescind
such declaration if (a) the Company has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, (ii) all overdue interest on all Notes,
(iii) the principal of and premium, if any, on any Notes which have become due
otherwise than by such declaration of acceleration and interest thereon at the
rate borne by the Notes, and (iv) to the extent that payment of such interest is
lawful, interest upon overdue interest and overdue principal at the rate borne
by the Notes which has become due otherwise than by such declaration of
acceleration; (b) the rescission would not conflict with any judgment or decree
of a court of competent jurisdiction; and (c) all Events of Default, other than
the non-payment of principal of, premium, if any, and interest on the Notes that
have become due solely by such declaration of acceleration, have been cured or
waived.
The holders of not less than a majority in aggregate principal amount of
the outstanding Notes may on behalf of the holders of all the Notes waive any
past defaults under the Indenture, except a default in the payment of the
principal of, premium, if any, or interest on any Note, or in respect of a
covenant or provision which under the Indenture cannot be modified or amended
without the consent of the holder of each Note outstanding.
No holder of any of the Notes has any right to institute any proceeding
with respect to the Indenture or the Notes or the Guarantees or any remedy
thereunder, unless the holders of at least 25% in aggregate principal amount of
the outstanding Notes have made written request, and offered reasonable
indemnity, to the Trustee to institute such proceeding as Trustee under the
Notes and the Indenture, the Trustee has failed to institute such proceeding
within 30 days after receipt of such notice and the Trustee, within such 30-day
period, has not received directions inconsistent with such written request by
holders of a majority in aggregate principal amount of the outstanding Notes.
Such limitations do not apply, however, to a suit instituted by a holder of a
Note for the enforcement of the payment of the principal of, premium, if any, or
interest on such Note on or after the respective due dates expressed in such
Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, whether or not an Event of Default shall occur and be continuing, the
Trustee under the Indenture is not under any obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any of the
holders unless such holders shall have offered to the Trustee reasonable
security or indemnity. Subject to certain provisions concerning the rights of
the Trustee, the holders of not less than a majority in aggregate principal
amount of the 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.
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee shall mail to each holder of the Notes notice of the
Default or Event of Default within 30 days after obtaining knowledge thereof.
Except in the case of a Default or an Event of Default in payment of principal
of, premium, if any, or interest on any Notes, the Trustee may withhold the
notice to the holders of such Notes if a committee of its trust officers in good
faith determines that withholding the notice is in the interest of the holders
of the Notes.
The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company of its obligations under the
Indenture and as to any default in such performance. The Company is also
required to notify the Trustee within ten days of any event which is, or after
notice or lapse of time or both would become, an Event of Default.
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DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations
of the Company and the Guarantors with respect to the outstanding Notes and
Guarantees ("defeasance"). Such defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, except for (i) the rights of holders of outstanding Notes to
receive payment in respect of the principal of, premium, if any, and interest on
such Notes when such payments are due, (ii) the Company's obligations to issue
temporary Notes, register the transfer or exchange of any Notes, replace
mutilated, destroyed, lost or stolen Notes and maintain an office or agency for
payments in respect of the Notes, (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and (iv) the defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to terminate
the obligations of the Company and the Guarantors with respect to certain
covenants that are set forth in the Indenture, some of which are described under
"--Certain Covenants" above (including the covenant described under "--Certain
Covenants--Change of Control" above) and any subsequent failure to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the Notes ("covenant defeasance").
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders of the Notes, cash in United States dollars, U.S. 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 outstanding Notes
to redemption or maturity (except lost, stolen or destroyed Notes which have
been replaced or paid); (ii) the Company shall have delivered to the Trustee an
opinion of counsel to the effect that the holders of the outstanding Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such defeasance or 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 defeasance or covenant defeasance had not occurred (in the
case of defeasance, such opinion must refer to and be based upon a ruling of the
Internal Revenue Service or a change in applicable federal income tax laws);
(iii) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit; (iv) such defeasance or covenant defeasance shall not
cause the Trustee to have a conflicting interest with respect to any securities
of the Company; (v) such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, any material agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which it is bound; (vi) 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; and (vii) the Company shall have delivered to the Trustee an
officers' certificate and an opinion of counsel, each stating that all
conditions precedent under the Indenture to either defeasance or covenant
defeasance, as the case may be, have been complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or repaid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation (except lost, stolen or destroyed Notes which have been replaced or
paid) have been called for redemption pursuant to the terms of the Notes or have
otherwise become due and payable and the Company has irrevocably deposited or
caused to be deposited with the Trustee funds in an amount sufficient to pay and
discharge the entire Indebtedness on the Notes not theretofore delivered to the
Trustee for cancellation, for principal of, premium, if any, and interest on the
Notes to the date of deposit together with irrevocable instructions from the
Company directing the Trustee to apply such funds to the payment thereof at
maturity or redemption, as the case may be; (ii) the Company has paid all other
sums payable under the Indenture by the Company; (iii) there exists no Default
or Event of
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Default under the Indenture; and (iv) 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.
AMENDMENTS AND WAIVERS
From time to time, the Company and the Guarantors, when authorized by a
resolution of their respective Boards of Directors, and the Trustee may, without
the consent of the holders of any outstanding Notes, amend, waive or supplement
the Indenture or the Notes or the Guarantees for certain specified purposes,
including, among other things, curing ambiguities, defects or inconsistencies,
qualifying, or maintaining the qualification of, the Indenture under the Trust
Indenture Act of 1939, as amended, or making any other change that does not
adversely affect the rights of any holder of Notes; provided, however, that the
Company has delivered to the Trustee an opinion of counsel stating that such
change does not adversely affect the rights of any holder of Notes. Other
amendments and modifications of the Indenture or the Notes or the Guarantees may
be made by the Company and the Trustee with the consent of the holders of not
less than a majority of the aggregate principal amount of the outstanding Notes;
provided, however, that no such modification or amendment may, without the
consent of the holder of each outstanding Note affected thereby, (i) reduce the
principal amount of, extend the fixed maturity of or alter the redemption
provisions of, the Notes, (ii) change the currency in which any Notes or any
premium or the interest thereon is payable or make the principal of, premium, if
any, or interest on any Note payable in money other than that stated in the
Note, (iii) reduce the percentage in principal amount of outstanding Notes that
must consent to an amendment, supplement or waiver or consent to take any action
under the Indenture, any Guarantee or the Notes, (iv) impair the right to
institute suit for the enforcement of any payment on or with respect to the
Notes, (v) waive a default in payment with respect to the Notes, (v) amend,
change or modify the obligations of the Company to make and consummate a Change
of Control Offer in the event of a Change of Control or make and consummate the
Asset Sale Offer with respect to any Asset Sale or modify any of the provisions
or definitions with respect thereto, (vii) reduce or change the rate or time for
payment of interest on the Notes, (viii) modify or change any provision of the
Indenture affecting the ranking of the Notes or any Guarantee in a manner
adverse to the holders of the Notes, or (ix) release any Guarantor from any of
its obligations under its Guarantee or the Indenture other than in compliance
with the Indenture.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee thereunder will perform only such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred and
is continuing, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee thereunder, should it become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided, however, that if it
acquires any conflicting interest (as defined in the Trust Indenture Act of
1939, as amended) it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture, the Notes and the Guarantees will be governed by the laws of
the State of New York, without regard to the principles of conflicts of law.
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CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a person (a) assumed in
connection with an Asset Acquisition from such person or (b) existing at the
time such person becomes a Subsidiary of any other person.
"Affiliate" means, with respect to any specified person, any other person
directly or indirectly controlling or controlled by, or under direct or indirect
common control with, such specified person.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary of the Company in any other person pursuant to which such
person shall become a Restricted Subsidiary of the Company, or shall be merged
with or into the Company or any Restricted Subsidiary of the Company, (b) the
acquisition by the Company or any Restricted Subsidiary of the Company of the
assets of any person (other than a Restricted Subsidiary of the Company) which
constitute all or substantially all of the assets of such person or (c) the
acquisition by the Company or any Restricted Subsidiary of the Company of any
division or line of business of any person (other than a Restricted Subsidiary
of the Company).
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease or other disposition to any person other than the Company or a
Wholly-Owned Restricted Subsidiary, in one or a series of related transactions,
of (a) any Capital Stock of any Restricted Subsidiary of the Company (other than
in respect of director's qualifying shares or investments by foreign nationals
mandated by applicable law); (b) all or substantially all of the properties and
assets of any division or line of business of the Company or any Restricted
Subsidiary of the Company; or (c) any other properties or assets of the Company
or any Restricted Subsidiary of the Company other than in the ordinary course of
business. For the purposes of this definition, the term "Asset Sale" shall not
include (i) any sale, transfer or other disposition of equipment, tools or other
assets (excluding Capital Stock of any Restricted Subsidiary of the Company) by
the Company or any of its Restricted Subsidiaries in one or a series of related
transactions in respect of which the Company or such Restricted Subsidiary
receives cash or property with an aggregate Fair Market Value of $5,000,000 or
less; (ii) any sale, issuance, conveyance, transfer, lease or other disposition
of properties or assets that is governed by the provisions described under
"--Merger, Sale of Assets, Etc." above; and (iii) any sale, transfer or exchange
of Capital Stock of any Person other than a Restricted Subsidiary to the extent
proceeds from which are Capital Stock of such Person or its Affiliates.
"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
initial term thereof as determined in accordance with GAAP, discounted from the
last date of such initial 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 such 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. In the case
of any lease which is terminable by the lessee upon the payment of a penalty,
such net amount shall also include the amount of such penalty, but no rent shall
be considered as required to be paid under such lease subsequent to the first
date upon which it may be so terminated. "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.
"Average Life to Stated Maturity" means, with respect to any Indebtedness,
as at any date of determination, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years (or any fraction thereof) from such
date to the date or dates of each successive scheduled principal payment
(including, without limitation, any sinking fund requirements) of such
Indebtedness multiplied by (b) the amount of each such principal payment by (ii)
the sum of all such principal payments.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such person's capital stock, and any rights (other than debt
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securities convertible into capital stock), warrants or options exchangeable for
or convertible into such capital stock.
"Capitalized Lease Obligation" means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed) that is required to be classified and accounted for as a capital lease
obligation under GAAP, and, for the purpose of the Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
"Cash Equivalents" means, at any time, (i) any evidence of Indebtedness
with a maturity of 180 days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof); (ii) certificates of deposit or acceptances with a
maturity of 180 days or less of any financial institution that is a member of
the Federal Reserve System having combined capital and surplus and undivided
profits of not less than $500,000,000; (iii) certificates of deposit with a
maturity of 180 days or less of any financial institution that is organized
under the laws of the United States, any state thereof or the District of
Columbia that are rated at least A-1 by S&P or at least P-1 by Moody's or at
least an equivalent rating category of another Rating Agency; (iv) repurchase
agreements and reverse repurchase agreements relating to marketable direct
obligations issued or unconditionally guaranteed by the government of the United
States of America or issued by any agency thereof and backed by the full faith
and credit of the United States of America, in each case maturing within 180
days from the date of acquisition; provided that the terms of such agreements
comply with the guidelines set forth in the Federal Financial Agreements of
Depository Institutions With Securities Dealers and Others, as adopted by the
Comptroller of the Currency on October 31, 1985.
"Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act) other than a Permitted Holder or a group controlled by or
comprised of Permitted Holders is or becomes the "beneficial owner" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that such person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time, upon the happening of an event or otherwise), directly or
indirectly, of more than 50% of the total Voting Stock of the Company; (b) the
Company consolidates with, or merges with or into, another person or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any person, or any person consolidates with,
or merges with or into, the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company is converted
into or exchanged for (1) Voting Stock (other than Redeemable Capital Stock) of
the surviving or transferee corporation or (2) cash, securities and other
property in an amount which could then be paid by the Company as a Restricted
Payment under the Indenture, or a combination thereof, and (ii) immediately
after such transaction no "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act) other than a Permitted Holder or a
group controlled by or comprised of Permitted Holders is the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
person shall be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time, upon the happening of an event or
otherwise), directly or indirectly, of more than 50% of the total Voting Stock
of the surviving or transferee corporation; (c) at any time during any
consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Company was approved by a vote of a majority
of the directors then still in office who were either directors at the beginning
of such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office; or (d) the Company is liquidated or
dissolved or adopts a plan of liquidation.
"Common Stock" means, with respect to any person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of, such person's common
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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.
"Consolidated Cash Flow Available for Fixed Charges" means, with respect to
any person for any period, the sum of, without duplication, the amounts for such
period, taken as a single accounting period, of (a) Consolidated Net Income, (b)
Consolidated Non-cash Charges, (c) Consolidated Interest Expense and (d)
Consolidated Income Tax Expense less (B) any non-cash items increasing
Consolidated Net Income for such period.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
person, the ratio of the aggregate amount of Consolidated Cash Flow Available
for Fixed Charges of such person for the four full fiscal quarters immediately
preceding the date of the transaction (the "Transaction Date") giving rise to
the need to calculate the Consolidated Fixed Charge Coverage Ratio (such four
full fiscal quarter period being referred to herein as the "Four Quarter
Period") to the aggregate amount of Consolidated Fixed Charges of such person
for the Four Quarter Period. In addition to and without limitation of the
foregoing, for purposes of this definition, "Consolidated Cash Flow Available
for Fixed Charges" and "Consolidated Fixed Charges" shall be calculated after
giving effect on a pro forma basis for the period of such calculation to,
without duplication, (a) the incurrence of any Indebtedness (other than
revolving credit Indebtedness) of such person or any of its Restricted
Subsidiaries (and the application of the net proceeds thereof) during the period
commencing on the first day of the Four Quarter Period to and including the
Transaction Date (the "Reference Period"), including, without limitation, the
incurrence of the Indebtedness giving rise to the need to make such calculation
(and the application of the net proceeds thereof), as if such incurrence (and
application) occurred on the first day of the Reference 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 such
person or one of its 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) occurring during the
Reference Period, as if such Asset Sale or Asset Acquisition occurred on the
first day of the Reference Period. 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; and (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
Reference Period. If such person or any of its Restricted Subsidiaries directly
or indirectly guarantees Indebtedness of a third person, the above clause shall
give effect to the incurrence of such guaranteed Indebtedness as if such person
or such Restricted Subsidiary had directly incurred or otherwise assumed such
guaranteed Indebtedness.
"Consolidated Fixed Charges" means, with respect to any person for any
period, the sum of, without duplication, the amounts for such period of (i)
Consolidated Interest Expense and (ii) the aggregate amount of dividends and
other distributions paid or accrued during such period in respect of Preferred
Stock and Redeemable Capital Stock of such person and its Restricted
Subsidiaries on a consolidated basis, multiplied by a fraction, the numerator of
which is one and the denominator of which is one minus the then current federal
statutory income tax rate of such person.
"Consolidated Income Tax Expense" means, with respect to any person for any
period, the provision for federal, state, local and foreign income taxes of such
person and its Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any person for any
period, without duplication, the sum of (i) the interest expense (net of
interest income) of such person and its Restricted Subsidiaries for such period
as determined on a consolidated basis in accordance with GAAP, including,
without limitation, (a) any amortization of debt discount, (b) the net cost
under Interest Rate Protection Obligations, (c) the
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interest portion of any deferred payment obligation, (d) all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing and (e) all accrued interest and (ii) the interest
component of Capitalized Lease Obligations paid, accrued and/or scheduled to be
paid or accrued by such person and its Restricted Subsidiaries during such
period as determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any person, for any
period, the consolidated net income (or loss) of such person and its Restricted
Subsidiaries for such period as determined in accordance with GAAP, adjusted, to
the extent included in calculating such net income, by excluding, without
duplication, (i) all extraordinary gains or losses, (ii) the portion of net
income (but not losses) of such person and its Restricted Subsidiaries allocable
to minority interests in unconsolidated persons to the extent that cash
dividends or distributions have not actually been received by such person or one
of its Restricted Subsidiaries, (iii) net income (or loss) of any person
combined with such person or one of its Restricted Subsidiaries on a "pooling of
interests" basis attributable to any period prior to the date of combination,
(iv) any gain or loss realized upon the termination of any employee pension
benefit plan, on an after-tax basis, (v) gains in respect of any Asset Sales by
such person or one of its Restricted Subsidiaries and (vi) the net income of any
Restricted Subsidiary of such person to the extent that the declaration of
dividends or similar distributions by that Restricted Subsidiary of that income
is not at the time permitted, directly or indirectly, by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Restricted Subsidiary or its
stockholders.
"Consolidated Net Worth" means, with respect to any person at any date, the
consolidated stockholders' equity of such person less the amount of such
stockholders' equity attributable to Redeemable Capital Stock of such person and
its Restricted Subsidiaries, as determined in accordance with GAAP.
"Consolidated Non-cash Charges" means, with respect to any person for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such person and its Restricted Subsidiaries reducing Consolidated Net Income of
such person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which required an
accrual of or a reserve for cash charges for any future period).
"Credit Agreement" means the Credit Agreement dated as of the Issue Date,
among the Company, certain of its Subsidiaries, Comerica Bank, in its individual
capacity and as agent, and the other banks which are or become parties from time
to time thereto, and as it may be amended, restated, supplemented or otherwise
modified from time to time, including all exhibits and schedules thereto, and
any successor or replacement facility.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect any
person or any of its Restricted Subsidiaries against fluctuations in currency
values.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Event of Default" has the meaning set forth under "--Events of Default"
herein.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any assets, the price, as
determined by the Board of Directors of the Company, acting in good faith, which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of which is under pressure
or compulsion to complete the transaction; provided, however, that, with respect
to any transaction which involves an asset or assets in excess of $250,000, such
determination shall be evidenced by a resolution of the Board of Directors of
the Company delivered to the Trustee.
"Final Maturity Date" means July 15, 2005.
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"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 of America, which are applicable from time to
time and are consistently applied.
"guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Guarantor" means (i) each of Walbro Automotive Corporation, a Delaware
corporation, Walbro Engine Management Corporation, a Delaware corporation,
Sharon Manufacturing Co., a Michigan corporation and Whitehead Engineered
Products, Inc., a Delaware corporation, (ii) each Wholly-Owned Restricted
Subsidiary of the Company which is incorporated under the laws of the United
States or any state therein or the District of Columbia which incurs
Indebtedness (other than to the Company or a Wholly-Owned Restricted Subsidiary)
in an aggregate principal amount in excess of $5,000,000 for so long as such
Wholly-Owned Restricted Subsidiary has Indebtedness outstanding in excess of
$5,000,000 and (iii) any other Subsidiary that guarantees the Notes.
"Indebtedness" means, with respect to any person, without duplication, (a)
all liabilities of such person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities incurred in the ordinary course of business and which are
not overdue by more than 180 days, but including, without limitation, all
obligations, contingent or otherwise, of such person in connection with any
letters of credit, banker's acceptance or other similar credit transaction, (b)
all obligations of such person evidenced by bonds, notes, debentures or other
similar instruments, (c) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such person (even if the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or sale
of such property), but excluding trade accounts payable arising in the ordinary
course of business, (d) all Capitalized Lease Obligations of such person, (e)
all Indebtedness referred to in the preceding clauses of other persons and all
dividends of other persons, the payment of which is secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon property (including, without limitation, accounts
and contract rights) owned by such person, even though such person has not
assumed or become liable for the payment of such Indebtedness (the amount of
such obligation being deemed to be the lesser of the value of such property or
asset or the amount of the obligation so secured), (f) all guarantees of
Indebtedness referred to in this definition by such person, (g) all Redeemable
Capital Stock of such person valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued dividends, (h) all
obligations under or in respect of Currency Agreements and Interest Rate
Protection Obligations of such person, and (i) any amendment, supplement,
modification, deferral, renewal, extension or refunding of any liability of the
types referred to in clauses (a) through (h) above. For purposes hereof, the
"maximum fixed repurchase price" of any Redeemable Capital Stock which does not
have a fixed repurchase price shall be calculated in accordance with the terms
of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to this Indenture, and if such price is based upon, or measured by, the
Fair Market Value of such Redeemable Capital Stock, such Fair Market Value.
"Independent Financial Advisor" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company or any of its Subsidiaries and (ii)
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.
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"Interest Rate Protection Agreement" means any arrangement with any other
person whereby, directly or indirectly, such person is entitled to receive from
time to time periodic payments calculated by applying either a floating or a
fixed rate of interest on a stated notional amount in exchange for periodic
payments made by such person calculated by applying a fixed or a floating rate
of interest on the same notional amount and shall include without limitation,
interest rate swaps, caps, floors, collars and similar agreements.
"Interest Rate Protection Obligations" means the obligations of any person
pursuant to an Interest Rate Protection Agreement.
"Investment" means, with respect to any person, any direct or indirect loan
or other extension of credit 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 other person. In addition, the Fair
Market Value of the assets of any Subsidiary of the Company at the time that
such Subsidiary is designated as an Unrestricted Subsidiary shall be deemed to
be an Investment made by the Company in such Unrestricted Subsidiary at such
time. "Investments" shall exclude extensions of trade credit by the Company and
its Restricted Subsidiaries in the ordinary course of business in accordance
with normal trade practices of the Company or such Restricted Subsidiary, as the
case may be.
"Investment Grade" means, with respect to the Notes, (i) in the case of
S&P, a rating of at least BBB-, (ii) in the case of Moody's, a rating of at
least Baa3, and (iii) in the case of a Rating Agency other than S&P or Moody's,
the equivalent rating, or in each case, any successor, replacement or equivalent
definition as promulgated by S&P, Moody's or other Rating Agency, as the case
may be; provided that a rating of BBB-, with respect to S&P, Baa3, with respect
to Moody's, or the equivalent rating of another Rating Agency other than S&P or
Moody's (or any such successor, replacement or equivalent definition) shall not
be Investment Grade if any such Rating Agency shall have then placed the Notes
on credit watch with negative implications.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance upon or with respect to any property of any
kind. A person shall be deemed to own subject to a Lien any property which such
person has acquired or holds subject to the interest of a vendor or lessor under
any conditional sale agreement, capital lease or other title retention
agreement.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof 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 (except to the extent that such obligations are financed or sold
with recourse to the Company or any Restricted Subsidiary of the Company) net of
(i) brokerage commissions and other fees and expenses (including, without
limitation, fees and expenses of legal counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes payable as a result of such
Asset Sale, (iii) amounts required to be paid to any person (other than the
Company or any Restricted Subsidiary of the Company) owning a beneficial
interest in the assets subject to the Asset Sale and (iv) appropriate amounts to
be provided by the Company or any Restricted Subsidiary of the Company, as the
case may be, as a reserve required in accordance with GAAP against any
liabilities associated with such Asset Sale and retained by the Company or any
Restricted Subsidiary of the Company, 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, all as
reflected in an officers' certificate delivered to the Trustee.
"Net Worth" means, with respect to any person at any date, the
stockholders' equity of such person less the amount of such stockholders' equity
attributable to Redeemable Capital Stock of such person, as determined in
accordance with GAAP.
"Note Agreement" means the Note Agreement dated as of October 1, 1994 by
and among the Company and the Purchasers named on Schedule I thereto, relating
to the $45,000,000 aggregate principal amount of 7.68% Senior Notes due October
1, 2004 of the Company.
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"Permitted Holder" means (i) each of Lambert E. Althaver, Robert H.
Walpole, Gary L. Vollmar, Richard H. Whitehead, Michael A. Shope and Daniel L.
Hittler; (ii) each spouse, lineal descendant and spouse of a lineal descendant
of a person named in clause (i); and (iii) the estate or legal representative of
a person named in clause (i) or (ii).
"Permitted Investments" means any of the following: (i) Investments in any
Wholly-Owned Restricted Subsidiary (including any person that pursuant to such
Investment becomes a Wholly-Owned Restricted Subsidiary) and any person that is
merged or consolidated with or into, or transfers or conveys all or
substantially all of its assets to, the Company or any Wholly-Owned Restricted
Subsidiary at the time such Investment is made; (ii) Investments in Cash
Equivalents; (iii) Investments in deposits with respect to leases or utilities
provided to third parties in the ordinary course of business; (iv) Investments
in the Notes; (v) Investments in Currency Agreements on commercially reasonable
terms entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business in connection with the operations of the business of
the Company or its Restricted Subsidiaries to hedge against fluctuations in
foreign exchange rates; (vi) loans or advances to officers, employees or
consultants of the Company and its Restricted Subsidiaries in the ordinary
course of business for bona fide business purposes of the Company and its
Restricted Subsidiaries (including travel and moving expenses) not in excess of
$1,000,000 in the aggregate at any one time outstanding; (vii) Investments in
evidences of Indebtedness, securities or other property received from another
person by the Company or any of its Restricted Subsidiaries in connection with
any bankruptcy proceeding or by reason of a composition or readjustment of debt
or a reorganization of such person or as a result of foreclosure, perfection or
enforcement of any Lien in exchange for evidences of Indebtedness, securities or
other property of such person held by the Company or any of its Restricted
Subsidiaries, or for other liabilities or obligations of such other person to
the Company or any of its Restricted Subsidiaries that were created in
accordance with the terms of the Indenture; (viii) Investments in Interest Rate
Protection Agreements on commercially reasonably terms entered into by the
Company or any of its Restricted Subsidiaries in the ordinary course of business
in connection with the operations of the business of the Company or its
Restricted Subsidiaries to hedge against fluctuations in interest rates; and
(ix) other Investments made after the Issue Date not to exceed $10,000,000 in
the aggregate plus an amount equal to the lesser of the return of capital with
respect to such Investment and the initial amount of such Investment, in either
case, less the cost of the disposition of such Investment.
"Permitted Liens" means the following types of Liens:
(a) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or any of its Restricted
Subsidiaries shall have set aside on its books such reserves as may be
required pursuant to GAAP;
(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, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, governmental
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;
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(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 its Restricted Subsidiaries;
(f) any interest or title of a lessor under any Capitalized Lease
Obligation or operating lease;
(g) purchase money Liens to finance the acquisition or construction of
property or assets of the Company or any Restricted Subsidiary of the
Company acquired in the ordinary course of business; provided, however,
that (i) the related purchase money Indebtedness shall not be secured by
any property or assets of the Company or any Restricted Subsidiary of the
Company other than the property and assets so acquired or construction,
(ii) the amount of Indebtedness secured by any such Lien shall not exceed
the purchase price of the property or assets acquired or constructed and
(iii) the Lien securing such Indebtedness either (x) exists at the time of
such acquisition or construction or (y) shall be created within 90 days of
such acquisition or construction;
(h) other purchase money Liens to finance the acquisition or
construction of property or assets of the Company or any Restricted
Subsidiary of the Company acquired in the ordinary course of business
securing Indebtedness of the Company and its Restricted Subsidiaries under
industrial revenue bonds or other Indebtedness of the Company and its
Restricted Subsidiaries for which a governmental entity or agency provides
direct or indirect credit support not to exceed $20,000,000 in the
aggregate at any one time outstanding; provided, however, that (i) the
amount of Indebtedness secured by any such Lien shall not exceed 125% of
the purchase price of the property or assets acquired or constructed and
(ii) the Lien securing such Indebtedness either (x) exists at the time of
such acquisition or construction or (y) shall be created within 90 days of
such acquisition or construction;
(i) other Liens; provided that at the time any such Lien is to be
incurred, all such Liens incurred pursuant to this clause (i) secure
obligations of the Company and its Restricted Subsidiaries not to exceed
10% of the Consolidated Net Worth of the Company after giving pro forma
effect to the Lien that is to be incurred; and
(j) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods.
"person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust, charitable
foundation, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"Preferred Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of preferred or preference Capital Stock of such person.
"Rating Agency" means a nationally recognized securities rating agency,
selected by the Company and satisfactory to the Trustee.
"Redeemable Capital Stock" means any shares of any class or series of
Capital Stock that, either by the terms thereof, by the terms of any security
into which it is convertible or exchangeable or by contract or otherwise, is or
upon the happening of an event or passage of time would be, required to be
redeemed prior to the Stated Maturity with respect to the principal of any Note
or is redeemable at the option of the holder thereof at any time prior to any
such Stated Maturity, or is convertible into or exchangeable for debt securities
at any time prior to any such Stated Maturity.
"Restricted Subsidiary" means a Subsidiary of any person which is not an
Unrestricted Subsidiary.
"Sale-Leaseback Transaction" of any person means an arrangement with any
lender or investor or to which such lender or investor is a party providing for
the leasing by such person of any property or asset of such person which has
been or is being sold or transferred by such person after the acquisition
thereof or the completion of construction or commencement of operation thereof
to such lender or investor or to any person to whom funds have been or are to be
advanced by such lender or investor on the security of such property or
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asset. The stated maturity of such arrangement shall be the date of the last
payment of rent or any other amount due under such arrangement prior to the
first date on which such arrangement may be terminated by the lessee without
payment of a penalty.
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Subsidiary" shall have the same meaning as in Rule 1.02(v) of
Regulation S-X under the Securities Act.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and its successors.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Guarantor which is expressly subordinated in right of payment to the Notes or
the Guarantee of such Guarantor, as the case may be.
"Subsidiary" means, with respect to any person, (i) a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned by
such person, by one or more Subsidiaries of such person or by such person and
one or more Subsidiaries thereof and (ii) any other person (other than a
corporation), including, without limitation, a joint venture, in which such
person, one or more Subsidiaries thereof or such person and one or more
Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, has at least majority ownership interest entitled to vote in the
election of directors, managers or trustees thereof (or other person performing
similar functions). For purposes of this definition, any directors' qualifying
shares or investments by foreign nationals mandated by applicable law shall be
disregarded in determining the ownership of a Subsidiary.
"Unrestricted Subsidiary" means a Subsidiary of the Company (i) none of
whose properties or assets were owned by the Company or any of its Subsidiaries
on or prior to the Issue Date, other than any such assets as are transferred to
such Unrestricted Subsidiary in accordance with the covenant described under
"--Certain Covenants--Limitation on Restricted Payments", (ii) whose properties
and assets, to the extent that they secure Indebtedness, secure only
Non-Recourse Indebtedness and (iii) which has no Indebtedness other than
Non-Recourse Indebtedness. As used above, "Non-Recourse Indebtedness" means
Indebtedness as to which (i) neither the Company nor any of its Restricted
Subsidiaries (1) provides credit support (including any undertaking, agreement
or instrument which would constitute Indebtedness), (2) guarantees or is
otherwise directly or indirectly liable or (3) constitutes the lender (in each
case, other than pursuant to and in compliance with the covenant described under
"--Certain Covenants--Limitation on Restricted Payments") and (ii) no default
with respect to such Indebtedness (including any rights which the holders
thereof may have to take enforcement action against the relevant Unrestricted
Subsidiary or its assets) would permit (upon notice, lapse of time or both) any
holder of any other Indebtedness of the Company or its Restricted Subsidiaries
to declare a default on such other Indebtedness or cause the payment thereof to
be accelerated or payable prior to its stated maturity. The Company shall not be
permitted to designate any Unrestricted Subsidiary as a Restricted Subsidiary
unless, after giving pro forma effect to such designation, (i) the Company would
be permitted to incur $1.00 of additional Indebtedness pursuant to the first
paragraph of the covenant described under "--Certain Covenants--Limitation on
Indebtedness" above (assuming a market rate of interest with respect to such
Indebtedness) and (ii) all Indebtedness and Liens of such Unrestricted
Subsidiary would be permitted to be incurred by a Restricted Subsidiary of the
Company under the Indenture. An Unrestricted Subsidiary shall not be designated
as a Restricted Subsidiary unless the Company shall have provided written notice
to the Trustee as to compliance with the Indenture. A designation of an
Unrestricted Subsidiary as a Restricted Subsidiary may not thereafter be
rescinded.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors,
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managers or trustees of any person (irrespective of whether or not, at the time,
Capital Stock of any other class or classes shall have, or might have, voting
power by reason of the happening of any contingency).
"Wholly-Owned Restricted Subsidiary" means any Restricted Subsidiary of the
Company of which 100% of the outstanding Capital Stock is owned by the Company
or one or more Wholly-Owned Restricted Subsidiaries or by the Company and one or
more Wholly-Owned Restricted Subsidiaries. For purposes of this definition, any
directors' qualifying shares or investments by foreign nationals mandated by
applicable law shall be disregarded in determining the ownership of a
Subsidiary.
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following summary of the material anticipated federal income tax
consequences of the issuance of New Notes and the Exchange Offer is based upon
the provisions of the Internal Revenue Code of 1986, as amended, the final,
temporary and proposed regulations promulgated thereunder, and administrative
rulings and judicial decisions now in effect, all of which are subject to change
(possibly with retroactive effect) or different interpretations. The following
summary is not binding on the Internal Revenue Service ("IRS") and there can be
no assurance that the IRS will take a similar view with respect to the tax
consequences described below. No ruling has been or will be requested by the
Company from the IRS on any tax matters relating to the New Notes or the
Exchange Offer. This discussion is for general information only and does not
purport to address all of the possible federal income tax consequences or any
state, local or foreign tax consequences of the acquisition, ownership and
disposition of the Old Notes, the New Notes or the Exchange Offer. It is limited
to investors who will hold the Old Notes and the New Notes as capital assets and
does not address the federal income tax consequences that may be relevant to
particular investors in light of their unique circumstances or to certain types
of investors (such as dealers in securities; insurance companies; financial
institutions; foreign corporations; partnerships; trusts; nonresident
individuals; and tax-exempt entities) who may be subject to special treatment
under federal income tax laws.
INDEBTEDNESS
The Old Notes and the New Notes should be treated as indebtedness of the
Company. In the unlikely event the Old Notes or the New Notes were treated as
equity, the amount treated as a distribution on any such Old Note or New Note
would first be taxable to the holder as dividend income to the extent of the
Company's current and accumulated earnings and profits, and would next be
treated as a return of capital to the extent of the holder's tax basis in the
Old Notes or New Notes, with any remaining amount treated as a gain from the
sale of an Old Note or a New Note. In addition, in the event of equity
treatment, amounts received in retirement of an Old Note or a New Note might in
certain circumstances be treated as a dividend, and the Company could not deduct
amounts paid as interest on such Old Notes or New Notes. The remainder of this
discussion assumes that the Old Notes and the New Notes will constitute
indebtedness.
EXCHANGE OFFER
The exchange of the Old Notes for New Notes pursuant to the Exchange Offer
should not be treated as an "exchange" because the New Notes should not be
considered to differ materially in kind or extent from the Old Notes. Rather,
the New Notes received by a holder of the Old Notes should be treated as a
continuation of the Old Notes in the hands of such holder. As a result, there
should be no federal income tax consequences to holders exchanging the Old Notes
for the New Notes pursuant to the Exchange Offer.
INTEREST
A holder of an Old Note or a New Note will be required to report stated
interest on the Old Note and the New Note as interest income in accordance with
the holder's method of accounting for tax purposes. Because the Old Notes were
issued at 99.65% of par there is no original issue discount pursuant to the de
minimis exception to the "original issue discount" rules.
TAX BASIS IN OLD NOTES AND NEW NOTES
A holder's tax basis in an Old Note will be the holder's purchase price for
the Old Note. If a holder of an Old Note exchanges the Old Note for a New Note
pursuant to the Exchange Offer, the tax basis of the New Note immediately after
such exchange should equal the holder's tax basis in the Old Note immediately
prior to the exchange.
DISPOSITION OF OLD NOTES OR NEW NOTES
The sale, exchange, redemption or other disposition of an Old Note or a New
Note, except in the case of an exchange pursuant to the Exchange Offer (see the
above discussion), generally will be a taxable event. A
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holder generally will recognize gain or loss equal to the difference between (i)
the amount of cash plus the fair market value of any property received upon such
sale, exchange, redemption or other taxable disposition of the Old Note or the
New Note (except to the extent attributable to accrued interest) and (ii) the
holder's adjusted tax basis in such debt instrument. Such gain or loss will be
capital gain or loss, and will be long term if the Old Notes have been held for
more than one year at the time of the sale or other disposition.
PURCHASERS OF OLD NOTES AT OTHER THAN ORIGINAL ISSUANCE PRICE
The foregoing does not discuss special rules which may affect the treatment
of purchasers that acquired Old Notes other than at par, including those
provisions of the Internal Revenue Code relating to the treatment of "market
discount," and "amortizable bond premium." Any such purchaser should consult its
tax advisor as to the consequences to him of the acquisition, ownership, and
disposition of Old Notes.
BACKUP WITHHOLDING
Unless a holder provides its correct taxpayer identification number
(employer identification number or social security number) to the Company and
certifies that such number is correct, generally under the federal income tax
backup withholding rules, 31% of (1) the interest paid on the Old Notes and the
New Notes, and (2) proceeds of sale of the Old Notes and the New Notes, must be
withheld and remitted to the United States Treasury. Therefore, each holder
should complete and sign the Substitute Form W-9 included so as to provide the
information and certification necessary to avoid backup withholding. However,
certain holders (including, among others, certain foreign individuals) are not
subject to these backup withholding and reporting requirements. For a foreign
individual to qualify as an exempt foreign recipient, that exchanging holder
must submit a statement, signed under penalties of perjury, attesting to that
individual's exempt foreign status. Such statements can be obtained from the
Company. For further information concerning backup withholding and instructions
for completing the Substitute Form W-9 (including how to obtain a taxpayer
identification number if you do not have one and how to complete the Substitute
Form W-9 if the Old Notes are held in more than one name), contact the Company's
secretary, 6242 Garfield Street, Cass City, Michigan 48726-1325 or telephone
number (517) 872-2131.
Backup withholding is not an additional federal income tax. Rather, the
federal income tax liability of a person subject to withholding will be reduced
by the amount of tax withheld. If withholding results in an overpayment of
taxes, a refund may be obtained from the IRS.
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OLD NOTES REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement, the Company has agreed to
file with the Commission a registration statement under the Securities Act with
respect to an offer to exchange the Old Notes for the New Notes. Upon the
effectiveness of the Exchange Offer registration statement, the Company will
offer to the holders of Old Notes who are able to make certain representations
the opportunity to exchange their Old Notes for New Notes. If (i) the Company is
not permitted to file the Exchange Offer registration statement or to consummate
the Exchange Offer because the Exchange Offer is not permitted by applicable law
or Commission policy or (ii) any holder of Old Notes notifies the Company within
the specified time period that (A) due to a change in law or policy it is not
entitled to participate in the Exchange Offer, (B) due to a change in law or
policy it may not resell the New Notes acquired by it in the Exchange Offer to
the public without delivering a prospectus and the prospectus contained in the
Exchange Offer registration statement is not appropriate or available for such
resales by such holder or (C) it is a broker-dealer and owns Old Notes acquired
directly from the Company or an affiliate of the Company, the Company will file
with the Commission the Shelf Registration Statement to cover resales of the
"Transfer Restricted Notes" (as defined) by the holders thereof. The Company
will use reasonable efforts to cause the applicable registration statement to be
declared effective as promptly as possible by the Commission. For purposes of
the foregoing, "Transfer Restricted Notes" means each Old Note until (i) the
date on which such Old Note has been exchanged by a person other than a
broker-dealer for a New Note in the Exchange Offer, (ii) following the exchange
by a broker-dealer in the Exchange Offer, of an Old Note for a New Note, the
date on which such New Note is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of this Prospectus,
(iii) the date on which such Old Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such Old Note is distributed to the public
pursuant to Rule 144 under the Securities Act.
Under existing Commission interpretations, the Transfer Restricted Notes
would, in general, be freely transferable after the Exchange Offer without
further registration under the Securities Act; provided that in the case of
broker-dealers participating in the Exchange Offer, a prospectus meeting the
requirements of the Securities Act will be delivered upon resale by such
broker-dealer in connection with resales of the New Notes. The Company has
agreed, for a period of 180 days after consummation of the Exchange Offer, to
make available a prospectus meeting the requirements of the Securities Act to
any such broker-dealer for use in connection with any resale of any New Notes
acquired in the Exchange Offer. A broker-dealer which delivers such a prospectus
to purchasers in connection with such resales will be subject to certain of the
civil liability provisions under the Securities Act and will be bound by the
provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations).
Each holder of the Old Notes who wishes to exchange such Old Notes for New
Notes in the Exchange Offer will be required to make certain representations,
including representations that (i) any New Notes to be received by it will be
acquired in the ordinary course of its business, (ii) it has no arrangement with
any person to participate in the distribution of the New Notes and (iii) it is
not an "affiliate," as defined in Rule 405 of the Securities Act, of the Company
or, if it is an affiliate, it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable.
If the holder if not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
New Notes. If the holder is a broker-dealer that will receive New Notes for its
own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes.
The Registration Rights Agreement provides that: (i) unless the Exchange
Offer would not be permitted by applicable law or Commission policy, the Company
will file an Exchange Offer registration statement with the Commission on or
prior to 60 days after the date of original issuance of the Old Notes (the
"Closing Date"), (ii) unless the Exchange Offer would not be permitted by
applicable law or Commission policy, the Company will use its best efforts to
have the Exchange Offer registration statement declared effective by the
Commission on or prior to 120 days after the Closing Date, (iii) unless the
Exchange Offer would not be
86
<PAGE> 92
permitted by applicable law or Commission policy, the Company will commence the
Exchange Offer and use reasonable efforts to issue, on or prior to 20 business
days after the date on which the Exchange Offer registration statement was
declared effective by the Commission, New Notes in exchange for all Old Notes
tendered prior thereto in the Exchange Offer and (iv) if obligated to file the
Shelf Registration Statement, the Company will file prior to the later of (x) 60
days after the Closing Date or (y) 30 days after such filing obligation arises
and use its best efforts to cause the Shelf Registration Statement to be
declared effective by the Commission on or prior to 90 days after such
obligation arises; provided that if the Company has not consummated the Exchange
Offer within 180 days of the Closing Date, then the Company will file the Shelf
Registration Statement with the Commission on or prior to the 181st day after
the Closing Date. The Company shall use its best efforts to keep such Shelf
Registration Statement continuously effective, supplemented and amended until
the third anniversary of the Closing Date or such shorter period that will
terminate when all the Transfer Restricted Notes covered by the Shelf
Registration Statement have been sold pursuant thereto. If (a) the Company fails
to file any of the registration statements required by the Registration Rights
Agreement on or before the date specified for such filing, (b) any of such
registration statements are not declared effective by the Commission on or prior
to the date specified for such effectiveness (the "Effectiveness Target Date"),
(c) the Company fails to consummate the Exchange Offer within 20 business days
of the Effectiveness Target Date with respect to the Exchange Offer registration
statement, or (d) the Shelf Registration Statement or the Exchange Offer
registration statement is declared effective but thereafter, subject to certain
exceptions, ceases to be effective or usable in connection with the Exchange
Offer or resales of Transfer Restricted Notes, as the case may be, during the
periods specified in the Registration Rights Agreement (each such event referred
to in clauses (a) through (d) above, a "Registration Default"), then the
interest rate on Transfer Restricted Notes will increase ("Additional
Interest"), with respect to the first 90-day period immediately following the
occurrence of such Registration Default by 0.50% per annum and will increase by
an additional 0.50% per annum with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of 2%
per annum. Following the cure of all Registration Defaults, the accrual of
Additional Interest will cease and the Interest rate will revert to the original
rate.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
BOOK ENTRY; DELIVERY AND FORM
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 on the Closing Date with, or on behalf of, The Depository
Trust Company ("DTC") and registered in the name of a nominee of DTC.
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 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 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 persons who have accounts with
DTC ("participants") or persons who hold interest through participants.
So long as DTC or its nominee is the registered owner or holder of the New
Notes, 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 any Global
Note
87
<PAGE> 93
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.
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 Certificated Security for any reason,
including to sell Notes to persons in states which require physical delivery of
the Certificated Securities, 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 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 Securities, 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 ("indirect
participants").
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 SECURITIES
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 Securities will be issued in exchange for the
Global Note.
88
<PAGE> 94
PLAN OF DISTRIBUTION
Based on interpretations by the Staff set forth in no-action letters issued
to third parties, the Company believes that New Notes issued pursuant to the
Exchange Offer in exchange for the Old Notes may be offered for resale, resold
and otherwise transferred by holders thereof (other than any holder which is (i)
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, (ii) a broker-dealer who acquired Notes directly from the
Company or (iii) broker-dealers who acquired Notes as a result of market-making
or other trading activities) 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 are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a distribution
of such New Notes; provided that broker-dealers ("Participating Broker-Dealers")
receiving New Notes in the Exchange Offer will be subject to a prospectus
delivery requirement with respect to resales of such New Notes. To date, the
Staff has taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to transactions involving an
exchange of securities such as the exchange pursuant to the Exchange Offer
(other than a resale of an unsold allotment from the sale of the Old Notes to
the Initial Purchasers) with the Prospectus contained in the Exchange Offer
Registration Statement. Pursuant to the Registration Rights Agreement, the
Company has agreed to permit Participating Broker-Dealers and other persons, if
any, subject to similar prospectus delivery requirements to use this Prospectus
in connection with the resale of such New Notes. The Company and the Guarantors
have agreed that, for a period of 180 days after the Expiration Date, they will
make this Prospectus, and any amendment or supplement to this Prospectus,
available to any broker-dealer that requests such documents in the Letter of
Transmittal.
Each holder of the Old Notes who wishes to exchange its Old Notes for New
Notes in the Exchange Offer will be required to make certain representations to
the Company as set forth in "The Exchange Offer-- Terms and Conditions of the
Letter of Transmittal." In addition, each holder who is a broker-dealer and who
receives New Notes for its own account in exchange for Old Notes that were
acquired by it as a result of market-making activities or other trading
activities, will be required to acknowledge that it will deliver a prospectus in
connection with any resale by it of such New Notes.
The Company will not 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 at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such 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.
The Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concessions of any brokers or dealers and will
indemnify holders of the Old Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act, as set
forth in the Registration Rights Agreement. Pursuant to the Registration Rights
Agreement, the Company has agreed to use its best efforts to cause the New Notes
to be listed on the New York Stock Exchange.
LEGAL MATTERS
Certain legal matters regarding the validity of the New Notes offered
hereby will be passed upon for the Company by Katten Muchin & Zavis, a
partnership including professional corporations, Chicago, Illinois.
89
<PAGE> 95
INDEPENDENT PUBLIC ACCOUNTANTS
The audited consolidated financial statements of the Company (excluding
Dyno) at December 31, 1994, 1993 and 1992, and for each of the three years in
the period ended December 31, 1994, included in this Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as stated in its
report appearing herein. The audited combined financial statements of Dyno at
December 31, 1994 and for the period then ended included in this Prospectus have
been audited by Arthur Andersen & Co. GmbH, independent public accountants, as
stated in its report appearing herein. In addition, the combined financial
statements of Dyno at December 31, 1993, for the period ended December 31, 1993,
and the combined statement of revenues and direct costs and expenses for the
period ended December 31, 1992, included in this Prospectus have been audited by
Deloitte & Touche, independent public accountants, as stated in their reports
appearing herein.
90
<PAGE> 96
INDEX TO FINANCIAL STATEMENTS
WALBRO CORPORATION
As of December 31, 1994, 1993 and 1992 and for the years ended December 31,
1994, 1993 and 1992
<TABLE>
<S> <C>
Report of Independent Public Accountants............................................. F-2
Consolidated Balance Sheets.......................................................... F-3
Consolidated Statements of Income.................................................... F-4
Consolidated Statements of Stockholders' Equity...................................... F-5
Consolidated Statements of Cash Flows................................................ F-6
Notes to Consolidated Financial Statements........................................... F-7
</TABLE>
As of June 30, 1995 and for the six months ended June 30, 1995 and 1994
<TABLE>
<S> <C>
Unaudited Consolidated Balance Sheet as of June 30, 1995 and
Audited Consolidated Balance Sheet as of December 31, 1994......................... F-37
Consolidated Statements of Income (Unaudited)........................................ F-38
Consolidated Statements of Cash Flows (Unaudited).................................... F-39
Notes to Consolidated Financial Statements (Unaudited)............................... F-40
</TABLE>
THE FUEL SYSTEMS BUSINESS OF DYNO INDUSTRIER A.S
As of December 31, 1994 and 1993 and for the years ended December 31, 1994
and 1993
<TABLE>
<S> <C>
Report of Independent Public Accountants............................................. F-47
Combined Balance Sheets.............................................................. F-49
Combined Income Statements........................................................... F-50
Combined Statements of Cash Flows.................................................... F-51
Notes to the Combined Financial Statements........................................... F-52
</TABLE>
For the year ended December 31, 1992
<TABLE>
<S> <C>
Report of Independent Public Accountants............................................. F-62
Combined Statement of Revenues and Direct Costs and Expenses......................... F-63
Notes to the Financial Statements.................................................... F-64
</TABLE>
As of June 30, 1995 and for the six months ended June 30, 1995 and 1994
<TABLE>
<S> <C>
Unaudited Combined Balance Sheets as of June 30, 1995 and December 31, 1994.......... F-66
Combined Income Statements (Unaudited)............................................... F-67
Combined Statements of Cash Flows (Unaudited)........................................ F-68
Notes to the Combined Financial Statements (Unaudited)............................... F-69
</TABLE>
F-1
<PAGE> 97
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and
Stockholders of Walbro Corporation:
We have audited the accompanying consolidated balance sheets of Walbro
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1994,
1993 and 1992, and the related consolidated statements of income, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Walbro Corporation and
subsidiaries as of December 31, 1994, 1993 and 1992, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, effective
January 1, 1994, the Company changed its method of accounting for investments in
debt and equity securities. In addition, as discussed in Note 10 to the
consolidated financial statements, effective January 1, 1993, the Company
changed its method of accounting for postretirement benefits other than
pensions.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 14, 1995
(Except with respect to the matters
discussed in Notes 20 and 21, as to
which the date is June 30, 1995).
F-2
<PAGE> 98
WALBRO CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash............................................................ $ 4,540 $ 4,605 $ 8,248
Accounts receivable, net........................................ 66,333 44,676 40,369
Inventories..................................................... 31,439 26,898 23,938
Prepaid expenses and other...................................... 4,001 7,266 4,544
Deferred and refundable income taxes............................ 3,663 4,871 3,115
-------- -------- --------
Total Current Assets.......................................... 109,976 88,316 80,214
-------- -------- --------
Plant and Equipment, at cost:
Land............................................................ 1,234 426 678
Buildings and improvements...................................... 44,668 43,689 34,385
Machinery and equipment......................................... 93,127 71,727 65,128
-------- -------- --------
139,029 115,842 100,191
Less -- Accumulated depreciation................................ 50,737 41,666 34,635
-------- -------- --------
Net Plant and Equipment....................................... 88,292 74,176 65,556
-------- -------- --------
Other Assets:
Funds held for construction..................................... 1,061 2,710 --
Joint ventures.................................................. 16,518 11,278 10,095
Investments..................................................... 10,797 8,057 5,988
Goodwill, net................................................... 16,905 16,937 16,620
Plant and equipment held for resale............................. 80 80 248
Notes receivable................................................ 4,366 3,616 1,974
Deferred income taxes........................................... 871 41 --
Other........................................................... 8,500 10,084 12,325
-------- -------- --------
Total Other Assets............................................ 59,098 52,803 47,250
-------- -------- --------
Total Assets.................................................. $257,366 $215,295 $193,020
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt............................... $ 8,442 $ 408 $ 7,069
Bank and other borrowings....................................... 6,970 5,375 2,642
Accounts payable................................................ 23,252 19,991 17,070
Accrued liabilities............................................. 12,077 11,500 8,881
Dividends payable............................................... 857 855 810
-------- -------- --------
Total Current Liabilities..................................... 51,598 38,129 36,472
-------- -------- --------
Long-Term Liabilities:
Long-term debt, less current portion............................ 66,136 52,392 49,638
Pension obligations and other................................... 8,153 8,071 3,157
Deferred income taxes........................................... 2,439 2,557 3,843
Minority interest............................................... 1,125 -- --
-------- -------- --------
Total Long-Term Liabilities................................... 77,853 63,020 56,638
-------- -------- --------
Stockholders' Equity
Common stock, $.50 par value; authorized 15,000,000; outstanding
8,564,576 in 1994, 8,551,782 in 1993, and 8,098,242 in 1992... 4,282 4,276 4,049
Paid-in capital................................................. 64,221 63,997 57,139
Retained earnings............................................... 55,855 44,686 38,422
Deferred compensation........................................... (1,225) (1,634) (2,042)
Minimum pension liability adjustment............................ -- (520) (371)
Unrealized gain on securities available for sale................ 1,428 -- --
Cumulative translation adjustments.............................. 3,354 3,341 2,713
-------- -------- --------
Total Stockholders' Equity.................................... 127,915 114,146 99,910
-------- -------- --------
Total Liabilities and Stockholders' Equity.................... $257,366 $215,295 $193,020
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 99
WALBRO CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net Sales................................................... $325,205 $273,463 $241,416
Costs and Expenses:
Cost of sales............................................. 261,501 216,804 185,712
Selling and administrative expenses....................... 39,318 33,043 33,614
Reorganization and restructuring charges.................. -- 1,760 --
-------- -------- --------
Operating Income............................................ 24,386 21,856 22,090
Other Expense (Income):
Unrealized loss on marketable equity security............. -- -- 1,050
Interest expense.......................................... 3,862 2,594 3,704
Interest income........................................... (91) (35) (591)
Foreign currency exchange loss............................ 2,602 1,495 566
Other..................................................... 111 572 350
-------- -------- --------
Income before provision for income taxes, minority
interest, equity in (income) loss of joint ventures and
cumulative effect of accounting change................. 17,902 17,230 17,011
Provision for income taxes.................................. 5,824 4,574 4,664
Minority interest........................................... 92 -- --
Equity in (income) loss of joint ventures................... (2,609) 89 (179)
-------- -------- --------
Income before cumulative effect of accounting change........ 14,595 12,567 12,526
Cumulative effect of accounting change, net of tax benefit
of $1,494 in 1993......................................... -- 2,900 --
-------- -------- --------
Net income............................................. $ 14,595 $ 9,667 $ 12,526
======== ======== ========
Primary Income Per Share:
Income before cumulative effect of accounting change...... $ 1.70 $ 1.47 $ 1.63
Cumulative effect of accounting change, net of tax
benefit................................................ -- (.34) --
-------- -------- --------
Net income............................................. $ 1.70 $ 1.13 $ 1.63
======== ======== ========
Fully Diluted Income Per Share:
Income before cumulative effect of accounting change...... $ 1.70 $ 1.47 $ 1.58
Cumulative effect of accounting change, net of tax
benefit................................................ -- (.34) --
-------- -------- --------
Net income............................................. $ 1.70 $ 1.13 $ 1.58
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 100
WALBRO CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
MINIMUM SECURITIES CUMULATIVE
COMMON PAID-IN RETAINED DEFERRED PENSION AVAILABLE TRANSLATION
STOCK CAPITAL EARNINGS COMPENSATION LIABILITY FOR SALE ADJUSTMENTS
------ ------- -------- ------------ --------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance --
December 31, 1991............. $3,049 $17,355 $29,088 $ (2,450) $ -- $ -- $ 3,297
Net proceeds from public
offering of 1,112,135 shares
of common stock............. 556 25,720 -- -- -- -- --
Conversion of convertible
subordinated notes into
827,086 shares of common
stock....................... 414 12,794 -- -- -- -- --
Conversion of Series C
redeemable preferred
stock....................... 15 930 -- -- -- -- --
Exercise of stock options..... 15 340 -- -- -- -- --
ESOP debt payments............ -- -- -- 408 -- -- --
Net income.................... -- -- 12,526 -- -- -- --
Additional minimum pension
liability................... -- -- -- -- (371) -- --
Cash dividends
($.40 per share)............ -- -- (3,192) -- -- -- --
Translation adjustments....... -- -- -- -- -- -- (584)
------ ------- ------- -------- ------- ------- -------
Balance --
December 31, 1992............. 4,049 57,139 38,422 (2,042) (371) -- 2,713
Conversion of convertible
subordinated notes into
404,429 shares of common
stock....................... 202 6,273 -- -- -- -- --
Exercise of stock options..... 25 585 -- -- -- -- --
ESOP debt payments............ -- -- -- 408 -- -- --
Net income.................... -- -- 9,667 -- -- -- --
Additional minimum pension
liability................... -- -- -- -- (149) -- --
Cash dividends
($.40 per share)............ -- -- (3,403) -- -- -- --
Translation adjustments....... -- -- -- -- -- -- 628
------ ------- ------- -------- ------- ------- -------
Balance --
December 31, 1993............. 4,276 63,997 44,686 (1,634) (520) -- 3,341
Change in accounting for
securities available for
sale -- January 1, 1994..... -- -- -- -- -- 2,096 --
Exercise of stock options..... 6 224 -- -- -- -- --
ESOP debt payments............ -- -- -- 409 -- -- --
Net income.................... -- -- 14,595 -- -- -- --
Additional minimum pension
liability................... -- -- -- -- 520 -- --
Cash dividends
($.40 per share)............ -- -- (3,426) -- -- -- --
Change in market value of
securities available for
sale........................ -- -- -- -- -- (668) --
Translation adjustments....... -- -- -- -- -- -- 13
------ ------- ------- -------- ------- ------ -------
Balance --
December 31, 1994............. $4,282 $64,221 $55,855 $ (1,225) $ -- $1,428 $3,354
====== ======= ======= ======== ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 101
WALBRO CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income.................................................. $ 14,595 $ 9,667 $ 12,526
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization.......................... 14,672 11,339 10,339
Cumulative effect of accounting change................. -- 2,900 --
Loss on disposition of assets.......................... 449 372 870
Minority interest...................................... 92 -- --
(Income) loss of joint ventures........................ (2,609) 89 (179)
Reorganization and restructuring charges............... -- 754 --
Unrealized loss on marketable equity security.......... -- -- 1,050
Change in assets and liabilities, net of effects of
acquisitions:
Deferred income taxes............................... (681) (1,324) (1,117)
Deferred pension obligations and other.............. 519 544 659
Accounts payable and accrued liabilities............ 704 4,220 (1,436)
Accounts receivable, net............................ (18,463) (3,449) (8,078)
Inventories......................................... (3,752) (2,752) (3,297)
Prepaid expenses and other.......................... 4,951 (6,979) (3,767)
-------- -------- --------
Total adjustments................................. (4,118) 5,714 (4,956)
-------- -------- --------
Net cash provided by operating activities.............. 10,477 15,381 7,570
-------- -------- --------
Cash Flows From Investing Activities:
Purchase of plant and equipment............................. (18,844) (20,260) (14,681)
Acquisitions, net of cash acquired.......................... (1,480) 1,312 --
Purchase of other assets.................................... (2,615) (2,047) (3,455)
Investment in joint ventures and other...................... (1,508) (1,333) (4,206)
Proceeds from disposal of assets............................ 1,463 3,149 276
-------- -------- --------
Net cash used in investing activities.................. (22,984) (19,179) (22,066)
-------- -------- --------
Cash Flows From Financing Activities:
Net borrowings (repayments) under revolving line-of-credit
agreements............................................... (27,739) (3,691) 8,834
Debt repayments............................................. (824) (2,617) (13,247)
Proceeds from issuance of long-term debt.................... 45,000 9,000 6,300
Proceeds from issuance of common stock and options.......... 230 610 26,629
Retirement of redeemable preferred stock.................... -- -- (6,500)
Cash dividends paid......................................... (3,424) (3,359) (2,992)
-------- -------- --------
Net cash provided by (used in) financing activities.... 13,243 (57) 19,024
-------- -------- --------
Effect of exchange rate changes on cash..................... (801) 212 (513)
-------- -------- --------
Net increase (decrease) in cash............................. (65) (3,643) 4,015
Cash at beginning of year................................... 4,605 8,248 4,233
-------- -------- --------
Cash at end of year......................................... $ 4,540 $ 4,605 $ 8,248
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 102
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Principles of Consolidation:
The consolidated financial statements include the accounts of Walbro
Corporation and its wholly-owned and majority owned subsidiaries (the Company).
Investments in joint ventures are generally accounted for under the equity
method (Note 2). Significant transactions and balances among the Company and its
subsidiaries have been eliminated in the consolidated financial statements.
Foreign Currency Translation:
The assets and liabilities of the Company's foreign operations are
generally translated into U.S. dollars at current exchange rates, and revenues
and expenses are translated at average exchange rates for the year. Resulting
translation adjustments are reflected as a separate component of stockholders'
equity.
Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency,
except those transactions which operate as a hedge of an identifiable foreign
currency commitment or as a hedge of a foreign currency investment position, are
included in the results of operations as incurred.
Accounts Receivable:
Accounts receivable are net of allowances for doubtful accounts of
$732,000, $413,000 and $340,000 as of December 31, 1994, 1993 and 1992,
respectively.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories include raw materials and component parts, work-in-process
and finished products. Work-in-process and finished products inventories include
material, labor and manufacturing overhead costs.
Inventory at December 31, 1994 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1994
-------
<S> <C>
Raw materials and components.................................... $19,310
Work-in-process................................................. 6,915
Finished products............................................... 5,214
-------
$31,439
=======
</TABLE>
Amounts included in work-in-process and finished products in 1993 and 1992
were not material.
Plant and Equipment:
The Company provides for depreciation of plant and equipment based upon the
acquisition costs and the estimated service lives of depreciable assets. The
straight-line method is the principal method used to compute depreciation for
financial reporting purposes. However, the units-of-production method is used to
compute depreciation of certain equipment. Estimated service lives of
depreciable assets are as follows: buildings and improvements -- 30 years,
machinery and equipment -- 5 to 10 years.
Marketable Equity Securities:
Effective January 1, 1994, the carrying value of marketable equity
securities is market value (Note 3). During 1993 and 1992, the carrying value of
marketable equity securities was based on the lower of cost or
F-7
<PAGE> 103
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
quoted market value. Net unrealized losses on non-current marketable equity
securities that were deemed to be other than temporary were reflected in income.
Realized gains and losses on the sale of marketable equity securities are
recognized in income on the specific identification basis.
Goodwill:
Goodwill consists of purchase price and related acquisition costs in excess
of the fair value of the identifiable net assets acquired. Goodwill is amortized
on a straight-line basis over 15 to 40 years. The Company evaluates the carrying
value of goodwill for potential impairment on an ongoing basis. Such evaluations
compare operating income before amortization of goodwill of the operations to
which goodwill relates to the amortization recorded. The Company also considers
future anticipated operating results, trends and other circumstances in making
such evaluations.
Goodwill consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Goodwill...................................... $19,367 $18,943 $18,137
Less: Accumulated amortization................ (2,462) (2,006) (1,517)
------- ------- -------
$16,905 $16,937 $16,620
======= ======= =======
</TABLE>
Income Taxes:
The consolidated financial statements for 1994 and 1993 have been prepared
in accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes." The adoption of SFAS No. 109 as
of January 1, 1993 did not have a material impact on the consolidated financial
statements of the Company. The consolidated financial statements for 1992 have
been prepared in accordance with the provisions of SFAS No. 96, which was
superseded by SFAS No. 109. The 1992 consolidated financial statements have not
been restated to conform to the 1994 and 1993 presentation.
Deferred income taxes represent the effect of cumulative temporary
differences between income and expense items reported for financial statement
and tax purposes, and between the bases of various assets and liabilities for
financial statement and tax purposes. Deferred tax assets are reduced by a
valuation allowance if, based on the weight of evidence, it is deemed more
likely than not that the asset will not be realized.
Research and Development Costs:
Research and development costs are charged to operations as incurred and
amounted to $12,199,000, $9,484,000 and $9,040,000 for 1994, 1993 and 1992,
respectively.
Financial Instruments:
The Company enters into interest rate swap agreements. The differential to
be paid or received is accrued as interest rates change and is recognized over
the life of the agreements. In order to manage exposure to fluctuations in
foreign currency exchange rates, the Company regularly enters into forward
currency exchange contracts. Gains and losses on contracts that hedge specific
foreign currency commitments are deferred and recognized in net income in the
period in which the related transaction is consummated. Gains and losses on
contracts that hedge net investments in foreign joint ventures or subsidiaries
are recognized as cumulative translation adjustments in stockholders' equity.
Gains and losses on forward currency exchange contracts that do not qualify as
hedges are recognized as other income or expense.
F-8
<PAGE> 104
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Per Share Information:
Primary income per share is based on the weighted average number of shares
outstanding during each period. Shares used in the per share calculations were
8,602,077 in 1994, 8,537,375 in 1993 and 7,675,974 in 1992.
Fully diluted income per share is calculated by dividing income, after
deducting interest on the subordinated debt, by the weighted average common
shares outstanding during the period under the treasury stock method. Shares
used in the per share calculations were 8,602,077 in 1994, 8,537,375 in 1993 and
8,160,472 in 1992.
Reclassifications:
Certain amounts in prior years' consolidated financial statements have been
reclassified to conform with the presentation used in 1994.
NOTE 2. JOINT VENTURES.
The investments in joint ventures as of December 31 are as follows:
<TABLE>
<CAPTION>
PERCENT BENEFICIAL OWNERSHIP
----------------------------
1994 1993 1992
-------- -------- ----
<S> <C> <C> <C>
Marwal Systems, S.A. ......................... 49% 49% 49%
Walbro Korea Ltd. ............................ (Note 4) (Note 4) 50%
Mitsuba-Walbro, Inc. ......................... 50% 50% 50%
Marwal do Brasil, Ltda. ...................... 49% 49% --
Korea Automotive Fuel Systems, Ltd. .......... 49% -- --
</TABLE>
The above joint ventures are generally involved in the design and
manufacture of precision fuel systems products for the global automotive market.
All of the above investments in joint ventures are accounted for using the
equity method, except Walbro Korea Ltd. in 1994 and 1993 (Note 4). Certain
adjustments are made to the joint ventures' income so that recorded income is
stated in accordance with United States generally accepted accounting
principles. At December 31, 1994, the cumulative effect of these adjustments was
to increase the Company's equity in its joint ventures by approximately
$1,300,000. At December 31, 1994, the amount included in retained earnings as
undistributed earnings of foreign joint ventures was approximately $918,000.
In December 1994, the Company entered into a joint venture (Korea
Automotive Fuel Systems, Ltd.) with Daewoo Precision Industries in Korea. Korea
Automotive Fuel Systems, Ltd. manufactures fuel sending units for the Korean
automotive market.
In February 1993, the Company entered into a joint venture (Marwal do
Brasil, Ltda.) with Magneti Marelli, S.p.A. in Brazil. Marwal do Brasil, Ltda.
manufactures and markets fuel system components to customers in South America.
During 1992, the Company exercised an exchange option and liquidated its
50% investment in a former joint venture, Orbital-Walbro Corporation. As a
result of this exchange transaction, the Company received $5.5 million in cash
and approximately 3,746,600 shares of Orbital Engine Company Pty. Ltd., the
parent company of the joint venture partner and a public company listed on the
Australian stock exchange. The shares of stock received by the Company have been
recorded at an amount equal to the Company's investment in the joint venture at
the time the option was exercised.
F-9
<PAGE> 105
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized combined financial information for joint ventures accounted for
under the equity method is as follows (unaudited, in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Balance sheet data:
Current assets............................. $53,160 $35,773 $32,851
Non-current assets......................... 26,069 20,140 16,248
Current liabilities........................ 48,160 36,672 28,959
Non-current liabilities.................... 786 882 1,885
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Income statement data:
Net sales.................................. $137,873 $80,722 $72,431
Gross profit............................... 29,283 15,063 14,671
Income before provision for income taxes... 8,136 962 291
Net income (loss).......................... 5,164 466 (362)
</TABLE>
Dividends from joint ventures of approximately $38,000, $45,000 and $40,000
were received by the Company during 1994, 1993 and 1992, respectively. The
Company has sales to joint ventures of approximately $20,407,000, $20,456,000
and $15,942,000 for 1994, 1993 and 1992, respectively. Included in accounts
receivable are trade receivables from joint ventures of approximately
$7,349,000, $1,882,000 and $5,064,000 for 1994, 1993 and 1992, respectively. The
Company had purchases from joint ventures of approximately $15,329,000,
$11,820,000 and $9,791,000 for 1994, 1993 and 1992, respectively. Included in
accounts payable are trade payables to joint ventures of approximately $782,000
and $1,120,000 for 1994 and 1993, respectively. Trade payables to joint ventures
were not material for 1992.
NOTE 3. INVESTMENTS.
Effective January 1, 1994, the Company adopted SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." This Statement requires
that certain investments be classified into three separate categories:
"held-to-maturity", "available-for-sale", and "trading", each with different
accounting treatment. The Company has classified its investments in common stock
securities as "available-for-sale" which requires the Company to record these
investments at fair market value and record the gross unrealized holding gains
and losses, after-tax, as a separate component of stockholders' equity. The
impact of adoption at January 1, 1994 was to increase investments by
approximately $3,225,000 and to increase stockholders' equity by $2,096,000, net
of income taxes.
As of December 31, 1994, the fair market value of the Company's investments
was approximately $10,797,000, including gross unrealized holding gains of
approximately $2,167,000 ($1,428,000 after-tax). During the year ended December
31, 1994, the gross unrealized holding gains decreased by approximately
$1,058,000 ($668,000 after-tax), which was reflected as a change in
stockholders' equity.
At December 31, 1993 and 1992, the portfolio of noncurrent marketable
equity securities includes gross unrealized gains of approximately $3,240,000
and $5,458,000, respectively.
In 1990, the Company acquired 207,000 shares of common stock of Mitsuba
Electric Company, its joint venture partner in Mitsuba-Walbro, Inc. The
investment is treated as a noncurrent marketable equity security for financial
statement presentation. Prior to 1992, any decrease in the market value of the
Mitsuba Electric stock was determined to be temporary in nature. With the
deterioration of the Japanese economy, the losses suffered by the Japanese
automakers and their component suppliers along with the strengthening of the Yen
in
F-10
<PAGE> 106
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1992, it was determined that the decline in value was deemed to be other than
temporary in nature and a charge to earnings of $1,050,000 was recorded in the
fourth quarter of 1992.
NOTE 4. ACQUISITIONS.
In January 1994, the Company acquired a 60% interest in Fujian Hualong
Carburetor Co., Ltd. (Fujian), which manufactures and markets carburetors for
two-wheeled vehicles in China. In connection with the acquisition, the Company
exchanged approximately $1,500,000 for a 60% ownership interest in Fujian. This
acquisition was accounted for as a purchase. The purchase price approximated the
fair value of the net assets acquired. As a result, Fujian's balance sheet as of
December 31, 1994 and its results of operations for the period then ended have
been included in the Company's consolidated financial statements.
In May 1994, the Company acquired a 100% ownership interest in an
engineering firm in Canada (Walbro Canada) for an aggregate purchase price of
$352,000. This acquisition was accounted for as a purchase. The excess of the
purchase price over the fair value of the net assets acquired was approximately
$424,000 and will be amortized over 15 years. As a result, Walbro Canada's
balance sheet as of December 31, 1994 and its results of operations for the
period since the date of acquisition have been included in the Company's
consolidated financial statements.
In April 1993, the Company purchased the interests of its joint venture
partners in Walbro Korea Ltd. for a purchase price of approximately $640,000,
including related expenses. As a result, the Company now has 100% ownership.
Prior to this purchase, the Company owned 50% of Walbro Korea Ltd.'s common
stock and accounted for its investment under the equity method of accounting.
This acquisition was accounted for as a purchase. The excess of the purchase
price over the fair value of net assets acquired was approximately $800,000.
Walbro Korea Ltd. has been included in the Company's consolidated financial
statements from the date of purchase.
Pro forma results of these acquisitions, assuming they had taken place at
the beginning of each year presented, would not be materially different from the
results reported.
NOTE 5. REORGANIZATION AND RESTRUCTURING CHARGES.
During 1993, the Company recorded a pretax charge of $1,760,000 for
employee separation costs in connection with a management reorganization, of
which $1,006,000 was paid during the year. The remaining amount of $754,000 was
paid during 1994.
F-11
<PAGE> 107
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. LONG-TERM DEBT AND LINES OF CREDIT.
Long-term debt consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
2004 Notes, unsecured, interest at 7.68%, payable in annual
amounts from 1998 to 2004...................................... $45,000 $ -- $ --
Revolving credit loan, interest rate from LIBOR plus 5/8% to
prime, unsecured............................................... -- 28,750 35,050
Industrial revenue bond, issued by Town of Ossian, Indiana,
interest at a variable municipal bond rate, due in 2023........ 9,000 9,000 --
Industrial revenue bond, issued by City of Ligonier, Indiana,
interest at a variable municipal bond rate plus 1%, payable in
annual amounts from 2003 to 2007............................... 6,300 6,300 6,300
Convertible subordinated promissory notes, 8%, callable in April
1993, convertible into shares of common stock at a rate of one
share for each $16.24 of principal............................. -- -- 6,568
Foreign bank note, payable in Japanese yen, interest at Japanese
prime, due in May 1995......................................... 7,519 6,708 6,014
Foreign bank note, payable in Chinese Renminbi, interest at 9.8%,
due in 1997.................................................... 348 -- --
ESOP credit agreement, secured, interest rate which approximates
86% of prime, payable in annual installments of $408,000....... 1,634 2,042 2,451
Capital lease obligations, interest at 7.5%, payable in monthly
installments through February 2002............................. 4,710 -- --
Other............................................................ 67 -- 324
------- ------- -------
74,578 52,800 56,707
Less -- current portion.......................................... 8,442 408 7,069
------- ------- -------
$66,136 $52,392 $49,638
======= ======= =======
</TABLE>
In October 1994, the Company sold $45,000,000 of 7.68% senior notes (2004
Notes). The 2004 Notes require quarterly interest payments due January 1, April
1, July 1 and October 1. The agreement requires the Company to maintain
consolidated adjusted net worth of $85 million plus 25% of cumulative net income
for each year beginning in 1995 and a funded debt to total capital ratio not
greater than .65 to 1.
In January 1993, the Company amended its revolving credit agreement
increasing the Company's borrowing capacity under the agreement up to $80
million. The amended revolving credit agreement is subject to a commitment fee
of 1/8% to 3/8% on the unused portion, bears interest at rates varying from
LIBOR plus 5/8% to prime and expires in January 1996. The agreement requires
the Company to maintain working capital of $20 million, a fixed charge coverage
ratio of 2 to 1, a current ratio of not less than 1.5 to 1, consolidated
tangible net worth of $65 million plus 50% of cumulative net income for each
year beginning in 1993 and a leverage ratio of not more than 2 to 1.
During 1994, the Company entered into an agreement to lease certain
machinery under terms which qualified as a capital lease. As of December 31,
1994, assets recorded under this capital lease were approximately $5,109,000,
net of accumulated amortization of approximately $18,000.
Aggregate minimum principal payment requirements on long-term debt,
including capital lease obligations, in each of the five years subsequent to
December 31, 1994 are as follows: 1995 -- $8,442,000; 1996 -- $963,000; 1997 --
$1,421,000; 1998 -- $7,503,000; 1999 -- $7,144,000, and thereafter --
$49,105,000.
F-12
<PAGE> 108
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition to long-term debt, the Company and its subsidiaries have line
of credit arrangements with foreign banks for short-term borrowings of
approximately $11,919,000, $7,200,000 and $2,500,000 at December 31, 1994, 1993
and 1992, respectively. The weighted average interest rate on short-term bank
borrowings outstanding under these arrangements was 6.7%, 5.6% and 3.9% as of
December 31, 1994, 1993 and 1992, respectively. Certain of these borrowings are
secured by certain plant and equipment.
NOTE 7. COMMITMENTS AND CONTINGENCIES.
The manufacture of automotive components entails the risk that a customer
or governmental authority may require the recall of one of the Company's
products or a product in which one of the Company's products has been installed.
The Company has taken and will continue to take all reasonable precautions to
avoid the risk of exposure to a recall or warranty claim that would have a
material effect on the financial position of the Company. The Company does not
believe that any insurance is available to protect against potential product
recall/warranty liability. The Company provides for warranty claims on its
products on an ongoing basis.
Management believes that any liability resulting from these matters will
not have a material impact on the financial position or future results of
operations of the Company.
NOTE 8. INCOME TAXES.
The provisions of SFAS No. 109, "Accounting for Income Taxes" have been
applied in the consolidated financial statements for the years ended December
31, 1994 and 1993. The provisions of SFAS No. 96, "Accounting for Income Taxes"
have been applied in the consolidated financial statements for the year ended
December 31, 1992. A summary of income before provision for income taxes,
minority interest, equity in (income) loss of joint ventures, and cumulative
effect of accounting change, and components of the provision are as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Income before provision for income taxes,
minority interest, equity in (income) loss
of joint ventures and cumulative effect of
accounting change:
Domestic................................. $12,873 $12,765 $13,749
Foreign.................................. 5,029 4,465 3,262
------- ------- -------
$17,902 $17,230 $17,011
======= ======= =======
Provision for income taxes:
Currently payable --
Domestic................................. $ 3,313 $ 4,923 $ 4,042
Foreign.................................. 1,674 1,931 1,397
Utilization of tax credits............... (605) (1,075) --
------- ------- -------
4,382 5,779 5,439
------- ------- -------
Deferred --
Domestic................................. 1,067 (1,161) (699)
Foreign.................................. (14) (309) (76)
Effect of change in U.S. statutory
rate................................... -- (90) --
Change in beginning of year valuation
allowance.............................. 389 355 --
------- ------- -------
1,442 (1,205) (775)
------- ------- -------
$ 5,824 $ 4,574 $ 4,664
======= ======= =======
</TABLE>
F-13
<PAGE> 109
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reconciliations of the U.S. Federal statutory income tax rates to the
Company's consolidated effective income tax rates applicable to continuing
operations are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
U.S. Federal statutory income tax rate.............. 35.0% 35.0% 34.0%
Increase (decrease) in effective income tax rate
resulting from --
Differences between U.S. and foreign income
tax rates................................. (1.2) .3 .4
Utilization of tax credits................... (3.4) (6.3) (8.7)
Increase in valuation allowance.............. 2.2 -- --
Goodwill amortization........................ .9 .9 .9
Other, net................................... (1.0) (3.4) .8
---- ---- ----
Effective income tax rates.......................... 32.5% 26.5% 27.4%
==== ==== ====
</TABLE>
The components of the net deferred income tax (asset) liability at December
31, 1994 and 1993 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Deferred income tax liabilities:
Depreciation and basis difference.................... $ 5,342 $ 4,958
Employee benefits.................................... 1,470 1,535
Income on joint ventures............................. -- 556
Basis difference on foreign currency contracts....... 910 999
Unrealized gain on securities available for sale..... 739 --
Other................................................ 483 660
------- -------
8,944 8,708
------- -------
Deferred income tax assets:
Estimated net operating loss carryforwards........... (585) (585)
Employee benefits.................................... (3,552) (3,135)
Accruals............................................. (238) (1,276)
Minimum pension liability adjustment................. -- (274)
Inventory............................................ (613) (611)
Accounts and notes receivable reserve................ (159) (179)
Write-down of investment............................. (368) (368)
Loss on joint ventures............................... (2,072) (2,646)
Other................................................ (207) (150)
------- -------
(7,794) (9,224)
------- -------
Valuation allowance.................................. 744 355
------- -------
(7,050) (8,869)
------- -------
Net deferred income tax (asset) liability.............. $ 1,894 $ (161)
======= =======
</TABLE>
The net change in the valuation allowance during 1994 and 1993 was an
increase of $389,000 and $355,000, respectively.
F-14
<PAGE> 110
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The sources of the timing differences and the related income tax effects
which compose the deferred income tax provision for 1992 are as follows (in
thousands):
<TABLE>
<CAPTION>
1992
----
<S> <C>
Depreciation............................................... $ 143
Inventory cost capitalization for tax purposes............. (103)
Reserve for restructuring costs............................ 68
ESOP contribution.......................................... (9)
Gain on machinery and equipment............................ 5
Inventory reserve.......................................... (179)
Employee benefits and bonuses.............................. (135)
Account and note reserves.................................. (128)
Plant closing reserve...................................... 388
Other...................................................... (825)
------
$ (775)
======
</TABLE>
At December 31, 1994, the cumulative amount of undistributed earnings of
foreign subsidiaries was approximately $16,500,000. No deferred U.S. income
taxes have been provided on these earnings as such amounts are deemed to be
permanently reinvested. If such earnings were remitted, the impact of foreign
withholding taxes would not be significant. The Company has net operating loss
carryforwards available from one of its subsidiaries of approximately
$1,670,000. These carryforwards expire in the year 2003.
Provisions for state income taxes are included in selling and
administrative expenses and amounted to $1,203,000 in 1994, $722,000 in 1993 and
$1,035,000 in 1992.
NOTE 9. STOCK OPTION PLANS AND LONG-TERM INCENTIVE PLANS.
The Company has a stock option plan, the Walbro Corporation 1983 Incentive
Stock Option Plan (1983 Plan), under which 155,850 shares of common stock are
reserved for issuance to officers and key employees. Options may be granted for
periods of up to ten years at prices greater than or equal to the market value
at the date of grant.
In addition, during 1991, the Board of Directors authorized the Walbro
Corporation Equity Based Long Term Incentive Plan, under which 428,900 shares of
common stock are reserved for issuance to officers and key employees. During
1992, the stockholders of the Company approved approximately an additional
330,400 shares of common stock reserved for issuance to officers and key
employees, bringing the total shares of common stock reserved for issuance to
approximately 759,300. Options are granted yearly based on certain financial
performance criteria as compared to the annual business plan. In addition,
grants are awarded yearly which, when exercised, result in a cash bonus equal to
the price of the common stock. If the Company's common stock price appreciates
at a 17% compounded rate over a five year term, the number of grants awarded,
valued at the common stock price, will equal the dollar amount necessary to
exercise the stock options. Participants will receive a greater or lesser number
of grants based on the actual market performance of the stock over the term of
the plan. The number of grants outstanding was 30,915, 31,912 and 43,012 as of
December 31, 1994, 1993 and 1992, respectively.
F-15
<PAGE> 111
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the stock option transactions of the 1983 Plan and the Equity
Based Long Term Incentive Plan for the years ended December 31, 1992, 1993 and
1994 is as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES (PER SHARE)
--------- --------------
<S> <C> <C>
Outstanding and exercisable, December 31, 1991.................... 169,232 $ 9.25 -- 26.00
Granted......................................................... 49,599 26.00
Exercised....................................................... (29,972) 9.25 -- 15.25
Canceled........................................................ (1,000) 10.88
-------
Outstanding and exercisable, December 31, 1992.................... 187,859 9.25 -- 26.00
Granted......................................................... 73,380 27.13 -- 33.25
Exercised....................................................... (49,111) 9.25 -- 26.00
Canceled........................................................ (9,116) 26.00
-------
Outstanding and exercisable, December 31, 1993.................... 203,012 9.25 -- 33.25
Granted......................................................... 88,701 17.00
Exercised....................................................... (12,794) 10.88 -- 26.00
Canceled........................................................ (5,808) 10.88 -- 33.25
-------
Outstanding and exercisable, December 31, 1994.................... 273,111 $ 9.25 -- 33.25
=======
</TABLE>
In 1991, the Company approved the Walbro Engine Management Corporation
(EMC) Incentive Compensation Plan which covers selected officers and key
employees of EMC. The purpose of the plan is to increase the proportion of
officer and key employee compensation tied to the profitability and cash flow of
EMC, a wholly-owned subsidiary of the Company. The plan requires EMC management
to amortize over a seven-year period, in annual installments of interest and
principal, an amount approximating the fair market value (FMV) of EMC at July 1,
1991. If all required payments have been made at the end of the fifth plan year,
the participants will receive an amount equal to 15% of the FMV of EMC. At that
time, if the payments made are less than 100% but greater than 70% of the
required amortization amount, the participants are eligible to receive a
pro-rata share of the 15% of FMV of EMC based on the actual repayment percentage
achieved. The Company has accrued approximately $3,100,000, $1,480,000 and
$180,000 as of December 31, 1994, 1993 and 1992, respectively, under this plan.
NOTE 10. POSTRETIREMENT HEALTH BENEFITS.
The Company provides postretirement health care, dental benefit and
prescription drug coverage to a limited number of current retirees. The cost of
these benefits was recognized as expense as premiums were paid and such amounts
were not significant for the year ended December 31, 1992. Postretirement
benefits are not available for active employees.
Effective January 1, 1993, the Company changed its method of accounting for
the cost of these benefits from a pay-as-you-go (cash) method to an accrual
method as required by SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions," and recognized the unfunded transition obligation
of $4,394,000 ($2,900,000 after-tax) as a one-time cumulative effect of change
in accounting.
F-16
<PAGE> 112
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table reconciles the status of the accrued postretirement
benefits obligation at December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1993
------ -------
<S> <C> <C>
Retirees................................................ $4,687 $ 5,572
Fully eligible active plan participants................. -- --
Other active plan participants.......................... -- --
------ -------
4,687 5,572
Plan assets at fair value............................... -- --
------ -------
Accumulated postretirement benefit obligation in excess
of plan assets........................................ 4,687 5,572
Unrecognized net loss................................... (190) (1,120)
------ -------
Accrued postretirement benefits obligation.............. $4,497 $ 4,452
====== =======
</TABLE>
Net periodic postretirement benefit cost consisted of the following for the
years ended December 31, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Interest cost............................................ $ 378 $ 321
Amortization of unrecognized net loss.................... 35 --
----- -----
$ 413 $ 321
===== =====
</TABLE>
The unrecognized net loss in 1993 results from a change in the discount
rate from 7.5% to 7.0%. The discount rate used in 1994 was 8.5%.
For measurement purposes, an 11.3% annual rate of increase was assumed in
per capita cost of covered health and dental care benefits for 1994. The rate
was assumed to gradually decrease to 5% by the year 2003 and remain at that
level thereafter. The health care cost trend rate assumption has a significant
impact on the accumulated postretirement benefit obligation and on future
amounts accrued. A one percentage point increase each year in the assumed health
care cost would increase the accumulated postretirement benefit obligation at
December 31, 1994 by $417,000 and the interest cost component of net periodic
postretirement benefit cost for the year ended December 31, 1995 by $37,000.
Effective January 1, 1994, the Company adopted the provisions of SFAS No.
112, "Employers' Accounting for Postemployment Benefits." This Statement
requires that employers accrue the cost of postemployment benefits during the
employees' active service. The adoption of this Statement did not have a
material effect on the Company's financial position or results of operations.
NOTE 11. PENSION PLANS.
The Company sponsors pension plans covering substantially all domestic
collectively bargained and certain foreign employees. The plan covering domestic
collectively bargained employees provides benefits of stated amounts for each
year of service. Plans covering certain foreign employees provide payments at
termination which are based upon length of service, compensation rate and
whether termination was voluntary or involuntary. The Company annually
contributes to the plan covering domestic employees amounts which are
actuarially determined to provide the plan with sufficient assets to meet future
benefit payment requirements. The plans covering foreign employees are generally
not funded.
Total pension expense amounted to $239,000 in 1994, $280,000 in 1993 and
$526,000 in 1992. The Company recognizes currently the amount which would be
payable if all employees covered by its foreign plan
F-17
<PAGE> 113
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
terminated voluntarily. Pension expense for the plan covering domestic employees
is comprised of the following (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Service cost...................................... $ 165 $ 157 $ 318
Interest on projected benefit obligation.......... 219 197 263
Actual return on assets........................... (182) (297) (219)
Net amortization and deferral..................... 16 171 11
----- ----- -----
$ 218 $ 228 $ 373
===== ===== =====
</TABLE>
The following table summarizes the funded status of the Company's domestic
defined benefit pension plan and the related amounts recognized in the Company's
consolidated balance sheets as of December 31, 1994, 1993 and 1992 (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Actuarial present value of benefit obligation --
Vested......................................................... $(2,319) $(3,134) $(3,182)
Nonvested...................................................... (314) (282) (252)
------- ------- -------
Accumulated benefit obligation................................. (2,633) (3,416) (3,434)
Effects of salary progression.................................. -- -- --
------- ------- -------
Projected benefit obligation................................... (2,633) (3,416) (3,434)
------- ------- -------
Plan assets --
Cash equivalents............................................... 321 344 444
Equity securities.............................................. 2,438 2,350 --
Fixed income securities........................................ -- -- 2,475
------- ------- -------
2,759 2,694 2,919
------- ------- -------
Projected benefit obligation under (over) plan assets............ 126 (722) (515)
Unamortized net asset at transition............................ (75) (97) (152)
Unamortized net (gain) loss.................................... (74) 891 736
Adjustment to recognize minimum liability...................... -- (1,108) (892)
Unrecognized prior service cost................................ 498 314 259
------- ------- -------
Pension asset (liability) recorded in the consolidated balance
sheets......................................................... $ 475 $ (722) $ (564)
======= ======= =======
</TABLE>
SFAS No. 87, "Employers' Accounting for Pensions," required the Company to
record a minimum liability as of December 31, 1993 and 1992. The assumption used
in determining the funded status information shown above were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Discount rate........................................ 8.5% 6.5% 6.5%
Long-term rate of return on assets................... 8.5% 6.5% 6.5%
</TABLE>
The Company also sponsors a defined contribution plan under which the
Company will make matching contributions of 50% of each participant's before-tax
contribution (up to 6% of the participant's annual income) and retirement
contribution of up to 3% (subject to change on an annual basis) of a
participant's annual income. The cost of defined contributions charged to
earnings during 1994, 1993 and 1992 was approximately $1,431,000, $1,416,000 and
$1,361,000, respectively.
F-18
<PAGE> 114
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Certain non-union employees, excluding officers, are eligible to
participate in the Walbro Corporation Employee Stock Ownership Plan (ESOP). The
Company will make annual contributions to a trust in the form of either cash or
common stock of the Company. The amount of the annual contribution is
discretionary, except that it must be sufficient to enable the trust to meet its
current obligations. The Company has guaranteed the ESOP's loan and is obligated
to contribute sufficient cash to the trust to repay the loan. Contribution
expense related to the ESOP amounted to $365,000, $302,000 and $321,000 in 1994,
1993 and 1992, respectively. Contribution expense is net of dividends of
$210,000, $106,000 and $106,000 in 1994, 1993 and 1992, respectively. As of
December 31, 1994, 1993 and 1992, the following are held by the ESOP: 170,000,
152,000 and 127,000 allocated shares, respectively and 82,000, 109,000 and
136,000 suspense (unallocated) shares, respectively, which are all
committed-to-be-released.
NOTE 12. DISCLOSURES ABOUT DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF
FINANCIAL INSTRUMENTS.
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to help meet financing needs and to reduce
exposure to fluctuating foreign currency exchange rates. The Company is exposed
to credit loss in the event of nonperformance by the other parties to the
financial instruments described below. However, the Company does not anticipate
nonperformance by the other parties. The Company does not engage in trading
activities with these financial instruments and does not generally require
collateral or other security to support these financial instruments. The
notional amounts of derivatives summarized below do not represent the amounts
exchanged by the parties and, thus, are not a measure of the exposure of the
Company through its use of derivatives. The amounts exchanged are calculated on
the basis of the notional amounts and the other terms of the derivatives.
Financial Instruments with Off-Balance Sheet Risk
The Company enters into various types of contracts to manage its foreign
currency exchange risk and interest rate risk. A summary of these contracts
(notional amounts) as of December 31 is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Forward currency exchange contracts........... $14,000 $30,000 $31,000
Interest rate swaps........................... -- -- $15,000
</TABLE>
The Company enters into forward currency exchange contracts to manage its
exposure against foreign currency fluctuations related to firm commitments. As
of December 31, 1994, the Company has one forward currency exchange contract
maturing in 1995 which exchanges 86,332,000 French Francs. Total losses on this
contract of approximately $1,800,000 were recorded as a deferred asset. This
asset is being recognized based on actual purchases of the related foreign
currency transaction. The amounts included in the equity in (income) loss of
joint ventures in the accompanying consolidated statements of income related to
this contract for the year ending December 31, 1994 was approximately $600,000.
The Company enters into forward currency exchange contracts to hedge its
equity investments in certain foreign joint ventures. During 1994, the Company
had one forward currency exchange contract, which matured during 1994, which
exchanged 44,100,000 French Francs. At December 31, 1994, losses of $1,020,000
on a hedge of a net investment in a foreign joint venture are included in
stockholders' equity.
The Company enters into forward currency exchange contracts to reduce its
exposure against fluctuations in foreign currency exchange rates. During 1994,
the Company had twenty-one forward currency exchange contracts which matured
during 1994, which exchanged 1,133,000,000 Japanese Yen, 20,100,000 Deutsche
Marks, and 15,100,000 Singapore Dollars. The amounts included in foreign
currency exchange loss in the accompanying consolidated statements of income
related to these contracts for the year ending December 31, 1994 were
approximately $1,200,000.
F-19
<PAGE> 115
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company enters into interest rate swaps to manage its interest rate
risk. As of December 31, 1992, these agreements effectively converted an
aggregate principal amount of $15,000,000 of variable rate borrowings into fixed
rate borrowings with interest rates ranging from 9.50% to 9.75%. These
agreements matured during 1993.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and short-term financial instruments
The fair values are estimated to be equal to carrying values because of
the short-term, highly liquid nature of these instruments.
Notes receivable
The fair value is estimated using the expected future cash flows
discounted at current interest rates.
Marketable equity securities
The fair value of marketable equity securities is estimated by quoted
market prices when the investment is traded on a public stock exchange.
For investments not publicly traded, a combination of book value and
fair market value of assets is used (Note 3).
Long-term debt
The fair value of the Company's long-term debt is estimated using the
expected future cash flows discounted at the current interest rates
offered to the Company for debt of the same remaining maturities.
Forward currency exchange contracts
The fair value of forward currency exchange contracts is estimated by
obtaining quotes from brokers.
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------------------- ------------------- -------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE VALUE VALUE
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Notes receivable...................... $ 4,366 $ 4,860 $ 3,616 $ 4,049 $ 1,974 $ 1,974
Long-term debt........................ 74,578 73,513 52,800 52,542 56,707 56,422
Forward currency exchange contracts... (1,800) (1,800) -- (73) -- (150)
</TABLE>
NOTE 13. LEASES.
The Company has leased certain of its buildings, equipment and vehicles
under operating leases. The leases involving buildings contain options enabling
the Company to renew the leases at the end of the respective lease terms.
Rent expense was approximately $3,324,000, $2,655,000 and $2,808,000 in
1994, 1993 and 1992, respectively.
F-20
<PAGE> 116
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate minimum future rentals under noncancellable leases are as follows
(in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1995................................................... $ 850 $ 2,823
1996................................................... 850 2,046
1997................................................... 850 1,425
1998................................................... 850 833
1999................................................... 850 782
Thereafter............................................. 1,851 53
------- --------
Total minimum lease payments........................... 6,101 $ 7,962
=======
Amount representing interest........................... 1,391
-------
Present value of net future minimum lease payments..... $ 4,710
=======
</TABLE>
NOTE 14. ACCRUED LIABILITIES.
Accrued liabilities consisted of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- ------
<S> <C> <C> <C>
Compensation................................... $ 5,123 $ 3,941 $3,957
Income taxes................................... 2,239 1,498 --
Reorganization and restructuring............... -- 754 360
Interest....................................... 147 407 413
Other.......................................... 4,568 4,900 4,151
------- ------- ------
$12,077 $11,500 $8,881
======= ======= ======
</TABLE>
NOTE 15. STOCKHOLDERS' EQUITY.
The Company has a stock rights plan which entitles the holder of each
right, upon the occurrence of certain events, to purchase one one-hundredth of a
share of a new series of preferred stock for $75. Furthermore, if the Company is
involved in a merger or other business combination at any time after the rights
become exercisable, the rights will entitle the holder to buy the number of
shares of common stock of the acquiring company having a market value of twice
the then current exercise price of each right. Alternatively, if a 15% or more
shareholder acquires the Company by means of a reverse merger in which the
Company and its stock survives, or engages in self-dealing transactions with the
Company, or if any person acquires 50% or more of the Company's common stock,
then each right not owned by a 15% or more shareholder will become exercisable
for the number of shares of common stock of the Company having a market value of
twice the then current exercise price of each right. The rights, which do not
have voting rights, expire in December 1998 and may be redeemed by the Company
at a price of $.01 per right at any time prior to their expiration or the time
they become exercisable.
The Company has authorized 1,000,000 shares of $1.00 par value preferred
stock.
NOTE 16. REDEEMABLE PREFERRED STOCK.
In connection with the acquisition of the Whitehead Engineered Products
Group (Whitehead) in 1988, the Company reserved 75,000 shares of preferred stock
as Series C Non-Voting Participating Cumulative Preferred Stock. These shares
were released from escrow in 1991 due to the attainment of certain performance
targets by the Company's Whitehead operation. The preferred stock has a $1.00
par value and was redeemable
F-21
<PAGE> 117
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in twelve semi-annual installments commencing January 1993. This $7,500,000 of
preferred stock represents additional purchase price in connection with
Whitehead and, as a result, the Company recorded $7,500,000 of additional
goodwill in connection with the acquisition. During 1992, the Company redeemed
the preferred stock at a redemption price of $6,500,000 in cash and 30,888
shares of common stock.
NOTE 17. BUSINESS SEGMENT INFORMATION.
The Company operates through its subsidiaries in the following industry
segments:
1. Automotive, which designs, develops and manufactures fuel storage
and delivery products for a broad range of U.S. and foreign manufacturers
of passenger automobiles and light trucks (including minivans), and
2. Small engine, which designs, develops and manufactures diaphragm
carburetors for portable engines, float feed carburetors for ground
supported engines and ignition systems and other components for a variety
of small engine products. The Company includes aftermarket operations for
both the automotive and small engine markets within its small engine
business segment.
Selected financial information about the Company's business and geographic
segments are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Financial Information by Business Segment
Net sales to customers:
Automotive.................................. $204,563 $173,510 $156,172
Small engine................................ 135,505 114,116 95,285
-------- -------- --------
340,068 287,626 251,457
Eliminations.................................. (14,863) (14,163) (10,041)
-------- -------- --------
Total net sales............................... $325,205 $273,463 $241,416
======== ======== ========
Operating profit (loss):
Automotive.................................. $ 24,883 $ 20,416 $ 26,000
Small engine................................ 18,522 16,025 11,121
Corporate................................... (22,986) (19,300) (19,931)
-------- -------- --------
Income before provision for income taxes
and cumulative effect of accounting
change...................................... $ 20,419 $ 17,141 $ 17,190
======== ======== ========
Identifiable assets:
Automotive.................................. $155,006 $122,440 $106,253
Small engine................................ 64,494 58,121 52,547
Corporate................................... 37,866 34,734 34,220
-------- -------- --------
Total identifiable assets..................... $257,366 $215,295 $193,020
======== ======== ========
Depreciation and amortization:
Automotive.................................. $ 6,320 $ 5,652 $ 4,326
Small engine................................ 5,841 4,908 4,872
Corporate................................... 2,511 779 1,141
-------- -------- --------
Total depreciation and amortization........... $ 14,672 $ 11,339 $ 10,339
======== ======== ========
Capital expenditures:
Automotive.................................. $ 10,101 $ 15,439 $ 10,854
Small engine................................ 5,113 4,508 3,673
Corporate................................... 3,630 313 154
-------- -------- --------
Total capital expenditures.................... $ 18,844 $ 20,260 $ 14,681
======== ======== ========
</TABLE>
F-22
<PAGE> 118
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Financial Information by Geographic Segment
Net sales to customers:
Domestic.................................... $260,710 $215,149 $194,568
Foreign..................................... 64,495 58,314 46,848
-------- -------- --------
325,205 273,463 241,416
Net sales between geographic areas.......... 31,094 28,842 28,478
-------- -------- --------
356,299 302,305 269,894
Eliminations.................................. (31,094) (28,842) (28,478)
-------- -------- --------
Total net sales............................... $325,205 $273,463 $241,416
======== ======== ========
Operating profit (loss):
Domestic.................................... $ 37,040 $ 31,791 $ 32,545
Foreign..................................... 6,365 4,650 4,576
-------- -------- --------
43,405 36,441 37,121
Corporate, net................................ (22,986) (19,300) (19,931)
-------- -------- --------
Income before provision for income taxes
and cumulative effect of accounting
change...................................... $ 20,419 $ 17,141 $ 17,190
======== ======== ========
Identifiable assets:
Domestic.................................... $224,369 $191,999 $172,974
Foreign..................................... 32,997 23,296 20,046
-------- -------- --------
Total identifiable assets..................... $257,366 $215,295 $193,020
======== ======== ========
</TABLE>
The Company's foreign operations are located in East Asia (Japan,
Singapore, South Korea and The People's Republic of China), Canada and Mexico.
Sales between geographic areas are accounted for at cost plus a margin for
profit. Operating profit consists of total sales less operating expenses,
interest expense, research and development expense and income taxes.
Identifiable assets are those assets used in the operations in each geographic
area. Export sales from domestic locations were approximately $36,881,000,
$47,876,000 and $30,174,000 for 1994, 1993 and 1992, respectively.
The net assets of the Company's foreign operations were $24,598,000,
$17,240,000 and $12,744,000 at December 31, 1994, 1993 and 1992, respectively.
The Company's share of foreign net income was $3,369,000, $2,843,000 and
$1,941,000, in 1994, 1993 and 1992, respectively.
A majority of the Company's sales are to automobile manufacturing
companies. Sales to certain major customers which exceeded 10% of consolidated
sales are as follows. Sales to one such customer amounted to 30%, 30% and 33% of
consolidated sales in 1994, 1993 and 1992, respectively. Sales to another such
customer amounted to 23%, 21% and 20% of consolidated sales in 1994, 1993 and
1992, respectively.
The Company's operations are in one business segment, the development,
manufacture and sale of fuel systems and components.
NOTE 18. SUPPLEMENTAL CASH FLOW INFORMATION.
In 1994, 1993 and 1992, the Company paid $6,749,000, $4,458,000 and
$6,078,000 for income taxes and $4,122,000, $2,591,000 and $3,487,000 for
interest, respectively.
F-23
<PAGE> 119
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED).
Selected quarterly financial information for the years ended December 31,
1994 and 1993, is as follows:
<TABLE>
<CAPTION>
QUARTER
----------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1994 --
Net sales................................... $82,205 $83,976 $75,251 $83,773 $325,205
Cost of sales............................... 64,973 66,335 62,130 68,063 261,501
------- ------- ------- ------- --------
Gross profit............................. $17,232 $17,641 $13,121 $15,710 $ 63,704
======= ======= ======= ======= ========
Net income............................... $ 4,499 $ 4,461 $ 2,974 $ 2,661 $ 14,595
======= ======= ======= ======= ========
Net income per share..................... $ .52 $ .52 $ .35 $ .31 $ 1.70
======= ======= ======= ======= ========
1993 --
Net sales................................... $66,903 $71,471 $64,374 $70,715 $273,463
Cost of sales............................... 51,435 55,516 50,604 59,249 216,804
------- ------- ------- ------- --------
Gross profit............................. $15,468 $15,955 $13,770 $11,466 $ 56,659
======= ======= ======= ======= ========
Income before cumulative effect of
accounting change...................... $ 3,746 $ 3,889 $ 3,112 $ 1,820 $ 12,567
======= ======= ======= ======= ========
Net income............................... $ 846 $ 3,889 $ 3,112 $ 1,820 $ 9,667
======= ======= ======= ======= ========
Income per share before cumulative effect
of accounting change................... $ .44 $ .45 $ .36 $ .21 $ 1.47
======= ======= ======= ======= ========
Net income per share..................... $ .10 $ .45 $ .36 $ .21 $ 1.13
======= ======= ======= ======= ========
</TABLE>
F-24
<PAGE> 120
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------------------------------------------------------------
WALBRO
CORPORATION CONSOLIDATION
GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
------------ ------------ ------------ --------------- ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash..................................... $ 75 $ 2,525 $ 1,940 $ -- $ 4,540
Accounts receivable, net................. 40,316 20,311 18,495 (12,789) 66,333
Inventories.............................. 24,732 6,120 587 -- 31,439
Prepaid expenses and other............... 3,728 733 701 (1,161) 4,001
Deferred and refundable income taxes..... 5,656 (1,169) (824) -- 3,663
-------- -------- -------- --------- --------
Total current assets................... 74,507 28,520 20,899 (13,950) 109,976
-------- -------- -------- --------- --------
PLANT AND EQUIPMENT, NET................... 64,044 14,292 9,848 108 88,292
-------- -------- -------- --------- --------
OTHER ASSETS:
Funds held for construction.............. 1,061 -- -- -- 1,061
Joint ventures........................... 6,598 9,920 -- -- 16,518
Investments.............................. 4,395 239 89,092 (82,929) 10,797
Goodwill, net............................ 15,710 1,195 -- -- 16,905
Plant and equipment held for resale...... -- -- 80 -- 80
Notes receivable......................... -- -- 55,916 (51,550) 4,366
Deferred income taxes.................... -- 871 -- -- 871
Other.................................... 2,399 721 5,380 -- 8,500
-------- -------- -------- --------- --------
Total other assets..................... 30,163 12,946 150,468 (134,479) 59,098
-------- -------- -------- --------- --------
Total assets............................. $168,714 $ 55,758 $181,215 $(148,321) $257,366
======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt........ $ 515 $ 7,519 $ 408 $ -- $ 8,442
Bank and other borrowings................ -- 6,970 -- -- 6,970
Accounts payable......................... 28,322 6,868 472 (12,410) 23,252
Accrued liabilities...................... 10,218 4,152 (775) (1,518) 12,077
Dividends payable........................ -- -- 857 -- 857
-------- -------- -------- --------- --------
Total current liabilities.............. 39,055 25,509 962 (13,928) 51,598
-------- -------- -------- --------- --------
LONG-TERM LIABILITIES:
Long-term debt, less current portion..... 71,112 348 46,226 (51,550) 66,136
Pension obligations and other............ 648 949 6,556 -- 8,153
Deferred income taxes.................... 2,120 763 (444) -- 2,439
Minority interest........................ -- 1,125 -- -- 1,125
-------- -------- -------- --------- --------
Total long-term liabilities............ 73,880 3,185 52,338 (51,550) 77,853
-------- -------- -------- --------- --------
STOCKHOLDERS' EQUITY:
Common stock, $.50 par value;
authorized 15,000,000; outstanding
8,564,576 in 1994...................... -- 1,999 4,282 (1,999) 4,282
Paid-in capital.......................... -- 3,632 64,221 (3,632) 64,221
Retained earnings........................ 55,416 18,934 55,855 (74,350) 55,855
Deferred compensation.................... -- -- (1,225) -- (1,225)
Unrealized gain on securities available
for sale............................... -- -- 1,428 -- 1,428
Cumulative translation adjustments....... 363 2,499 3,354 (2,862) 3,354
-------- -------- -------- --------- --------
Total stockholders' equity............. 55,779 27,064 127,915 (82,843) 127,915
-------- -------- -------- --------- --------
Total liabilities and stockholders'
equity............................... $168,714 $ 55,758 $181,215 $(148,321) $257,366
======== ======== ======== ========= ========
</TABLE>
F-25
<PAGE> 121
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1993
---------------------------------------------------------------------------
WALBRO
CORPORATION CONSOLIDATION
GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
------------ ------------ ------------ --------------- ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash..................................... $ 431 $ 1,732 $ 2,442 $ -- $ 4,605
Accounts receivable, net................. 44,729 13,826 (3,208) (10,671) 44,676
Inventories.............................. 21,887 4,621 390 -- 26,898
Prepaid expenses and other............... 2,910 985 4,991 (1,620) 7,266
Deferred and refundable income taxes..... 983 188 3,700 -- 4,871
-------- -------- -------- --------- --------
Total current assets................... 70,940 21,352 8,315 (12,291) 88,316
-------- -------- -------- --------- --------
PLANT AND EQUIPMENT, NET: 54,415 11,971 7,682 108 74,176
-------- -------- -------- --------- --------
OTHER ASSETS:
Funds held for construction.............. 2,710 -- -- -- 2,710
Joint ventures........................... 2,793 8,485 -- -- 11,278
Investments.............................. 2,479 -- 62,086 (56,508) 8,057
Goodwill, net............................ 16,166 771 -- -- 16,937
Plant and equipment held for resale...... -- -- 80 -- 80
Notes receivable......................... -- -- 63,666 (60,050) 3,616
Deferred income taxes.................... -- 41 -- -- 41
Other.................................... 2,615 1,432 6,037 -- 10,084
-------- -------- -------- --------- --------
Total other assets..................... 26,763 10,729 131,869 (116,558) 52,803
-------- -------- -------- --------- --------
Total assets............................... $152,118 $ 44,052 $147,866 $(128,741) $215,295
======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt........ $ -- $ -- $ 408 $ -- $ 408
Bank and other borrowings................ -- 5,375 -- -- 5,375
Accounts payable......................... 22,567 8,931 418 (11,925) 19,991
Accrued liabilities...................... 16,630 1,754 (6,439) (445) 11,500
Dividends payable........................ -- -- 855 -- 855
-------- -------- -------- --------- --------
Total current liabilities.............. 39,197 16,060 (4,758) (12,370) 38,129
-------- -------- -------- --------- --------
LONG-TERM LIABILITIES:
Long-term debt, less current portion..... 75,350 6,709 30,383 (60,050) 52,392
Pension obligations and other............ 45 783 7,243 -- 8,071
Deferred income taxes.................... 1,015 690 852 -- 2,557
-------- -------- -------- --------- --------
Total long-term liabilities............ 76,410 8,182 38,478 (60,050) 63,020
-------- -------- -------- --------- --------
STOCKHOLDERS' EQUITY:
Common stock, $.50 par value; authorized
15,000,000; outstanding 8,551,782 in
1993................................... -- 1,985 4,276 (1,985) 4,276
Paid-in capital.......................... -- 1,770 63,997 (1,770) 63,997
Retained earnings........................ 36,511 14,328 44,686 (50,839) 44,686
Deferred compensation.................... -- -- (1,634) -- (1,634)
Minimum pension liability adjustment..... -- -- (520) -- (520)
Cumulative translation adjustments....... -- 1,727 3,341 (1,727) 3,341
-------- -------- -------- --------- --------
Total stockholders' equity............. 36,511 19,810 114,146 (56,321) 114,146
-------- -------- -------- --------- --------
Total liabilities and stockholders'
equity............................ $152,118 $ 44,052 $147,866 $(128,741) $215,295
======== ======== ======== ========= ========
</TABLE>
F-26
<PAGE> 122
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1992
---------------------------------------------------------------------------
WALBRO
CORPORATION CONSOLIDATION
GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
------------ ------------ ------------ --------------- ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash..................................... $ 3,116 $ 379 $ 4,753 $ -- $ 8,248
Accounts receivable, net................. 41,701 13,861 (2,138) (13,055) 40,369
Inventories.............................. 20,020 3,679 239 -- 23,938
Prepaid expenses and other............... 4,278 464 (198) -- 4,544
Deferred and refundable income taxes..... (3,834) 280 6,669 -- 3,115
-------- -------- -------- --------- --------
Total current assets................... 65,281 18,663 9,325 (13,055) 80,214
-------- -------- -------- --------- --------
PLANT AND EQUIPMENT, NET................... 44,514 13,051 7,991 -- 65,556
-------- -------- -------- --------- --------
OTHER ASSETS:
Joint ventures........................... 1,803 8,292 -- -- 10,095
Investments.............................. (2,917) -- 51,275 (42,370) 5,988
Goodwill, net............................ 16,620 -- -- -- 16,620
Plant and equipment held for resale...... -- -- 248 -- 248
Notes receivable......................... -- -- 65,024 (63,050) 1,974
Other.................................... 2,977 953 8,395 -- 12,325
-------- -------- -------- --------- --------
Total other assets....................... 18,483 9,245 124,942 (105,420) 47,250
-------- -------- -------- --------- --------
Total assets............................... $128,278 $ 40,959 $142,258 $(118,475) $193,020
======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt........ $ -- $ -- $ 7,069 $ -- $ 7,069
Bank and other borrowings................ -- 2,642 -- -- 2,642
Accounts payable......................... 19,945 5,400 527 (8,802) 17,070
Accrued liabilities...................... 15,973 1,390 (8,443) (39) 8,881
Dividends payable........................ -- -- 810 -- 810
-------- -------- -------- --------- --------
Total current liabilities.............. 35,918 9,432 (37) (8,841) 36,472
-------- -------- -------- --------- --------
LONG-TERM LIABILITIES:
Long-term debt, less current portion..... 69,350 6,338 37,000 (63,050) 49,638
Pension obligations and other............ 644 576 1,937 -- 3,157
Deferred income taxes.................... (217) 612 3,448 -- 3,843
-------- -------- -------- --------- --------
Total long-term liabilities............ 69,777 7,526 42,385 (63,050) 56,638
-------- -------- -------- --------- --------
STOCKHOLDERS' EQUITY:
Common stock, $.50 par value;
authorized 15,000,000; outstanding
8,098,242 in 1992...................... -- 771 4,049 (771) 4,049
Paid-in capital.......................... -- 1,597 57,139 (1,597) 57,139
Retained earnings........................ 22,583 18,207 38,422 (40,790) 38,422
Deferred compensation.................... -- -- (2,042) -- (2,042)
Minimum pension liability adjustment..... -- -- (371) -- (371)
Cumulative translation adjustments....... -- 3,426 2,713 (3,426) 2,713
-------- -------- -------- --------- --------
Total stockholders' equity............. 22,583 24,001 99,910 (46,584) 99,910
-------- -------- -------- --------- --------
Total liabilities and stockholders'
equity............................... $128,278 $ 40,959 $142,258 $(118,475) $193,020
======== ======== ======== ========= ========
</TABLE>
F-27
<PAGE> 123
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1994
----------------------------------------------------------------------------
WALBRO
CORPORATION CONSOLIDATION
GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
------------ ------------ ------------ --------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET SALES............................. $296,779 $ 58,903 $ 1,021 $ (31,498) $ 325,205
COSTS AND EXPENSES:
Cost of sales....................... 242,155 49,910 934 (31,498) 261,501
Selling and administrative
expenses......................... 26,765 3,576 8,977 -- 39,318
-------- -------- -------- --------- ---------
OPERATING INCOME (LOSS)............... 27,859 5,417 (8,890) -- 24,386
OTHER EXPENSE (INCOME):
Interest expense.................... 4,911 1,366 2,428 (4,843) 3,862
Interest income..................... -- (4) (4,930) 4,843 (91)
Foreign currency exchange loss
(gain)........................... 260 (42) 2,384 -- 2,602
Other............................... (2) 18 95 -- 111
-------- -------- -------- --------- ---------
Income before provision for income
taxes, minority interest, equity in
(income) loss of joint ventures and
subsidiaries........................ 22,690 4,079 (8,867) -- 17,902
Provision (credit) for income taxes... 7,741 1,213 (3,130) -- 5,824
Minority interest..................... -- 92 -- -- 92
Equity in (income) loss of joint
ventures............................ (1,509) (1,491) 391 -- (2,609)
Equity in (income) of subsidiaries.... (4,265) -- (20,723) 24,988 --
-------- -------- -------- --------- ---------
Net income............................ $ 20,723 $ 4,265 $ 14,595 $ (24,988) $ 14,595
======== ======== ======== ========= =========
</TABLE>
F-28
<PAGE> 124
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1993
------------------------------------------------------------------------------
WALBRO
CORPORATION CONSOLIDATION
GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
------------ ------------ ----------- --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET SALES.......................... $249,866 $ 51,647 $ 1,478 $ (29,528) $273,463
COSTS AND EXPENSES:
Cost of sales.................... 201,092 43,372 1,868 (29,528) 216,804
Selling and administrative
expenses...................... 24,445 3,587 5,011 -- 33,043
Reorganization and restructuring
charges....................... -- -- 1,760 -- 1,760
-------- -------- --------- ---------- --------
OPERATING INCOME (LOSS)............ 24,329 4,688 (7,161) -- 21,856
OTHER EXPENSE (INCOME):
Interest expense................. 5,282 482 1,833 (5,003) 2,594
Interest income.................. (8) (4) (5,026) 5,003 (35)
Foreign currency exchange loss... 567 211 717 -- 1,495
Other............................ 255 123 194 -- 572
-------- -------- --------- ---------- --------
Income before provision for income
taxes, equity in (income) loss of
joint ventures and subsidiaries
and cumulative effect of
accounting change................ 18,233 3,876 (4,879) -- 17,230
Provision (credit) for income
taxes............................ 5,411 1,412 (2,249) -- 4,574
Equity in (income) loss of joint
ventures......................... 303 (214) -- -- 89
Equity in (income) of
subsidiaries..................... (2,678) -- (15,197) 17,875 --
-------- -------- --------- ---------- --------
Income before cumulative effect of
accounting change................ 15,197 2,678 12,567 (17,875) 12,567
Cumulative effect of accounting
change, net of tax benefit of
$1,494........................... -- -- 2,900 -- 2,900
-------- -------- --------- ---------- --------
Net income......................... $ 15,197 $ 2,678 $ 9,667 $ (17,875) $ 9,667
======== ======== ========= ========= ========
</TABLE>
F-29
<PAGE> 125
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1992
------------------------------------------------------------------------------
WALBRO
CORPORATION CONSOLIDATION
GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
------------ ------------ ----------- --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET SALES......................... $223,372 $ 40,636 $ 1,043 $ (23,635) $241,416
COSTS AND EXPENSES:
Cost of sales................... 174,062 33,837 1,448 (23,635) 185,712
Selling and administrative
expenses..................... 22,247 3,554 7,813 -- 33,614
-------- -------- --------- --------- --------
OPERATING INCOME (LOSS)........... 27,063 3,245 (8,218) -- 22,090
OTHER EXPENSE (INCOME):
Interest expense................ 5,299 1,086 3,147 (5,828) 3,704
Interest income................. (529) (5) (5,885) 5,828 (591)
Foreign currency exchange
loss......................... 567 25 (26) -- 566
Other........................... -- -- 1,400 -- 1,400
-------- -------- --------- --------- --------
Income before provision for income
taxes, equity in (income) loss
of joint ventures and
subsidiaries.................... 21,726 2,139 (6,854) -- 17,011
Provision (credit) for income
taxes........................... 7,165 648 (3,149) -- 4,664
Equity in (income) loss of joint
ventures........................ (255) 76 -- -- (179)
Equity in (income) of
subsidiaries.................... (1,415) -- (16,231) 17,646 --
-------- -------- --------- --------- --------
Net income........................ $ 16,231 $ 1,415 $ 12,526 $ (17,646) $ 12,526
======== ======== ========= ========= ========
</TABLE>
F-30
<PAGE> 126
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1994
---------------------------------------------------------------------------
WALBRO
CORPORATION CONSOLIDATION
GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
------------ ------------ ------------ --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities.............. $ 25,141 $ 2,323 $(16,987) $ -- $ 10,477
-------- -------- -------- ------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of plant and
equipment.................... (12,428) (2,729) (3,687) -- (18,844)
Acquisitions, net of cash
acquired..................... (1,480) -- -- -- (1,480)
Purchase of other assets....... (985) -- (1,630) -- (2,615)
Investment in joint ventures
and other.................... (1,508) -- -- -- (1,508)
Proceeds/(payments) of
intercompany note
receivable................... (8,500) -- 8,500 -- --
Proceeds from disposal of
assets....................... 402 407 654 -- 1,463
-------- -------- -------- ------- --------
Net cash provided by (used in)
investing activities.............. (24,499) (2,322) 3,837 -- (22,984)
-------- -------- -------- ------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings (repayments)
under revolving
line-of-credit
agreements................... -- 1,011 (28,750) -- (27,739)
Debt repayments................ (416) -- (408) -- (824)
Proceeds from issuance of
long-term debt............... -- -- 45,000 -- 45,000
Proceeds from issuance of
common stock and options..... -- -- 230 -- 230
Cash dividends paid............ -- -- (3,424) -- (3,424)
-------- -------- -------- ------- --------
Net cash provided by (used in)
financing activities.............. (416) 1,011 12,648 -- 13,243
-------- -------- -------- ------- --------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH.............................. (582) (219) -- -- (801)
-------- -------- -------- ------- --------
NET INCREASE (DECREASE) IN CASH..... (356) 793 (502) -- (65)
CASH AT BEGINNING OF YEAR........... 431 1,732 2,442 -- 4,605
-------- -------- -------- ------- --------
CASH AT END OF YEAR................. $ 75 $ 2,525 $ 1,940 $ -- $ 4,540
======== ======== ======== ======= ========
</TABLE>
F-31
<PAGE> 127
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1993
--------------------------------------------------------------------------
WALBRO
CORPORATION CONSOLIDATION
GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
------------ ------------ ----------- --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities......................... $ 7,836 $ 1,220 $ 6,325 $ -- $ 15,381
-------- -------- ------- ----- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and
equipment..................... (17,688) (2,259) (313) -- (20,260)
Acquisitions, net of cash
acquired...................... 1,312 -- -- -- 1,312
Purchase of other assets........ (66) -- (1,981) -- (2,047)
Investment in joint ventures and
other......................... (1,333) -- -- -- (1,333)
Proceeds/(payments) of
intercompany note
receivable.................... (3,000) -- 3,000 -- --
Proceeds from disposal of
assets........................ 1,254 1,780 115 -- 3,149
-------- -------- ------- ----- --------
Net cash provided by (used in)
investing activities............... (19,521) (479) 821 -- (19,179)
-------- -------- ------- ----- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments)
under revolving line-of-credit
agreements.................... -- 2,609 (6,300) -- (3,691)
Debt repayments................. -- (2,209) (408) -- (2,617)
Proceeds from issuance of
long-term debt................ 9,000 -- -- -- 9,000
Proceeds from issuance of common
stock and options............. -- -- 610 -- 610
Cash dividends paid............. -- -- (3,359) -- (3,359)
-------- -------- ------- ----- --------
Net cash provided by (used in)
financing activities............... 9,000 400 (9,457) -- (57)
-------- -------- ------- ----- --------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH............................... -- 212 -- -- 212
-------- -------- ------- ----- --------
NET INCREASE (DECREASE) IN CASH...... (2,685) 1,353 (2,311) -- (3,643)
CASH AT BEGINNING OF YEAR............ 3,116 379 4,753 -- 8,248
-------- -------- ------- ----- --------
CASH AT END OF YEAR.................. $ 431 $ 1,732 $ 2,442 $ -- $ 4,605
======== ======== ======= ====== ========
</TABLE>
F-32
<PAGE> 128
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1992
-----------------------------------------------------------------------------
WALBRO CONSOLIDATION
CORPORATION AND
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
------------ ------------ ------------ ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities............ $ 19,057 $ 786 $(12,273) $ -- $ 7,570
Cash Flows From Investing
Activities:
Purchase of plant and
equipment.................... (12,809) (1,607) (265) -- (14,681)
Acquisitions, net of cash
acquired.....................
Purchase of other assets........ (715) (23) (2,717) -- (3,455)
Investment in joint ventures and
other........................ (4,206) -- -- -- (4,206)
Proceeds/(payments) of
intercompany note
receivable................... (4,573) -- 4,573 -- --
Proceeds from disposal of
assets....................... 35 194 47 -- 276
---------- ---------- ---------- -------- ----------
Net cash provided by (used in)
investing activities............ (22,268) (1,436) 1,638 -- (22,066)
---------- ---------- ---------- -------- ----------
Cash Flows from Financing
Activities:
Net borrowings (repayments)
under revolving
line-of-credit
agreements................... -- 1,551 7,283 -- 8,834
Debt repayments................. -- (339) (12,908) -- (13,247)
Proceeds from issuance of long
term debt.................... 6,300 -- -- -- 6,300
Proceeds from issuance of common
stock and options............ -- -- 26,629 -- 26,629
Retirement of Redeemable
Preferred Stock.............. -- -- (6,500) -- (6,500)
Cash dividends paid............. -- -- (2,992) -- (2,992)
---------- ---------- ---------- -------- ----------
Net cash provided by (used in)
financing activities............ 6,300 1,212 11,512 -- 19,024
---------- ---------- ---------- -------- ----------
Effect of Exchange Rate Changes on
Cash............................ 22 (206) (329) -- (513)
---------- ---------- ---------- -------- ----------
Net Increase (Decrease) in Cash... 3,111 356 548 -- 4,015
Cash at Beginning of Year......... 5 23 4,205 -- 4,233
---------- ---------- ---------- -------- ----------
Cash at End of Year............... $ 3,116 $ 379 $ 4,753 $ -- $ 8,248
========== ========== ========== ======== ==========
</TABLE>
F-33
<PAGE> 129
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
Basis of Presentation -- In connection with the acquisition (the Dyno
Acquisition) by the Company of the fuel systems business of Dyno Industrier A.S
(Dyno) and the execution of a new $135,000,000 credit facility, the Company is
offering $110,000,000 in aggregate principal amount of Senior Notes due in 2005
(the Notes) (See Note 21). The Notes will be guaranteed on a senior unsecured
basis, jointly and severally, by each of the Company's principal wholly-owned
domestic operating subsidiaries and certain of its indirect wholly-owned
subsidiaries (the Guarantors). The Guarantors include Walbro Automotive
Corporation, Walbro Engine Management Corporation, Whitehead Engineered
Products, Inc. and Sharon Manufacturing Co. The condensed consolidating
financial statements of the Guarantors are presented on pages F-25 through F-32
and should be read in connection with the consolidated financial statements of
the Company. Separate financial statements of the Guarantors are not presented
because the Guarantors are jointly, severally and unconditionally liable under
the guarantees, and the Company believes the condensed consolidating financial
statements presented are more meaningful in understanding the financial position
of the Guarantor Subsidiaries.
Distributions -- There are no significant restrictions on the ability of
the Guarantor Subsidiaries to make distributions to Walbro Corporation.
Postretirement Health Benefits -- The Company provides postretirement
health care, dental benefit and prescription drug coverage to a limited number
of current retirees. Effective January 1, 1993, the Company changed its method
of accounting for the cost of these benefits from a pay-as-you-go (cash) method
to an accrual method as required by SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions," and recognized the unfunded
transition obligation of $4,394,000 ($2,900,000 after-tax) as a one-time
cumulative effect of change in accounting in 1993. The net periodic
postretirement benefit cost amounted to $413,000 in 1994 and $321,000 in 1993.
These amounts are recorded under Parent Corporation in the accompanying
Supplemental Guarantor Condensed Consolidating Financial Statements. As these
costs relate to existing retirees, they have not been allocated to the guarantor
subsidiaries.
F-34
<PAGE> 130
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
Combined Long-Term Debt of the Parent Corporation and Guarantor
Subsidiaries -- Long-term debt of the Issuer and the Guarantor subsidiaries
consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Senior notes, unsecured, interest at 7.68%, payable in annual
amounts from 1998 to 2004...................................... $45,000 $ -- $ --
Revolving credit loan, interest rate from LIBOR plus 5/8% to
prime, unsecured............................................... -- 28,750 35,050
Industrial revenue bond, issued by Town of Ossian, Indiana,
interest at a variable municipal bond rate, due in 2023........ 9,000 9,000 --
Industrial revenue bond, issued by City of Ligonier, Indiana,
interest at a variable municipal bond rate plus 1%, payable in
annual amounts from 2003 to 2007............................... 6,300 6,300 6,300
Convertible subordinated promissory notes, 8%, callable in April
1993, convertible into shares of common stock at a rate of one
share for each $16.24 of principal............................. -- -- 6,568
ESOP credit agreement, interest rate which approximates 86% of
prime, payable in annual installments of $408,000.............. 1,634 2,042 2,451
Capital lease obligations, interest at 7.5%, payable in monthly
installments through February 2002............................. 4,710 -- --
Other............................................................ 67 -- --
------- ------- -------
66,711 46,092 50,369
Less -- Current portion.......................................... 923 408 7,069
------- ------- -------
$65,788 $45,684 $43,300
======= ======= =======
</TABLE>
For a more detailed description of the above indebtedness, see Note 6 of
Notes to Consolidated Financial Statements.
Aggregate minimum principal payment requirements on long-term debt,
including capital lease obligations, in each of the five years subsequent to
December 31, 1994 are as follows: 1995 - $923,000; 1996 - $963,000; 1997 -
$1,073,000; 1998 - $7,503,000; 1999 - $7,144,000, and thereafter - $49,105,000.
NOTE 21. SUBSEQUENT EVENTS.
On April 7, 1995, the Company signed a definitive agreement to acquire the
fuel systems business of Dyno Industrier A.S of Oslo, Norway (the Dyno
Acquisition) for $130,000,000 in cash, which includes provisions for estimated
closing adjustments and fees and expenses estimated at $6,000,000. Dyno is a
leading designer, manufacturer and marketer of plastic mono-layer fuel tank
systems and components to many European vehicle manufacturers, and has
operations in France, Norway, Germany, Great Britain, Spain and Belgium.
Consummation of the Dyno Acquisition is subject to certain conditions, including
the consent of certain governmental bodies.
In connection with the Dyno Acquisition, the Company is offering (the
Offering) $110,000,000 in aggregate principal amount of 9 7/8% Senior Notes due
2005 (the Notes) and executing a new $135,000,000 credit facility (the New
Credit Facility). Proceeds from the Offering and the New Credit Facility will be
used to (i) finance the Dyno Acquisition; (ii) retire certain existing credit
facilities and (iii) finance capital expenditures, working capital and other
needs.
F-35
<PAGE> 131
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 21. SUBSEQUENT EVENTS (CONTINUED)
The Notes will be general unsecured obligations of the Company with
interest payable semi-annually. The Notes will be guaranteed by each of the
Guarantors pursuant to the guarantees described in Note 20.
Except as noted below, the Notes are not redeemable at the Company's option
prior to July 15, 2000. Thereafter, the Notes will be redeemable, in whole or
part, at the option of the Company at various redemption prices as set forth in
the Note Indenture, plus accrued and unpaid interest thereon to the redemption
date. In addition, prior to July 15, 1998, the Company may, at its option,
redeem up to an aggregate of 30% of the principal amount of the Notes originally
issued with the net proceeds from one or more public equity offerings at the
redemption price specified in the Note Indenture plus accrued interest to the
date of redemption.
Also, in the event of a change in control, 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
repurchase. Also, in certain circumstances, the Company will be required to make
an offer to repurchase the Notes at a price equal to 100% of the principal
amount thereof, plus accrued interest to the date of repurchase, with the net
cash proceeds of certain asset sales.
The New Credit Facility consists of a $135,000,000 multi-currency revolving
loan facility for the Company and certain of its wholly-owned domestic and
foreign subsidiaries, including a $5,000,000 swing line facility and a
$17,000,000 letter of credit facility. The New Credit Facility will have an
initial term of five years, with annual one year extensions of the revolving
credit portion of the facility available in the lender's discretion.
At any time within three years after closing of the New Credit Facility,
the Company may convert up to $70,000,000 of revolving credit loans under the
New Credit Facility to term loans in minimum amounts of $15,000,000 with
maturities not exceeding seven years from the closing of the New Credit
Facility.
Borrowings under the New Credit Facility will bear interest at a per annum
rate equal to the agent's base rate or the prevailing interbank offered rate in
the applicable offshore currency market, plus an additional margin ranging from
0.5% to 1.75% based on certain financial ratios of the Company. The annual
letter of credit fee will range from 0.5% to 1.5% based on the same financial
ratios. The Company will also be required to pay a quarterly unused facility
fee.
Borrowings under the New Credit Facility will be secured by first liens on
the inventory, accounts receivable and certain intangibles of the Company and
its wholly-owned domestic subsidiaries and by a pledge of 100% of the stock of
wholly-owned domestic subsidiaries, and up to 65% of the stock of wholly-owned
foreign subsidiaries. Collateral for the New Credit Facility will secure the
2004 Notes on an equal and ratable basis. The Company and its wholly-owned
domestic subsidiaries will guarantee payment of domestic and foreign borrowings
under the New Credit Facility. The Company's wholly-owned foreign subsidiaries
will guarantee payment of foreign borrowings under the New Credit Facility.
The Note Indenture and the New Credit Facility will contain numerous
restrictive covenants including, but not limited to, the following matters: (i)
maintenance of certain financial ratios and compliance with certain financial
tests and limitations; (ii) limitations on payment of dividends, incurrence of
additional indebtedness and granting of certain liens; (iii) restrictions on
mergers, acquisitions, asset sales, sales of subsidiary stock, capital
expenditures and investments; (iv) issuance of preferred stock by subsidiaries
and (v) sale and leaseback transactions.
See "Business -- Dyno Acquisition" and "Description of Other Indebtedness"
elsewhere in this Offering Memorandum for further discussion.
F-36
<PAGE> 132
WALBRO CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
6/30/95 12/31/94
----------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash................................................................. $ 3,419 $ 4,540
Accounts receivable (net)............................................ 69,928 66,333
Inventories.......................................................... 33,939 31,439
Other current assets................................................. 8,688 7,664
--------- --------
Total Current Assets.............................................. 115,974 109,976
---------- --------
Property, Plant & Equipment:
Land, buildings & improvements....................................... 47,010 45,902
Machinery & equipment................................................ 116,682 93,127
---------- --------
Subtotal.......................................................... 163,692 139,029
Less: Accumulated depreciation....................................... (57,209) (50,737)
---------- --------
Net Property, Plant & Equipment................................... 106,483 88,292
---------- --------
Other Assets:
Goodwill (net)....................................................... 19,025 16,905
Joint ventures, investments & other.................................. 46,007 42,193
---------- --------
Total Other Assets................................................ 65,032 59,098
---------- --------
Total Assets...................................................... $ 287,489 $257,366
========= ========
LIABILITIES
Current Liabilities:
Current portion long-term debt....................................... $ 923 $ 8,442
Notes payable -- Banks............................................... 7,109 6,970
Accounts payable..................................................... 25,861 23,252
Accrued liabilities.................................................. 17,411 12,934
---------- --------
Total Current Liabilities......................................... 51,304 51,598
---------- --------
Long-term debt, net of current......................................... 86,322 66,136
Other long-term liabilities.......................................... 13,633 11,717
---------- --------
Total Long-Term Liabilities....................................... 99,955 77,853
---------- --------
Stockholders' Equity:
Common stock, $.50 par value; authorized 25,000,000; outstanding
8,564,576 in 1995 and 1994........................................ 4,282 4,282
Paid-in capital...................................................... 64,221 64,221
Retained earnings.................................................... 63,050 55,855
Other Stockholders' Equity........................................... 4,677 3,557
---------- --------
Total Stockholders' Equity........................................ 136,230 127,915
---------- --------
Total Liabilities & Stockholders' Equity.......................... $ 287,489 $257,366
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-37
<PAGE> 133
WALBRO CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
6/30/95 6/30/94
--------- ---------
(UNAUDITED)
<S> <C> <C>
Net Sales.............................................................. $ 188,291 $ 166,181
Cost of Sales & Expenses:
Cost of sales........................................................ 150,585 131,308
Selling and administrative expenses.................................. 24,152 19,353
Interest expense, net................................................ 2,538 1,537
Other expense........................................................ 416 662
--------- ---------
Total............................................................. 177,691 152,860
--------- ---------
Income before income taxes and joint ventures.......................... 10,600 13,321
Provision for income taxes............................................. 3,751 4,953
Equity in (income) of joint ventures................................... (2,074) (592)
--------- ---------
Net income........................................................ $ 8,923 $ 8,960
========= =========
Net income per share.............................................. $ 1.04 $ 1.04
========= =========
Average shares outstanding............................................. 8,599,490 8,608,474
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-38
<PAGE> 134
WALBRO CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------
6/30/95 6/30/94
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income............................................................ $ 8,923 $ 8,960
Adjustments to Reconcile Net Income to Net Cash Provided by Operating
Activities:
Depreciation and amortization.................................... 7,838 6,935
(Gain) loss on disposition of assets............................. 144 55
(Income) of joint ventures....................................... (2,074) (592)
Changes in assets and liabilities:
Deferred income taxes......................................... (1,800) 0
Deferred pension and other.................................... 2,442 1,368
Accounts payable and accrued liabilities...................... 6,108 1,294
Accounts receivable, net...................................... (197) (15,815)
Inventories................................................... (1,634) (1,395)
Prepaid expenses and other.................................... (1,729) (545)
-------- --------
Total adjustments........................................... 9,098 (8,695)
-------- --------
Net cash provided by operating activities........................ 18,021 265
-------- --------
Cash Flows From Investing Activities:
Purchase of fixed assets.............................................. (20,730) (7,280)
Acquisitions, net of cash acquired.................................... 105 0
Increase of other assets.............................................. (3,767) (1,332)
Investment in joint ventures and other................................ (2,232) (1,611)
Proceeds from disposal of assets...................................... 309 115
-------- --------
Net cash used in investing activities............................ (26,315) (10,108)
-------- --------
Cash Flows From Financing Activities:
Net borrowings under line-of-credit agreements........................ 10,787 7,611
Debt repayments....................................................... (634) 0
Proceeds from issuance of debt........................................ 0 153
Proceeds from issuance of common stock................................ 0 219
Cash dividends paid................................................... (1,713) (1,711)
-------- --------
Net cash provided by (used in) financing activities.............. 8,440 6,272
-------- --------
Effect of exchange rate changes on cash............................... (1,267) (1,013)
-------- --------
Net decrease in cash.................................................. (1,121) (4,584)
Cash beginning balance................................................ 4,540 4,605
-------- --------
Cash ending balance................................................... $ 3,419 $ 21
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-39
<PAGE> 135
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUBSEQUENT EVENT
On July 27, 1995, the Company, through certain of its wholly-owned
subsidiaries, acquired the plastic fuel tank business of Dyno Industrier AS,
(Dyno) Oslo, Norway. The plastic fuel tank division of Dyno supplies plastic
fuel tank systems to most European vehicle manufacturers through its operations
in France, Spain, Norway, Great Britain, Germany, and Belgium. Dyno Fuel Systems
Business sales approximated $147 million in 1994. The net purchase price for the
acquisition of Dyno's Fuel Systems Business was approximately $124 million
(approximately $138 million less approximately $14 million in cash acquired by
the Company), exclusive of expenses of the transaction. The purchase price is
subject to certain post-closing adjustments. The Company financed the
acquisition through a combination of a private placement of $110 million of
9 7/8% Senior Notes due 2005 (the Notes) and a new $135 million credit facility
(the New Credit Facility) with a group of Commercial Banks.
The Notes are general unsecured obligations of the Company with interest
payable semi-annually. The Notes are guaranteed by each of the significant
domestic wholly-owned subsidiaries.
Except as noted below, the Notes are not redeemable at the Company's option
prior to July 15, 2000. Thereafter, the Notes will be redeemable, in whole or in
part, at the option of the Company at various redemption prices as set forth in
the Note Indenture, plus accrued and unpaid interest thereon to the redemption
date. In addition, prior to July 15, 1998, the Company may, at its option,
redeem up to an aggregate of 30% of the principal amount of the Notes originally
issued with the net proceeds from one or more public equity offerings at the
redemption price specified in the Note Indenture plus accrued interest to the
date of redemption.
Also, in the event of a change in control, 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
repurchase. Also, in certain circumstances, the Company will be required to make
an offer to repurchase the Notes at a price equal to 100% of the principal
amount thereof, plus accrued interest to the date of repurchase, with the net
cash proceeds of certain asset sales.
The New Credit Facility consists of a $135,000,000 multi-currency revolving
loan facility for the Company and certain of its wholly-owned domestic and
foreign subsidiaries, including a $5,000,000 swing line facility and a
$17,000,000 letter of credit facility. The New Credit Facility has an initial
term of five years, with annual one year extensions of the revolving credit
portion of the facility available in the lender's discretion.
At any time within three years after closing of the New Credit Facility,
the Company may convert up to $70,000,000 of revolving credit loans under the
New Credit Facility to term loans in minimum amounts of $15,000,000 with
maturities not exceeding seven years from the closing of the New Credit
Facility.
Borrowings under the New Credit Facility bear interest at a per annum rate
equal to the agent's base rate or the prevailing interbank offered rate in the
applicable offshore currency market, plus an additional margin ranging from 0.5%
to 1.75% based on certain financial ratios of the Company. The annual letter of
credit fee will range from 0.5% to 1.5% based on the same financial ratios. The
Company will also be required to pay a quarterly unused facility fee.
Borrowings under the New Credit Facility are secured by first liens on the
inventory, accounts receivable and certain intangibles of the Company and its
wholly-owned domestic subsidiaries and by a pledge of 100% of the stock of
wholly-owned domestic subsidiaries, and 65% of the stock of whollyowned foreign
subsidiaries. Collateral for the New Credit Facility secures the 2004 Notes on
an equal and ratable basis. The Company and its wholly-owned domestic
subsidiaries guarantee payment of domestic and foreign borrowings under the New
Credit Facility. The Company's wholly-owned foreign subsidiaries guarantee
payment of foreign borrowings under the New Credit Facility.
F-40
<PAGE> 136
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUBSEQUENT EVENT (CONTINUED)
The Note Indenture and the New Credit Facility contain numerous restrictive
covenants including, but not limited to, the following matters: (i) maintenance
of certain financial ratios and compliance with certain financial tests and
limitations; (ii) limitations on payment of dividends, incurrence of additional
indebtedness and granting of certain liens; (iii) restrictions on mergers,
acquisitions, asset sales, sales of subsidiary stock, capital expenditures and
investments; (iv) issuance of preferred stock by subsidiaries and (v) sale and
leaseback transactions.
F-41
<PAGE> 137
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
JUNE 30, 1995
----------------------------------------------------------------------------
WALBRO
CORPORATION CONSOLIDATION
GUARANTOR NONGUARANTOR (PARENT AND ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
------------ ------------ ------------ ---------------- ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash................................ $ 134 $ 2,667 $ 618 $ -- $ 3,419
Accounts receivable -- net:......... 28,651 18,709 36,800 (14,232) 69,928
Inventories......................... 24,851 7,162 1,926 -- 33,939
Prepaid expenses and other.......... 3,076 1,874 734 (674) 5,010
Deferred and refundable income
taxes............................ 5,935 (1,153) (1,104) -- 3,678
-------- -------- -------- ---------- --------
Total Current Assets........... 62,647 29,259 38,974 (14,906) 115,974
-------- -------- -------- ---------- --------
Plant and Equipment -- Net:........... 77,358 15,828 13,297 -- 106,483
-------- -------- -------- ---------- --------
Other Assets:
Funds held for construction......... 1,061 -- -- -- 1,061
Joint ventures...................... 10,765 12,543 -- -- 23,308
Investments......................... 6,275 271 98,953 (97,011) 8,488
Goodwill, net....................... 15,482 1,205 2,338 -- 19,025
Plant and equipment held for
resale........................... -- -- 80 -- 80
Notes receivable.................... -- -- 52,117 (51,550) 567
Deferred income taxes............... -- -- -- -- --
Other............................... 5,885 854 5,764 -- 12,503
-------- -------- -------- ---------- --------
Total other assets............. 39,468 14,873 159,252 (148,561) 65,032
-------- -------- -------- ---------- --------
Total assets................... $179,473 $ 59,960 $211,523 $ (163,467) $287,489
======== ======== ======== ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long term debt... $ 515 $ -- $ 408 $ -- $ 923
Bank and other borrowings........... -- 7,109 -- -- 7,109
Accounts payable.................... 25,843 8,148 5,293 (13,423) 25,861
Accrued liabilities................. 9,031 5,731 2,626 (834) 16,554
Dividends payable................... -- -- 857 -- 857
-------- -------- -------- ---------- --------
Total Current Liabilities...... 35,389 20,988 9,184 (14,257) 51,304
-------- -------- -------- ---------- --------
Long Term Liabilities:
Long Term Debt -- Less current
portion.......................... 70,825 8,920 58,127 (51,550) 86,322
Pension obligations and other....... 932 1,097 8,098 -- 10,127
Deferred income taxes............... 1,944 318 (225) -- 2,037
Minority interest................... -- 1,469 -- -- 1,469
-------- -------- -------- ---------- --------
Total Long Term Liabilities.... 73,701 11,804 66,000 (51,550) 99,955
-------- -------- -------- ---------- --------
Stockholders' Equity:
Common stock, $.50 par value;
authorized 15,000,000;
outstanding 8,564,576............ -- 1,999 4,282 (1,999) 4,282
Paid-in capital..................... -- 3,632 64,221 (3,632) 64,221
Retained earnings................... 68,465 18,125 63,155 (86,695) 63,050
Deferred compensation............... -- -- (975) -- (975)
Unrealized gain on securities
available for sale............... -- -- 625 -- 625
Cumulative translation
adjustments...................... 1,918 3,412 5,031 (5,334) 5,027
-------- -------- -------- ---------- --------
Total Stockholders' Equity..... 70,383 27,168 136,339 (97,660) 136,230
-------- -------- -------- ---------- --------
Total Liabilities and
Stockholders' Equity........ $179,473 $ 59,960 $211,523 $ (163,467) $287,489
======== ======== ======== ========== ========
</TABLE>
F-42
<PAGE> 138
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1995
-----------------------------------------------------------------------------
WALBRO CONSOLIDATION
CORPORATION AND
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
------------ ------------ ------------ ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net Sales......................... $168,563 $ 37,888 $ 1,814 $ (19,974) $188,291
Costs and Expenses:
Cost of sales................... 137,805 31,562 1,192 (19,974) 150,585
Selling and administrative
expenses..................... 9,962 1,703 5,825 -- 17,490
Research and development
expenses..................... 4,948 763 951 -- 6,662
-------- ------- -------- -------- --------
Operating Income.................. 15,848 3,860 (6,154) -- 13,554
-------- ------- -------- -------- --------
Other Expense (Income):
Interest expense................ 2,697 242 1,884 (2,165) 2,658
Interest income................. (556) 524 (2,253) 2,165 (120)
Other, net...................... (84) 5 495 -- 416
-------- ------- -------- -------- --------
Income before provision for income
taxes, minority interest, equity
in (income) loss of joint
ventures and subsidiaries....... 13,791 3,089 (6,280) -- 10,600
Provision for income taxes........ 4,754 1,143 (2,146) -- 3,751
Equity in (income) loss of joint
ventures........................ (497) (1,577) -- -- (2,074)
Equity in income of
subsidiaries.................... (3,523) -- (13,057) 16,580 --
-------- ------- -------- -------- --------
Net income........................ $ 13,057 $ 3,523 $ 8,923 $ (16,580) $ 8,923
======== ======= ======== ======== ========
</TABLE>
F-43
<PAGE> 139
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1994
-----------------------------------------------------------------------------
WALBRO CONSOLIDATION
CORPORATION AND
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL
------------ ------------ ------------ ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net Sales......................... $153,155 $ 28,909 $ 243 $ (16,126) $166,181
Costs and Expenses:
Cost of sales................... 123,126 24,130 178 (16,126) 131,308
Selling and administrative
expenses..................... 8,554 1,642 3,342 -- 13,538
Research and development
expenses..................... 4,782 233 800 -- 5,815
-------- ------- -------- -------- --------
Operating Income.................. 16,693 2,904 (4,077) -- 15,520
Other Expense (Income):
Interest expense................ 2,891 232 902 (2,484) 1,541
Interest income................. -- (2) (2,486) 2,484 (4)
Other, net...................... 53 10 599 -- 662
-------- ------- -------- -------- --------
Income before provision for income
taxes, minority interest, equity
in (income) loss of joint
ventures and subsidiaries....... 13,749 2,664 (3,092) -- 13,321
Provision for income taxes........ 4,935 1,069 (1,051) -- 4,953
Equity in (income) loss of joint
ventures........................ 274 (866) -- -- (592)
Equity in income of
subsidiaries.................... (2,461) -- (11,001) 13,462 --
-------- ------- -------- -------- --------
Net income........................ $ 11,001 $ 2,461 $ 8,960 $ (13,462) $ 8,960
======== ======= ======== ======== ========
</TABLE>
F-44
<PAGE> 140
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1995
--------------------------------------------------------------
WALBRO
CORPORATION COMBINED
GUARANTOR (PARENT ELIMINATION ISSUER AND
SUBSIDIARIES CORPORATION) ENTRIES GUARANTOR TOTAL
------------ ------------ ----------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities................................. $ 28,755 $(10,656) $ -- $ 18,099
-------- -------- ---- ---------
Cash Flows from Investing Activities:
Purchase of plant and equipment............ (18,315) (960) -- (19,275)
Acquisitions, net of cash acquired......... -- 105 -- 105
Purchase of other assets................... (3,362) (368) -- (3,730)
Investment in joint ventures and other..... (6,862) 1,108 -- (5,754)
Proceeds from disposal of assets........... 89 198 -- 287
-------- -------- ---- ---------
Net cash provided by (used in) investing
activities................................. (28,450) 83 -- (28,367)
-------- -------- ---- ---------
Cash Flows from Financing Activities:
Net borrowings (repayments) under revolving
line-of-credit agreements............... -- 11,000 -- 11,000
Debt repayments............................ (253) (36) -- (289)
Cash dividends paid........................ -- (1,713) -- (1,713)
-------- -------- ---- ---------
Net cash provided by (used in) financing
activities................................. (253) 9,251 -- 8,998
-------- -------- ---- ---------
Effect of Exchange Rate Changes on Cash...... 7 -- -- 7
-------- -------- ---- ---------
Net Increase (Decrease) in Cash.............. 59 (1,322) -- (1,263)
Cash at Beginning of Year.................... 75 1,940 -- 2,015
-------- -------- ---- ---------
Cash at End of Period........................ $ 134 $ 618 $ -- $ 752
======== ======== ==== =========
</TABLE>
F-45
<PAGE> 141
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1994
--------------------------------------------------------------
WALBRO
CORPORATION COMBINED
GUARANTOR (PARENT ELIMINATION ISSUER AND
SUBSIDIARIES CORPORATION) ENTRIES GUARANTOR TOTAL
------------ ------------ ----------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities................................. $ 15,116 $(15,315) $-- $ (199)
-------- -------- --- ---------
Cash Flows from Investing Activities:
Purchase of plant and equipment............ (6,458) (108) -- (6,566)
Purchase of other assets................... (579) (761) -- (1,340)
Investment in joint ventures and other..... (3,289) -- -- (3,289)
Proceeds from disposal of assets........... 117 6 -- 123
-------- -------- --- ---------
Net cash provided by (used in) investing
activities................................. (10,209) (863) -- (11,072)
-------- -------- --- ---------
Cash Flows from Financing Activities:
Net borrowings (repayments) under revolving
line-of-credit agreements............... -- 7,180 -- 7,180
Debt repayments............................ (5,500) 5,500 -- --
Proceeds from issuance of long term debt... 153 -- -- 153
Proceeds from issuance of common stock and
options................................. -- 219 -- 219
Cash dividends paid........................ -- (1,711) -- (1,711)
-------- -------- --- ---------
Net cash provided by (used in) financing
activities................................. (5,347) 11,188 -- 5,841
-------- -------- --- ---------
Effect of Exchange Rate Changes on Cash...... -- -- -- --
-------- -------- --- ---------
Net Increase (Decrease) in Cash.............. (440) (4,990) -- (5,430)
Cash at Beginning of Year.................... 431 2,442 -- 2,873
-------- -------- --- ---------
Cash at End of Period........................ $ (9) $ (2,548) $-- $ (2,557)
======== ======== === =========
</TABLE>
F-46
<PAGE> 142
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Dyno Industrier A.S
Oslo, Norway:
We have audited the accompanying combined balance sheet of the Fuel Tank
System Division (the "Division") of Dyno Industrier A.S ("Dyno") as of December
31, 1994, and the related combined statements of income, stockholders' and
divisional equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Division and Dyno's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such 1994 financial statements present fairly, in all
material respects, the combined financial position of the Division as of
December 31, 1994, and the combined results of operations and its combined cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN & CO. GmbH
Stuttgart, Germany
May 12, 1995
F-47
<PAGE> 143
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors of Dyno Industrier A.S:
We have audited the accompanying combined balance sheet of the Fuel Tank
System Division of Dyno Industrier A.S (the "Division") as of December 31, 1993,
and the related combined statements of income, and cash flow for the year then
ended. These combined financial statements are the responsibility of the
Division's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such 1993 combined financial statements present fairly, in
all material respects, the combined financial position of the Division as of
December 31, 1993, and the combined results of operations and its combined cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States.
DELOITTE & TOUCHE
Oslo, Norway
May 12, 1995
F-48
<PAGE> 144
DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
------- -------
(AMOUNTS IN NOK
1,000)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents -- (Note 1)................................ 24,136 25,285
Notes receivable -- (Note 4)......................................... 32,622 34,384
Accounts receivable (less allowance for doubtful accounts of 1,612
and 3,591 in 1994 and 1993 respectively) -- (Note 4).............. 181,792 116,863
Amounts receivable from related entities -- (Note 11)................ 28,980 2,591
Inventories: -- (Note 1)
Raw materials........................................................ 37,036 31,337
Work in progress..................................................... 22,005 36,374
Finished goods....................................................... 26,569 19,494
------- -------
Total Inventories............................................ 85,610 87,205
------- -------
Prepaid expenses and other current assets............................ 43,532 43,838
------- -------
Total Current Assets......................................... 396,672 310,166
======= =======
Property, Plant and Equipment -- Net -- (Note 1 and 5)................. 396,665 420,601
Other Assets:
Long term receivables................................................ 16,602 33,278
Intangible assets -- Net -- (Note 6)................................. 14,801 13,338
Deferred taxes -- (Notes 1 and 3).................................... 11,130 12,793
Other................................................................ 3,605 3,738
------- -------
Total Other Assets........................................... 46,138 63,147
------- -------
Total Assets................................................. 839,475 793,914
======= =======
LIABILITIES AND SHAREHOLDERS' AND DIVISIONAL EQUITY:
Current Liabilities:
Bank overdraft....................................................... -- 3,826
Accounts payable..................................................... 147,465 108,826
Accrued liabilities -- (Note 12)..................................... 79,919 124,043
Current portion of long term debt -- (Note 7)........................ 102,388 32,679
Amounts payable to related entities -- (Note 11)..................... 36,788 108,570
Notes payable........................................................ 30,792 26,390
Income Taxes payable................................................. 1,596 246
------- -------
Total Current Liabilities.................................... 398,948 404,580
======= =======
Deferred Revenue....................................................... 9,876 4,842
Accrued Pension Liabilities -- (Notes 1 and 9)......................... 10,655 9,488
Deferred Taxes -- (Notes 1 and 3)...................................... 22,777 16,469
Long Term Debt -- Less current portion -- (Note 7)..................... 100,050 156,258
Subordinated Loan -- (Note 7).......................................... 9,511 124,890
Commitments and Contingencies -- (Note 12)
Shareholders' and Divisional Equity -- (Note 10)....................... 287,658 77,387
------- -------
Total Liabilities and Shareholders' and Divisional Equity.... 839,475 793,914
======= =======
</TABLE>
F-49
<PAGE> 145
DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION
COMBINED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
--------- -------
(AMOUNTS IN NOK
1,000)
<S> <C> <C>
Revenues -- (Note 2)................................................... 1,037,571 617,955
Cost of Goods Sold..................................................... 793,364 485,030
--------- -------
Gross Profit........................................................... 244,207 132,925
--------- -------
Selling, General, and Administrative Expenses -- (Notes 1, 8, 9, and
11).................................................................. 208,303 170,590
--------- -------
Operating Income (Loss)................................................ 35,904 (37,665)
--------- -------
Other Income (Expense):
Interest expense..................................................... (25,446) (19,052)
Interest income...................................................... 5,757 1,213
Other expense -- net................................................. (6,940) 1,106
--------- -------
Total other income (expense)................................. (26,629) (16,733)
--------- -------
Income (Loss) Before Taxes and Extraordinary Item...................... 9,275 (54,398)
--------- -------
Income Taxes -- (Note 3)............................................... 16,421 349
--------- -------
Loss Before Extraordinary Item......................................... (7,146) (54,747)
--------- -------
Extraordinary Item -- Gain on forgiveness on debt -- (Note 7).......... 33,078 --
--------- -------
Net income (loss)............................................ 25,932 (54,747)
======== =======
</TABLE>
F-50
<PAGE> 146
DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
-------- --------
(AMOUNTS IN NOK
1,000)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss).................................................... 25,932 (54,747)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................... 62,956 45,110
Change in deferred income taxes................................. 7,971 (1,424)
Gain on sale of property, plant and equipment................... (1,899) (2,039)
Gain on forgiveness of debt..................................... (33,078) --
Changes in operating assets and liabilities
(Increase) decrease:
Accounts and notes receivable................................ (63,167) (31,791)
Inventories.................................................. 1,595 (8,437)
Prepaid expenses and other current assets.................... 306 (17,987)
Long-term receivables and other assets....................... 15,346 (29,323)
Increase (decrease):
Accounts payable............................................. 38,639 17,729
Accrued and other liabilities................................ (45,433) 71,355
Deferred revenue............................................. 5,034 4,492
-------- --------
Net cash provided by operating activities....................... 14,202 (7,062)
======== ========
Cash Flows From Investing Activities:
Purchases of property, plant and equipment........................... (61,376) (182,061)
Proceeds from sale of property, plant and equipment.................. 25,523 28,932
(Advances to) repayments from related entities -- net................ (98,171) 54,157
-------- --------
Net cash used in investing activities................................ (134,024) (98,972)
-------- --------
Cash Flows From Financing Activities:
Borrowings of long-term debt......................................... 43,145 37,220
Repayments of long-term debt......................................... (5,434) (1,097)
Net repayment of related party long-term debt........................ (19,808) (18,334)
Borrowings of subordinated loans..................................... -- 42,612
Repayments of subordinated loans..................................... (82,301) --
Contributed equity................................................... 185,656 65,560
-------- --------
Net cash provided by financing activities.............................. 121,258 125,961
-------- --------
Foreign currency effects on cash flows................................. (2,585) 2,640
Net increase (decrease) in cash and cash equivalents................... (1,149) 22,567
-------- --------
Cash and cash equivalents at beginning of year......................... 25,285 2,718
-------- --------
Cash and cash equivalents at end of year............................... 24,136 25,285
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest............................................... 24,150 27,722
Income taxes deemed to be paid....................................... 7,100 1,527
</TABLE>
F-51
<PAGE> 147
DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED 31 DECEMBER 1994 AND 1993
1 ACCOUNTING POLICIES
Principles of Combination
The combined historical financial statements include the accounts of the
Fuel Tank System Division (the Division) of Dyno Industrier A.S (Dyno), a
Norwegian company. This division comprises production units in Norway, Great
Britain, Germany, France, Belgium, and Spain which are involved in the
development and manufacture of plastic automotive fuel tank systems. All
significant accounts and transactions between the division's units have been
eliminated in combination.
The financial statements of the Division's operating units have been
combined and prepared as a result of the Purchase and Sale Agreement between
Dyno and Walbro Corporation dated April 7, 1995. Walbro Corporation is
purchasing certain divisional assets of the entities in Norway, Great Britain,
Germany and Belgium, and the shares of the entities in France and Spain. The
combined financial statements have been prepared in accordance with accounting
principles generally accepted in the United States.
During the periods covered by the combined income statement the Division's
business was conducted as an integral part of Dyno's overall operations. The
financial statements include sales to and purchases of materials to and from
other Dyno business units at established prices. These amounts are not
necessarily indicative of the costs that will prevail for the Division
subsequent to the closing of the transaction described in the purchase
agreement. The financial statements also include various allocated costs and
expenses (see Note 8) which are not necessarily indicative of the costs and
expenses which would have resulted had the Division been operated as a separate
company. All of the allocations and estimates reflected in the financial
statements are based on assumptions that the production units' and Dyno's
management believes are reasonable.
In preparing the combined accounts, the results are translated into
Norwegian kroner (NOK) at annual average rates of exchange. The combined balance
sheet is translated at year-end rates of exchange. The effects of exchange rate
changes during the year on net assets are included in Divisional equity.
Cash and cash equivalents
Cash and cash equivalents include cash, bank deposits and all other
monetary instruments with a maturity of less than three months at the date of
purchase.
Financial instruments
The Division's activities in derivative financial instruments are not
significant and generally consist of agreements with Dyno and its affiliates to
manage foreign currency and interest rate exposure. The estimated fair values of
Dyno's financial instruments approximate the carrying values.
Discounts/premiums on foreign exchange contracts and cost/income on other
hedging contracts (interest rate swaps, interest rate caps, etc.) have been
recognized as other income or expense over the life of the contracts.
Inventories
Inventories are valued at the lower of cost using the 'first-in-first-out'
method or at net realizable value. Cost for goods purchased is the purchase
price. Cost for goods in production and internally produced goods is the direct
manufacturing cost plus the appropriate portion of production overhead costs.
F-52
<PAGE> 148
DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment are carried on the balance sheet at original
cost, less straight-line depreciation. The rates for calculating straight-line
depreciation have been determined based on an evaluation of the individual fixed
asset's economic lifetime as follows:
<TABLE>
<S> <C>
machinery and equipment................................ 3 - 20 years
buildings.............................................. 20 - 33 years
</TABLE>
Intangible Assets
Intangible assets include organization costs and goodwill, and are
amortized on a straight-line basis over five to twenty years.
Research and Development
Research and development costs are expensed as they are incurred.
Pensions and Pension Liabilities
Pension costs are calculated in accordance with the Statement of Financial
Accounting Standards No. 87. Pension liabilities (directly financed and funded
plans) have been valued at the present value of future pension payments as of
December 31, 1994. Future pension payments are calculated on the basis of the
expected salary at the time of retirement. Pension plan assets are valued at
market value on December 31, 1994. Net pension liabilities (pension liabilities
less pension plan assets) are accounted for as long term obligations after
correction for net actuarial differences.
Income Taxes
The Division has been included in Dyno's consolidated income tax returns in
the various countries. The recorded provision for income taxes approximates the
tax effect which would have been recorded had the Division operated on a
stand-alone basis.
Deferred income tax expense has been calculated using the liability method
in accordance with Statement of Financial Accounting Standards No. 109. Under
this method, deferred tax assets and liabilities are measured based upon
"temporary differences" which are differences between the carrying values of
assets and liabilities for financial reporting and their tax basis. Deferred
income tax expense is the change during the year in the deferred tax assets and
liabilities.
Deferred Revenues
Deferred revenues consist of investment grants from governments and certain
subsidies received from customers. Grants are recognized as income when
conditions for receipt are met, and subsidies are recognized as an offset to
cost of goods sold over the term of the agreement.
F-53
<PAGE> 149
DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2 REVENUES BY COUNTRY OF CUSTOMER
<TABLE>
<CAPTION>
1994 1993
--------- -------
NOK 1,000
<S> <C> <C>
Europe:
United Kingdom....................................... 88,466 68,208
Netherlands.......................................... 5,575 4,679
Germany.............................................. 343,161 167,691
France............................................... 211,873 213,136
Belgium.............................................. 151,066 23,204
Spain................................................ 51,551 7
Finland.............................................. 301 3,889
Sweden............................................... 144,727 111,100
Other EU countries................................... -- 766
--------- -------
Total EU..................................... 996,720 592,680
Norway................................................. 8,083 6,109
Rest of Europe......................................... 18,730 16,460
--------- -------
Total Europe................................. 1,023,533 615,249
Outside Europe:
North America........................................ 115 1
Africa............................................... -- 310
Asia................................................. 13,923 2,395
--------- -------
TOTAL........................................ 1,037,571 617,955
========= =======
</TABLE>
3 TAXES
The provision for income taxes included in the combined statements of
income consist of the following (in NOK 1,000):
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Current taxes............................................. 8,450 1,773
Deferred taxes............................................ 7,971 (1,424)
------ ------
Provision for income tax.................................. 16,421 349
====== ======
</TABLE>
A reconciliation between income taxes at the statutory rates in Norway (28%
for 1994 and 1993) and the provision for income taxes for the years ended 1994
and 1993 is as follows (in NOK 1,000):
<TABLE>
<CAPTION>
1994 1993
------ -------
<S> <C> <C>
Income tax provison (benefit) at Norwegian statutory
rate.................................................... 2,597 (15,231)
International rate differences............................ 2,870 --
Losses for which no tax benefit was provided.............. 8,282 15,478
Utilization of loss carry forwards........................ (3,004) --
Other..................................................... 5,676 102
------ -------
Provision for income tax.................................. 16,421 349
====== =======
</TABLE>
F-54
<PAGE> 150
DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of deferred tax balances as of December 31 are as
follows:
<TABLE>
<CAPTION>
1994 1993
------- -------
NOK 1,000
<S> <C> <C>
Deferred tax assets:
Accrued costs of pension plans......................... 1,493 1,243
Net operating loss carry forwards...................... 33,448 44,706
Other.................................................. 1,498 408
------- -------
Total deferred tax assets................................ 36,439 46,357
Valuation allowance...................................... (25,309) (33,564)
------- -------
Net deferred tax assets.................................. 11,130 12,793
------- -------
Deferred tax liabilities
Property, plant and equipment.......................... 22,548 16,303
Other.................................................. 229 166
------- -------
Total Deferred tax liabilities........................... 22,777 16,469
======= =======
</TABLE>
The valuation allowance is provided when it is more likely than not that
some portion of the deferred tax assets will not be realized. The Division has
established a valuation allowance for certain net operating loss carryforwards.
At the end of 1994, total deductible losses carried forward in Dynoplast
S.A France and Dynoplast S.A Spain (the entities where stock is being acquired)
amounted to NOK 90.4 million. Losses carried forward expire as follows (in NOK
1,000):
<TABLE>
<S> <C>
1997................................................................ 18,185
1998................................................................ 28,948
1999................................................................ 11,986
Without expiration.................................................. 31,271
-------
TOTAL..................................................... 90,390
======
</TABLE>
4 GEOGRAPHIC AND CREDIT RISK
Accounts receivable by geographical area as of December 31, are:
<TABLE>
<CAPTION>
1994 1993
-------- --------
NOK 1,000
<S> <C> <C>
Norway................................................. 3,026 --
The EU................................................. 178,887 119,718
Rest of Europe......................................... 284 58
------- -------
Total Europe...................................... 182,197 119,776
North America.......................................... 96 3
Asia................................................... 1,111 675
------- -------
TOTAL GROSS ACCOUNTS RECEIVABLE........................ 183,404 120,454
Less allowance for doubtful accounts................... 1,612 3,591
------- -------
TOTAL NET ACCOUNTS RECEIVABLE..................... 181,792 116,863
======= =======
</TABLE>
In addition the French and Spanish entities had notes receivables of (NOK
1,000) 32,449 and 173 in 1994 and 34,377 and 7 in 1993, respectively. These
notes are created in the normal course of business in these countries and are
generally collected under similar terms to accounts receivable.
F-55
<PAGE> 151
DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1994 1993
------- -------
NOK 1,000
<S> <C> <C>
Land.................................................... 12,012 14,067
Assets under construction............................... 23,337 35,354
Buildings............................................... 62,257 41,045
Machinery and equipment................................. 534,229 531,103
------- -------
Total.............................................. 631,835 621,569
Less accumulated depreciation...................... 235,170 200,968
------- -------
Property, plant and equipment -- net............... 396,665 420,601
======= =======
</TABLE>
6 INTANGIBLE ASSETS
Intangible assets consist of the following at December 31:
<TABLE>
<CAPTION>
1994 1993
------ ------
NOK 1,000
<S> <C> <C>
Organizational costs (less accumulated amortization of
2,102 and 1,401 in 1994 and 1993, respectively)........ 4,961 2,945
Goodwill (less accumulated amortization of 1,168 and 810
in 1994 and 1993, respectively)........................ 9,840 10,393
------- -------
Intangible assets -- net................................. 14,801 13,338
======= =======
</TABLE>
7 NOTES PAYABLE AND LONG-TERM DEBT
Notes payable include a short term facility with a bank in Spain. This
facility was renewed in 1994. It bears interest at 9.6% and matures in December
1995.
Long-term debt agreements are generally entered into by the legal entities
in the various locations. To present the financial position of the division,
these amounts have been allocated between divisions operating within the legal
entities. Depending on the type of loan, various allocation bases have been
utilized including relative investment, level of operations, and working
capital.
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1994 1993
-------- -------
NOK 1,000
<S> <C> <C>
Mortgage loans.......................................... 6,661 4,389
Bank loans and other long-term debt..................... 45,300 14,263
Loans from Dyno and affiliated companies................ 150,477 170,285
-------- -------
Total.............................................. 202,438 188,937
Less Current portion.................................... (102,388) (32,679)
-------- -------
Total long-term debt............................... 100,050 156,258
======== =======
</TABLE>
F-56
<PAGE> 152
DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term debt at December 31, 1994, matures as follows (in NOK 1,000):
<TABLE>
<S> <C>
1995............................................................... 102,388
1996............................................................... 5,973
1997............................................................... 26,380
1998............................................................... 3,464
1999............................................................... 3,464
Thereafter......................................................... 60,769
-------
TOTAL.................................................... 202,438
=======
</TABLE>
Long-term debt including first year's installments are payable in the
following currencies:
<TABLE>
<CAPTION>
CURRENCY VALUE NOK 1,000 CURRENCY VALUE NOK 1,000
CURRENCY DEC 31 1994 DEC 31 1994 DEC 31 1993 DEC 31 1993
------------------------ -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
NOK..................... 43,460 43,460 16,693 16,693
GBP..................... 2,077 21,950 2,597 28,850
DEM..................... 21,542 94,039 27,139 117,597
ESB..................... 47,383 2,432 89,131 4,704
FRF..................... -- -- 13,000 16,579
BEF..................... 190,955 40,557 21,683 4,514
------- -------
TOTAL......... 202,438 188,937
======= =======
</TABLE>
The mortgage loans relate to the building in Belgium, and are secured by
property, plant and equipment with a total net book value of approximately 97
NOK million at December 31, 1994. The loans bear interest at fixed rates ranging
from 8.09 to 10.45% and require monthly principal and interest payments. The
loans mature between 1995 and 1997.
Bank loans and other long-term debt at December 31, 1994 includes loans
from banks and other financial institutions in Belgium, Great Britain and Spain.
These loans are unsecured, generally require monthly principal payments and bear
interest at rates ranging from 6.92 to 10.8%. These loans mature in 2005, 1997,
and 1995, respectively.
Loans from Dyno and affiliated companies consists of agreements in Norway,
Germany, France and Great Britain to finance the operations and investing
strategies of the entities. These agreements are with the legal entities and
balances included in the combined financial statements are allocations of the
total outstanding balance. The agreements include both short term facilities and
long term notes depending on the cash and capital requirements of the various
entities. The agreements generally bear interest at the libor rate plus 0.5 to
0.6875%, and mature at dates ranging from 1995 to 1999.
Generally the related party loans are unsecured but contain negative pledge
clauses. The loan agreements do not contain clauses restrictive to the freedom
of action of the entities.
Subordinated Loans
The subordinated loans are all agreements with related parties that the
Division is normally consolidated with. These agreements do not bear interest
and no interest has been imputed.
The legal entity in Great Britain has a non-interest bearing GBP 2,700,000
(NOK 28,500,000) subordinated loan facility with a related party company in
Great Britain. Outstanding borrowings allocated to the Division were NOK
9,511,000 and NOK 9,998,000 at December 31, 1994 and 1993, respectively. The
facility matures August 27, 1996.
F-57
<PAGE> 153
DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The legal entity in France had a non-interest bearing FFR 60,000,000 (NOK
76,519,000) subordinated loan from Dyno as of December 31, 1993, of which FFR
34,000,000 was repaid in 1994 and FFR 26,000,000 was forgiven in accordance with
an agreement between Dyno and Dynoplast S.A. in France.
The legal entity in Germany had a non-interest bearing DEM 10,800,000 (NOK
46,797,000) subordinated loan from Dyno of which NOK 38,373,000 was allocated to
the Division as of December 31, 1993, and repaid during 1994.
8 GENERAL, ADMINISTRATIVE AND OTHER ALLOCATED EXPENSES
General, administrative and other expenses are allocated to the Division
using procedures deemed appropriate for the nature of the expenses involved. The
procedures utilize various allocation bases such as relative investment, working
capital, number of employees and related payroll costs, and direct effort
expended. Management of Dyno believes the allocations are reasonable, but they
are not necessarily indicative of the costs that would have been incurred had
the Division been a stand-alone company. Additionally certain management and
overhead costs incurred by Dyno related to the Division have been included in
the combined financial statements. Such amounts totalled 10.7 NOK million in
1994 and 2.9 NOK million in 1993. These amounts have not been charged to the
production units, but have been included for presentation purposes.
Total research and development expense was (NOK 1,000) 11,414 and 13,030 in
1994 and 1993, respectively.
9 PENSION PLANS
In Norway, employees' retirement arrangements are provided by funded
defined benefit plans. The pension entitlements normally are based on years of
service and final salary. Entities in other countries have pension plans in
line with local rules and practice. Pension plans are either defined benefit
plans or defined contribution plans, where the employer pays a defined
contribution which is independently administered.
The pension assets in Norway are managed by an affiliated company and are
primarily invested in fixed interest securities, property and listed shares.
Net periodic pension cost
<TABLE>
<CAPTION>
1994 1993
----- -----
NOK 1,000
<S> <C> <C>
Defined benefit plans
Benefits earned during the year.......................... 870 628
Interest cost on accrued benefit......................... 1,672 1,081
Expected return on pension assets........................ (684) (567)
----- -----
Net pension cost benefit plans........................... 1,858 1,142
----- -----
Early retirement and other............................... 35 --
----- -----
Total net periodic pension cost.................. 1,893 1,142
===== =====
</TABLE>
This expense represents an allocation of Dyno's total pension expense based
on the ratio of the number of eligible Division employees to the total number of
eligible employees.
F-58
<PAGE> 154
DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Status of pension plans reconciled to the combined balance sheet:
<TABLE>
<CAPTION>
1994 1993
-------------------- -------------------
FUNDED UNFUNDED FUNDED UNFUNDED
PLANS PLANS PLANS PLANS
------- -------- ------ --------
NOK 1,000
<S> <C> <C> <C> <C>
Projected benefit obligation
(PBO)........................... (10,469) (9,783) (8,979) (9,216)
Plan assets at fair value......... 8,765 -- 8,707 --
PBO in excess of plan assets...... (1,704) (9,783) (272) (9,216)
Unrecognized net actuarial loss... 812 55
Early retirement plans and
other........................... (35)
------- ------ ------ ------
Total accrued pension
liability............. (892) (9,763) (272) (9,216)
======= ====== ====== ======
Economic assumptions:
Discount rate................... 7.0% 7.0% 7.0% 7.0%
Rate of return -- plan assets... 8.0% -- 8.0% --
Salary increase................. 3.3% 3-3.5% 3.3% 3-3.5%
Pension increase................ 2.5% 2.5-3.0% 2.5% 2.5-3.0%
</TABLE>
10 SHAREHOLDER'S AND DIVISIONAL EQUITY
Combined shareholder's and divisional equity consists of the following (in
NOK 1,000) at December 31:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
COMMON STOCK:
Dynoplast S.A., France:
980,000 in 1993 and 1,189,996 in 1994 shares issued
at par FRF 100.................................. 150,523 29,750
Dynoplast S.A., Spain:
749,990,225 shares issued at par ESP 1............. 38,490 39,584
------- -------
Total Common Stock................................... 189,013 69,334
------- -------
Other Divisional Equity.............................. 98,645 8,053
------- -------
Total Stockholder's and Divisional Equity............ 287,658 77,387
------- -------
Balance as of beginning of year...................... 77,387 66,941
Net Income(Loss)..................................... 25,932 (54,747)
Contributed Equity................................... 185,656 65,560
Currency translation................................. (1,317) (367)
------- -------
Balance as of end of year............................ 287,658 77,387
======= =======
</TABLE>
Contributed equity includes Dyno management and overhead costs that have
been included in the combined financial statements for presentation purposes
(see Note 8).
11 RELATED PARTIES
As described in Note 1, the Division is an integral part of Dyno and is
normally consolidated in the Dyno financial statements. Many of the Division's
production units share facilities with other Divisions of Dyno.
F-59
<PAGE> 155
DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Dyno affiliates provide certain treasury, insurance, and pension fund management
services to the Division at varying degrees.
Amounts receivable from and payable to related entities comprises balances
between the Division and other Divisions in the same legal entity as well as
balances with Dyno and it's affiliates for various non-operating charges and
expenses.
In conjunction with certain financing arrangements (see Note 7), Dyno and
it's affiliates have issued letters of comfort on behalf of fuel tank business
units in favor of other lenders of approximately NOK 8,972,000 as of December
31, 1994.
The combined financial statements include sales and purchases of various
products and services to and from Dyno and its affiliates in the normal course
of business of approximately (NOK 1,000) 2,889 and 29,678 in 1994 and (NOK
1,000) 3,148 and 23,028 in 1993, respectively. Amounts due from and due to these
affiliated entities related to these transactions were approximately (NOK 1,000)
182 and 5,723 and (NOK 1,000) 810 and 4,615 as of December 31, 1994 and 1993,
respectively. These amounts are included in trade accounts receivable and
payable.
The production unit in France leased certain equipment from an affiliated
company during 1993 and 1994. This arrangement has been accounted for as a
capital lease. The equipment was purchased when the lease expired in 1994. The
capital lease obligation is included in bank loans and other long term debt at
December 31, 1993. Total payments under this arrangement were (NOK 1,000) 4,944
and 5,597 in 1994 and 1993, respectively.
12 CONTINGENCIES, GUARANTEES AND LEASE COMMITMENTS
Minimum commitments under non-cancelable leases having a remaining lease
term in excess of one year at December 31, 1994 will fall due for payment as
follows (in NOK 1,000):
<TABLE>
<S> <C>
1995................................................................ 14,948
1996................................................................ 15,294
1997................................................................ 11,424
1998................................................................ 10,935
1999................................................................ 10,825
Thereafter.......................................................... 6,960
------
Total..................................................... 70,386
======
</TABLE>
Total lease expense was approximately (NOK 1,000) 22,739 and 23,739 in 1994
and 1993, respectively.
The operating unit in Norway has issued a performance bond of NOK 352,000
as of December 31, 1994.
In 1994 a former agent of the division filed a 19 FFR million
(approximately 24 NOK million) claim against Dyno Industrier A.S for breach of
the agent agreement related to procurement of materials for the production unit
in France. The litigation is still pending and Dyno intends to vigorously defend
its position. Although the final outcome cannot presently be determined, Dyno
has accrued a liability of approximately 6.7 NOK million which has been included
in the combined statements in 1994 as it relates to the operations of the
Division. In accordance with the purchase agreement (see Note 1), Dyno will
retain any obligations related to this claim.
F-60
<PAGE> 156
DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
13 FINANCIAL INSTRUMENTS
The financial hedging agreements as of December 31 are as follows:
1993:
1. FORWARD CONTRACTS
<TABLE>
<CAPTION>
CONTRACT SUM (THOUSANDS)
- --------------------------
BOUGHT SOLD FORWARD RATE DATE DUE CONTRACT PARTNER
- ---------- ------------ ------------ --------- ----------------
<S> <C> <C> <C> <C>
DEM 1,496 ESB 122,807 82.09 Jan 1994 Dyno Finans A.S
DEM 5,583 FRF 19,477 0.2867 Jan 1994 Dresdner Bank
</TABLE>
1994:
1. FORWARD CONTRACT
<TABLE>
<CAPTION>
CONTRACT SUM
(THOUSANDS)
- -----------------------
BOUGHT SOLD FORWARD RATE DATE DUE CONTRACT PARTNER
- -------- ----------- ------------ --------- ----------------
<S> <C> <C> <C> <C>
DEM 883 ESB 73,858 83.65 Jan 1995 Dyno Finans A.S
</TABLE>
2. INTEREST RATE CAPS
<TABLE>
<CAPTION>
CURR. AMOUNT INTEREST RATE PERIOD CONTRACT PARTNER
- ------------ ------------- ------------------- ----------------
(THOUSANDS)
<S> <C> <C> <C> <C>
ESB 500,000 11% 1995 - August 1997 Dyno Finans A.S
</TABLE>
F-61
<PAGE> 157
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors of Dyno Industrier A.S:
We have audited the accompanying combined statement of revenues and direct
costs and expenses of the Fuel Tank System Division (the "Division") of Dyno
Industrier A.S for the year ended December 31, 1992. This financial statement is
the responsibility of the Division's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statement
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosure in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statement presents fairly, in all material
respects, the combined revenues and direct costs and expenses of the Division
for the year ended December 31, 1992, in conformity with accounting principles
generally accepted in the United States.
DELOITTE & TOUCHE
Oslo, Norway
May 30, 1995
F-62
<PAGE> 158
DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION
COMBINED STATEMENT OF REVENUES AND DIRECT COSTS AND EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
1992
----------
(AMOUNTS
IN
NOK 1,000)
<S> <C>
Revenues -- (Note 3)............................................................. 406,503
Cost of Goods Sold............................................................... 277,229
Gross Profit..................................................................... 129,274
Selling, General, and Administrative Expenses.................................... 177,524
----------
Operating Income (Loss).......................................................... (48,250)
=========
</TABLE>
F-63
<PAGE> 159
DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 1992
1 BASIS OF PRESENTATION
The financial statements includes the combined accounts of the Fuel Tank
System Division (the Division) of Dyno Industrier A.S (Dyno), a Norwegian
company. This division comprises production units in Norway, Great Britain,
Germany, France, Belgium and Spain which are involved in the development and
manufacture of plastic automotive fuel tank systems. All significant
transactions between the division's production units have been eliminated in
combination.
The financial statements of the Division's operating units have been
combined and prepared as a result of the Purchase and Sale Agreement between
Dyno and Walbro Corporation dated April 7, 1995. Walbro Corporation is
purchasing certain divisional assets of the entities in Norway, Great Britain,
Germany and Belgium, and the shares of the entities in France and Spain.
During the period covered by the combined financial statement the
Division's business was conducted as an integral part of Dyno's overall
operations. The financial statements include sales to and purchases of materials
to and from other Dyno business units at established prices. These amounts are
not necessarily indicative of the costs that will prevail for the Division
subsequent to the closing of the transaction described in the purchase
agreement.
The combined financial statement includes all revenues and costs and
expenses directly incurred by, or related to, the Division, including
depreciation and rental cost related to facilities used in the business. The
cost of administrative and marketing personnel and facilities in certain
locations are shared with, and allocated between, other Dyno divisions. The
financial statement does not reflect any Dyno corporate management or overhead
costs, or any provision for income taxes.
The accompanying combined statement of revenues and direct costs and
expenses has been prepared in conformity with general accepted accounting
principles in the United States.
2 ACCOUNTING POLICIES
Cost of Goods Sold
Inventories are valued at the lower of cost using the 'first-in-first-out'
method or at net realizable value. Cost for goods purchased is the purchase
price. Cost for goods in production and internally produced goods is the direct
manufacturing cost plus the appropriate portion of production overhead costs.
Depreciation
Property, plant and equipment are depreciated using the straight-line
method. The rates for calculating straight-line depreciation have been
determined based on an evaluation of the individual fixed asset's economic
lifetime as follows:
<TABLE>
<S> <C>
machinery and equipment....................................... 3 - 20 years
buildings..................................................... 20 - 33 years
</TABLE>
F-64
<PAGE> 160
DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
3 REVENUES BY COUNTRY OF CUSTOMER
<TABLE>
<CAPTION>
(IN NOK 1000)
<S> <C>
United Kingdom................................................. 81,474
Germany........................................................ 73,029
France......................................................... 105,684
Belgium........................................................ 3,322
Sweden......................................................... 111,568
Other.......................................................... 31,426
-------
Total................................................ 406,503
=======
</TABLE>
4 RELATED PARTY TRANSACTIONS
As described in Note 1, the Division is an integral part of Dyno and is
normally consolidated in the Dyno financial statements. Many of the Division's
production units share facilities with other divisions of Dyno.
The combined financial statement includes sales and purchases of various
products and services to and from Dyno and its affiliates in the normal course
of business totalling approximately (NOK 1,000) 2,177 and 24,274.
The production units in France and Germany leased certain equipment from an
affiliated company during the year. Total payments for the year under these
arrangements were (NOK 1,000) 9,917.
5 COMMITMENTS
The Division has various leases for certain facilities and machinery and
equipment. Total rental expense for the year was approximately (NOK 1,000)
22,922.
F-65
<PAGE> 161
DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
6/30/95 12/31/94
------- -------
(AMOUNTS IN NOK
1,000)
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................ 54,923 24,136
Notes receivable..................................................... 43,029 32,622
Accounts receivable -- Net........................................... 177,595 181,792
Amounts receivable from related entities............................. 10,381 28,980
Inventories:
Raw materials........................................................ 42,444 37,036
Work in progress..................................................... 32,671 22,005
Finished goods....................................................... 22,920 26,569
------- -------
Total Inventories............................................ 98,035 85,610
------- -------
Prepaid expenses and other current assets............................ 43,252 43,532
------- -------
Total Current Assets......................................... 427,215 396,672
======= =======
Property, Plant and Equipment -- Net................................... 396,147 396,665
Other Assets:
Long term receivables................................................ 3,905 16,602
Intangible assets -- Net............................................. 14,516 14,801
Deferred taxes....................................................... 7,566 11,130
Other................................................................ 3,299 3,605
------- -------
Total Other Assets........................................... 29,286 46,138
------- -------
Total Assets................................................. 852,648 839,475
======= =======
LIABILITIES AND SHAREHOLDERS' AND DIVISIONAL EQUITY
Current Liabilities:
Accounts payable..................................................... 179,262 147,465
Accrued liabilities.................................................. 59,151 79,919
Current portion of long term debt.................................... 63,862 102,388
Amounts payable to related entities.................................. 44,364 36,788
Notes payable........................................................ 30,516 30,792
Income taxes payable................................................. 4,743 1,596
------- -------
Total Current Liabilities.................................... 381,898 398,948
======= =======
Long Term Debt -- Less current portion................................. 110,833 100,050
Subordinated Loan...................................................... 8,845 9,511
Deferred Taxes......................................................... 26,841 22,777
Other Long Term Liabilities............................................ 16,445 20,531
Shareholders' and Divisional Equity.................................... 307,786 287,658
------- -------
Total Liabilities and Shareholders' and Divisional Equity.... 852,648 839,475
======= =======
</TABLE>
F-66
<PAGE> 162
DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION
COMBINED INCOME STATEMENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
6/30/95 6/30/94
------- -------
(AMOUNTS IN NOK 1,000)
(UNAUDITED)
<S> <C> <C>
Revenues.............................................................. 688,013 490,334
Cost of Goods Sold.................................................... 542,747 380,989
------- -------
Gross Profit.......................................................... 145,266 109,345
------- -------
Selling, General, and Administrative Expenses -- (Note 1)............. 110,752 101,572
------- -------
Operating Income...................................................... 34,514 7,773
------- -------
Other Income (Expense):
Interest expense.................................................... (10,106) (12,645)
Interest income..................................................... 3,496 2,888
Other expense -- Net................................................ (1,819) (1,473)
------- -------
Total Other Income (Expense)................................ (8,429) (11,230)
------- -------
Income (Loss) Before Taxes............................................ 26,085 (3,458)
------- -------
Income Taxes.......................................................... 9,929 8,636
------- -------
Net Income (Loss)........................................... 16,156 (12,094)
======= =======
</TABLE>
F-67
<PAGE> 163
DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------
6/30/95 6/30/94
------- --------
(AMOUNTS IN NOK
1,000)
(UNAUDITED)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)................................................... 16,156 (12,094)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................. 35,018 30,877
Change in deferred income taxes................................ 7,629 1,158
(Gain) loss on sale of property, plant and equipment........... (290) 1,328
Changes in operating assets and liabilities:
(Increase) decrease:
Accounts and notes receivable............................... (6,210) (58,445)
Inventories................................................. (12,425) (14,930)
Prepaid expenses and other current assets................... 280 20,334
Long-term receivables and other assets...................... 12,970 9,010
Increase (decrease):
Accounts payable............................................ 31,797 107,202
Accrued and other liabilities............................... (21,707) (31,800)
------- --------
Net cash provided by operating activities...................... 63,218 52,640
======= ========
Cash Flows From Investing Activities:
Purchases of property, plant and equipment.......................... (39,121) (36,061)
Proceeds from sale of property, plant and equipment................. 5,454 21,439
(Advances to) repayments from related entities -- net............... 26,175 (90,989)
------- --------
Net cash used in investing activities:.............................. (7,492) (105,611)
------- --------
Cash Flows From Financing Activities:
Borrowings of long-term debt........................................ 13,732 35,428
Repayments of long-term debt........................................ (6,661) (3,910)
Net change in related party long-term debt.......................... (33,585) (10,951)
Repayments of subordinated loans.................................... -- (39,676)
Contributed equity.................................................. 6,293 72,298
------- --------
Net cash provided by financing activities............................. (20,221) 53,189
------- --------
Foreign currency effects on cash flows................................ (4,718) (2,665)
Net increase (decrease) in cash and cash equivalents.................. 30,787 (2,447)
------- --------
Cash and cash equivalents at beginning of period...................... 24,136 25,285
------- --------
Cash and cash equivalents at end of period............................ 54,923 22,838
======= ========
</TABLE>
F-68
<PAGE> 164
DYNO INDUSTRIER A.S FUEL TANK SYSTEM DIVISION
NOTES TO THE COMBINED FINANCIAL STATEMENTS
1 ACCOUNTING POLICIES AND PRINCIPLES OF COMBINATION
The condensed combined interim financial statements and notes should be
read in conjunction with the combined financial statements and notes for the
fuel tank system division for the year ended December 31, 1994. The condensed
combined financial statements have been prepared in accordance with United
States generally accepted accounting principles. The interim combined financial
statements are unaudited and reflect all adjustments which are, in the opinion
of management, necessary to present fairly the results of operation for the
periods presented.
During the periods covered by the combined income statements the Division's
business was conducted as an integral part of Dyno Industrier A.S's overall
operations. The combined financial statements include sales to and purchases of
materials to and from other Dyno business units at established prices. They also
include various allocated costs and expenses which are not necessarily
indicative of the costs and expenses which would have resulted had the Division
been operated as a separate company. All of the allocations and estimates
reflected in the combined financial statements are based on assumptions that the
production units' and Dyno's management believes are reasonable. Additionally
certain management and overhead costs incurred by Dyno related to the Division
have been included in the combined financial statements. Such amounts totaled
4.0 and 1.9 NOK million for the three months ended June 30, 1995 and 1994,
respectively. These amounts have not been charged to the production units, but
have been included for presentation purposes. Total research and development
expense was 2.9 and 2.8 NOK million for the three months ended June 30, 1995 and
1994, respectively.
2 CONTINGENCIES
In 1994 a former agent of the Division filed a 19 FFR million
(approximately 24 NOK million) claim against Dyno Industrier A.S for breach of
the agent agreement related to procurement of materials for the production unit
in France. The litigation is still pending and Dyno intends to vigorously defend
its position. Although the final outcome cannot presently be determined, Dyno
has accrued a liability of approximately 6.7 NOK million which has been included
in the combined statements as it relates to the operations of the Division. In
accordance with the purchase and sale agreement (see Note 3), Dyno will retain
any obligations related to this claim.
3 SUBSEQUENT EVENT
In April 1995, Dyno signed a purchase and sale agreement with Walbro
Corporation. Walbro is purchasing certain divisional assets of the entities in
Norway, Great Britain, Germany and Belgium, and the shares of the entities in
France and Spain. The price of the acquisition will be approximately USD 124
million, subject to certain adjustments. The transaction is expected to close in
the summer of 1995.
F-69
<PAGE> 165
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER, OR A SOLICITATION
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 1
The Company............................. 1
Investment Considerations............... 9
Use of Proceeds of New Notes............ 13
Capitalization.......................... 14
The Exchange Offer...................... 14
The Company............................. 22
Pro Forma Unaudited Condensed
Consolidated Financial Data........... 24
Selected Financial and Operating Data--
Walbro Corporation.................... 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations--Walbro Corporation........ 29
Selected Financial and Operating Data--
Dyno.................................. 36
Management's Discussion and Analysis of
Results of Operations--Dyno........... 37
Business................................ 39
Management.............................. 51
Security Ownership of Certain Beneficial
Owners and Management................. 57
Certain Transactions.................... 58
Description of Other Indebtedness....... 59
Description of the New Notes............ 60
Certain U.S. Federal Income Tax
Consequences.......................... 84
Old Notes Registration Rights........... 86
Book Entry; Delivery and Form........... 87
Plan of Distribution.................... 89
Legal Matters........................... 89
Independent Public Accountants.......... 90
Index to Financial Statements........... F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
[LOGO]
WALBRO CORPORATION
DUE 2005, SERIES B
9 7/8% SENIOR NOTES
------------
PROSPECTUS
NOVEMBER 6, 1995
------------
------------------------------------------------------
------------------------------------------------------
<PAGE> 166
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting commissions and discounts) payable by the
Company in connection with the issuance and distribution of the New Notes
pursuant to the Prospectus contained in this Registration Statement. The Company
will pay all of these expenses.
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT
-----------
<S> <C>
Securities and Exchange Commission registration fee............... $ 37,931
Accountants fees and expenses..................................... 25,000
Legal fees and expenses........................................... 25,000
Exchange Agents fees and expenses................................. 5,000
Printing and engraving............................................ 5,000
Miscellaneous expenses............................................ 2,069
-------
Total...................................................... $ 100,000
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify any persons, including directors and officers, who are
(or are threatened to be made) parties to any threatened, pending or completed
legal action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of their being directors or officers of the
corporation. The indemnity may include expenses, attorneys' fees, judgments,
fines and amounts paid in settlement, provided such sums were actually and
reasonably incurred in connection with such action, suit or proceeding and
provided the director or officer acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, in the case of criminal proceedings, provided he had no reasonable cause to
believe that his conduct was unlawful. The corporation may indemnify directors
and officers in a derivative action (in which suit is brought by a stockholder
on behalf of the corporation) under the same conditions, except that no
indemnification is permitted without judicial approval if the director or
officer is adjudged liable to the corporation. If the director or officer is
successful on the merits or otherwise in defense of any actions referred to
above, the corporation must indemnify him against the expenses and attorneys'
fees he actually and reasonably incurred.
Article VIII of the Company's By-Laws provides that the Company shall
indemnify its officers and directors to the fullest extent permitted by Section
145.
Under an existing policy of insurance, the Company is entitled to be
reimbursed for certain indemnity payments it is required or permitted to make to
directors and officers of the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On July 27, 1995, the Company sold to the Initial Purchasers, in an action
exempt from the registration requirements of the Securities Act of 1933, as
amended, pursuant to Section 4(2) thereof, $110,000,000 in aggregate principal
amount of its Notes, less Initial Purchasers' discount of $2,750,600. In
accordance with the agreement pursuant to which the Initial Purchasers purchased
the Old Notes, the Initial Purchasers agreed to offer and sell such securities
only to "qualified institutional buyers" (as defined in Rule 144A under the
Securities Act), to a limited number of institutional "accredited investors" (as
defined in Rule 501(A)(1), (2), (3) or (7) under the Securities Act) and
pursuant to offers and sales that occur outside the United States within the
meaning of Regulation S under the Securities Act. Except for the transactions
described above there have not been any recent sales of unregistered securities.
II-1
<PAGE> 167
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<S> <C>
3.1* Restated Certificate of Incorporation of the Company, filed as Exhibit 3.1, to the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989
(the "Form 10-K").
3.2* By-laws of the Company, as amended, filed as Exhibit 3.2, to the Form 10-K.
4.1* Indenture for the Notes, dated as of July 27, 1995, among the Company, Walbro Engine
Management Corporation, Sharon Manufacturing Company, Whitehead Engineered Products,
Inc., and Bankers Trust Company, as Trustee (including form of Exchange Note), filed
as Exhibit 2.3 to the Company's Current Report on Form 8-K, dated June 27, 1995 (the
"Form 8-K").
4.2** Amended and Restated Credit Agreement dated as of September 22, 1995, among the
Company, certain of its subsidiaries, Comerica Bank, as agent, and Harris Bank, as
co-agent.
4.3** Purchase Agreement dated as of July 27, 1995 among the Company, Walbro Engine
Management Corporation, Sharon Manufacturing Company, Whitehead Engineered Products,
Inc., and the Initial Purchasers.
4.4** Registration Rights Agreement, dated July 21, 1995, among the Company, Walbro Engine
Management Corporation, Sharon Manufacturing Company, Whitehead Engineered Products,
Inc., and the Initial Purchasers.
4.5* Form of Exchange Note (included in Exhibit 4.1).
4.6* Shareholder Rights Plan, dated December 8, 1988, filed as the Exhibit to the
Company's Registration Statement on Form 8-A for Shareholder Stock Purchase Rights
filed December 12, 1988.
4.7* First Amendment to Rights Agreement, dated February 6, 1991, filed as Exhibit 4.8 to
the Company's 1990 Annual Report on Form 10-K.
4.8* Loan Agreement between City of Ligonier, Indiana and Sharon Manufacturing Company,
dated as of June 1, 1992, filed as Exhibit 4.12 to the Company's 1992 Annual Report
on Form 10-K.
4.9* Loan Agreement between Walbro Automotive Corporation and the Town of Ossian,
Indiana, dated as of December 1, 1993, filed as Exhibit 4.13 to the Company's 1993
Annual Report on Form 10-K.
4.10* Note Agreement among the Company and the purchasers named therein, dated as of
October 1, 1994, relating to the 7.68% Senior Notes of the Company, filed as Exhibit
4.9 to the Company's 1994 Annual Report on Form 10-K.
5 Form of Opinion of Katten Muchin & Zavis as to the legality of the securities being
registered (including consent).
10.1* Purchase and Sale Agreement dated as of April 7, 1995 by and between the Company and
Dyno filed as Exhibit 2.1 to the Company's Quarterly Report on Form 10-Q, for the
quarter ended March 31, 1995.
10.2* Addendum to Purchase and Sale Agreement by and between the Company and Dyno dated as
of July 27, 1995, filed as Exhibit 2.2 to the Form 8-K.
10.3* The Company's 1983 Incentive Stock Option Plan, filed as the Exhibit to the
Company's Registration Statement on Form S-8, filed November 15, 1989.
10.4* Joint Venture Agreement between the Company and Mitsuba Electric Manufacturing
Company, Ltd., dated December 12, 1986, filed as Exhibit 10.4 to the Company's 1986
Annual Report on Form 10-K.
10.5* The Company's Equity Based Long-Term Incentive Plan, filed as Exhibit 4.5 to the
Company's Registration Statement on Form S-8, filed June 15, 1992.
10.6* Executive Disability Plan adopted July 8, 1988, filed as Exhibit 10.10 to the
Company's 1988 Annual Report on Form 10-K.
10.7* Retirement Income Plan for Directors, dated February 9, 1988, filed as Exhibit 10.11
to the Company's 1988 Annual Report on Form 10-K.
</TABLE>
II-2
<PAGE> 168
<TABLE>
<S> <C>
10.8* Equipment Leasing Agreement between the Company and NEMLC Leasing Associates No. 3,
without supplements, dated July 1, 1988, filed as Exhibit 10.13 to the Company's
1988 Annual Report on Form 10-K.
10.9* The Company's Employee Stock Ownership Plan, dated August 15, 1989, filed as Exhibit
10.14 to the Form 10-K.
10.10* Walbro Engine Management Incentive Compensation Plan, filed as Exhibit 10.21 to the
Company's 1990 Annual Report on Form 10-K.
10.11* Joint Venture Agreement, dated June 17, 1991, between the Company and Jaeger S.A.,
an indirect, majority-controlled subsidiary of Magneti Marelli S.p.A., relating to
the Marwal Systems S.A. joint venture, filed as Exhibit 10.23 to the Company's
Registration Statement on Form S-2, File No. 33-41425.
10.12* Joint Venture Agreement between the Company and Jaeger S.A., dated as of January 1,
1993, relating to the Marwal do Brasil joint venture, filed as Exhibit 10.10 to the
Company's 1992 Annual Report on Form 10-K.
10.13* Agreement among AB Svenska Elektromagneter, Opcon AB, Cartona Fastighetsforvaltning
K.B., Erling Edmundson, Four Seasons Venture Capital AB, SEM-Walbro Corporation and
the Company, effective as of January 2, 1991, filed as Exhibit 10.20 to the
Company's 1991 Annual Report on Form 10-K.
10.14* The Company's Advantage Plan, filed as the Exhibit to the Company's Registration
Statement on Form S-8, filed October 28, 1991.
10.15* Aircraft Lease Agreement between the Company and C.I.T. Leasing Corporation, dated
as of October 27, 1992, filed as Exhibit 10.13 to the Company's 1992 Annual Report
on Form 10-K.
10.16* Joint Venture Contract among Walbro Engine Management Corporation, Fujian Fuding
Carburetor Factory and Twin Winner Trading Co., Ltd., dated December 30, 1993,
relating to the Fujian Hualong Carburetor Co. Ltd. joint venture, filed as Exhibit
to the Company's 1993 Annual Report on Form 10-K.
10.17* Assistance Agreement among the State of Connecticut, acting by the Department of
Economic Development, and Walbro Automotive Corporation and Whitehead Engineered
Products, dated February 17, 1995, filed as Exhibit 10.24 to the Company's 1994
Annual Report on Form 10-K.
10.18* Agreement among the Company, Walbro Automotive Corporation and Magneti Marelli
France S.A., dated February 7, 1995, filed as Exhibit 10.25 to the Company's 1994
Annual Report on Form 10-K.
10.19* Joint Venture Agreement between the Company and Daewoo Precision Industries, Ltd.,
dated November 30, 1994, filed as Exhibit 10.26 to the Company's 1994 Annual Report
on Form 10-K.
12.1** Computation of ratio of earnings to fixed charges.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Arthur Andersen & Co. GmbH.
23.3 Consent of Deloitte & Touche.
23.4 Consent of Katten Muchin & Zavis (contained in its opinion to be filed as Exhibit 5
hereto).
24** Power of Attorney.
25** Statement of eligibility under the Trust Indenture Act of 1939, as amended, on Form
T-1 of Bankers Trust Company, as Trustee under the Indenture.
99.1 Form of Letter of Transmittal for New Notes.
99.2 Form of Notice of Guaranteed Delivery for New Notes.
99.3 Letter to Brokers.
99.4 Letter to Clients.
99.5 Instruction to Registered Holder and/or Book Entry Transfer Participant from
Beneficial Owner.
99.6 Guidelines for Certificate of Taxpayer Identification Number on Substitute Form W-9.
</TABLE>
- -------------------------
* Incorporated by reference.
** Previously filed.
II-3
<PAGE> 169
(b) Financial Statement Schedules.
Report of Independent Public Accountants
SCHEDULE II Walbro Corporation and Subsidiaries
Supplemental Note to Consolidated Financial Statements
- Valuation and Qualifying Accounts.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE> 170
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-4 and has duly caused this Amendment No. 1
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Cass City, State of Michigan on the
3rd day of November, 1995.
WALBRO CORPORATION
By: /s/ MICHAEL A. SHOPE
------------------------------------
Michael A. Shope
Chief Financial Officer
and Treasurer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- --------------------------------- -----------------
<C> <S> <C>
* Chairman of the Board, President November 3, 1995
- ---------------------------------------- and Chief Executive Officer
Lambert E. Althaver (Principal Executive Officer)
* Vice President and Director November 3, 1995
- ----------------------------------------
Robert S. Walpole
/s/ MICHAEL A. SHOPE Chief Financial Officer and November 3, 1995
- ---------------------------------------- Treasurer (Principal Financial
Michael A. Shope and Accounting Officer)
* Director November 3, 1995
- ----------------------------------------
William T. Bacon, Jr.
* Director November 3, 1995
- ----------------------------------------
Frank E. Bauchiero
* Director November 3, 1995
- ----------------------------------------
Herbert M. Kennedy
* Director November 3, 1995
- ----------------------------------------
Vernon E. Oechsle
* Director November 3, 1995
- ----------------------------------------
Robert D. Tuttle
* Director November 3, 1995
- ----------------------------------------
John E. Utley
*By: /s/ MICHAEL A. SHOPE
- ----------------------------------------
Michael A. Shope
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 171
SIGNATURES
Each of the Guarantors pursuant to the requirements of the Securities Act
of 1933, as amended, certifies that it has reasonable grounds to believe that it
meets all the requirements for filing on Form S-4 and has duly caused this
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cass City, State of
Michigan on the 3rd day of November, 1995.
WALBRO AUTOMOTIVE CORPORATION
WALBRO ENGINE MANAGEMENT CORPORATION
SHARON MANUFACTURING COMPANY
WHITEHEAD ENGINEERED PRODUCTS, INC.
By: /s/ MICHAEL A. SHOPE
-----------------------------------
Michael A. Shope
Treasurer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- -------------------------------- ------------------
<C> <S> <C>
* Chairman of the Board, President November 3, 1995
- ---------------------------------------- and Chief Executive Officer
Lambert E. Althaver (Principal Executive Officer)
/s/ MICHAEL A. SHOPE Treasurer (Principal Financial November 3, 1995
- ---------------------------------------- and Accounting Officer)
Michael A. Shope
*By: /s/ MICHAEL A. SHOPE
- ----------------------------------------
Michael A. Shope
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 172
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ------------------------------------------------------------------------ --------
<S> <C> <C>
3.1* Restated Certificate of Incorporation of the Company, filed as Exhibit
3.1, to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989 (the "Form 10-K").
3.2* By-laws of the Company, as amended, filed as Exhibit 3.2, to the Form
10-K.
4.1* Indenture for the Notes, dated as of July 27, 1995, among the Company,
Walbro Engine Management Corporation, Sharon Manufacturing Company,
Whitehead Engineered Products, Inc., and Bankers Trust Company, as
Trustee (including form of Exchange Note), filed as Exhibit 2.3 to the
Company's Current Report on Form 8-K, dated June 27, 1995 (the "Form
8-K").
4.2** Amended and Restated Credit Agreement dated as of September 22, 1995,
among the Company, certain of its subsidiaries, Comerica Bank, as agent,
and Harris Bank, as co-agent.
4.3** Purchase Agreement dated as of July 27, 1995 among the Company, Walbro
Engine Management Corporation, Sharon Manufacturing Company, Whitehead
Engineered Products, Inc., and the Initial Purchasers.
4.4** Registration Rights Agreement, dated July 21, 1995, among the Company,
Walbro Engine Management Corporation, Sharon Manufacturing Company,
Whitehead Engineered Products, Inc., and the Initial Purchasers.
4.5* Form of Exchange Note (included in Exhibit 4.1).
4.6* Shareholder Rights Plan, dated December 8, 1988, filed as the Exhibit to
the Company's Registration Statement on Form 8-A for Shareholder Stock
Purchase Rights filed December 12, 1988.
4.7* First Amendment to Rights Agreement, dated February 6, 1991, filed as
Exhibit 4.8 to the Company's 1990 Annual Report on Form 10-K.
4.8* Loan Agreement between City of Ligonier, Indiana and Sharon
Manufacturing Company, dated as of June 1, 1992, filed as Exhibit 4.12
to the Company's 1992 Annual Report on Form 10-K.
4.9* Loan Agreement between Walbro Automotive Corporation and the Town of
Ossian, Indiana, dated as of December 1, 1993, filed as Exhibit 4.13 to
the Company's 1993 Annual Report on Form 10-K.
4.10* Note Agreement among the Company and the purchasers named therein, dated
as of October 1, 1994, relating to the 7.68% Senior Notes of the
Company, filed as Exhibit 4.9 to the Company's 1994 Annual Report on
Form 10-K.
5 Form of Opinion of Katten Muchin & Zavis as to the legality of the
securities being registered (including consent).
10.1* Purchase and Sale Agreement dated as of April 7, 1995 by and between the
Company and Dyno filed as Exhibit 2.1 to the Company's Quarterly Report
on Form 10-Q, for the quarter ended March 31, 1995.
10.2* Addendum to Purchase and Sale Agreement by and between the Company and
Dyno dated as of July 27, 1995, filed as Exhibit 2.2 to the Form 8-K.
10.3* The Company's 1983 Incentive Stock Option Plan, filed as the Exhibit to
the Company's Registration Statement on Form S-8, filed November 15,
1989.
10.4* Joint Venture Agreement between the Company and Mitsuba Electric
Manufacturing Company, Ltd., dated December 12, 1986, filed as Exhibit
10.4 to the Company's 1986 Annual Report on Form 10-K.
10.5* The Company's Equity Based Long-Term Incentive Plan, filed as Exhibit
4.5 to the Company's Registration Statement on Form S-8, filed June 15,
1992.
10.6* Executive Disability Plan adopted July 8, 1988, filed as Exhibit 10.10
to the Company's 1988 Annual Report on Form 10-K.
</TABLE>
<PAGE> 173
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ------------------------------------------------------------------------ --------
<S> <C> <C>
10.7* Retirement Income Plan for Directors, dated February 9, 1988, filed as
Exhibit 10.11 to the Company's 1988 Annual Report on Form 10-K.
10.8* Equipment Leasing Agreement between the Company and NEMLC Leasing
Associates No. 3, without supplements, dated July 1, 1988, filed as
Exhibit 10.13 to the Company's 1988 Annual Report on Form 10-K.
10.9* The Company's Employee Stock Ownership Plan, dated August 15, 1989,
filed as Exhibit 10.14 to the Form 10-K.
10.10* Walbro Engine Management Incentive Compensation Plan, filed as Exhibit
10.21 to the Company's 1990 Annual Report on Form 10-K.
10.11* Joint Venture Agreement, dated June 17, 1991, between the Company and
Jaeger S.A., an indirect, majority-controlled subsidiary of Magneti
Marelli S.p.A., relating to the Marwal Systems S.A. joint venture, filed
as Exhibit 10.23 to the Company's Registration Statement on Form S-2,
File No. 33-41425.
10.12* Joint Venture Agreement between the Company and Jaeger S.A., dated as of
January , 1993, relating to the Marwal do Brasil joint venture, filed as
Exhibit 10.10 to the Company's 1992 Annual Report on Form 10-K.
10.13* Agreement among AB Svenska Elektromagneter, Opcon AB, Cartona
Fastighetsforvaltning K.B., Erling Edmundson, Four Seasons Venture
Capital AB, SEM-Walbro Corporation and the Company, effective as of
January 2, 1991, filed as Exhibit 10.20 to the Company's 1991 Annual
Report on Form 10-K.
10.14* The Company's Advantage Plan, filed as the Exhibit to the Company's
Registration Statement on Form S-8, filed October 28, 1991.
10.15* Aircraft Lease Agreement between the Company and C.I.T. Leasing
Corporation, dated as of October 27, 1992, filed as Exhibit 10.13 to the
Company's 1992 Annual Report on Form 10-K.
10.16* Joint Venture Contract among Walbro Engine Management Corporation,
Fujian Fuding Carburetor Factory and Twin Winner Trading Co., Ltd.,
dated December 30, 1993, relating to the Fujian Hualong Carburetor Co.
Ltd. joint venture, filed as Exhibit to the Company's 1993 Annual Report
on Form 10-K.
10.17* Assistance Agreement among the State of Connecticut, acting by the
Department of Economic Development, and Walbro Automotive Corporation
and Whitehead Engineered Products, dated February 17, 1995, filed as
Exhibit 10.24 to the Company's 1994 Annual Report on Form 10-K.
10.18* Agreement among the Company, Walbro Automotive Corporation and Magneti
Marelli France S.A., dated February 7, 1995, filed as Exhibit 10.25 to
the Company's 1994 Annual Report on Form 10-K.
10.19* Joint Venture Agreement between the Company and Daewoo Precision
Industries, Ltd., dated November 30, 1994, filed as Exhibit 10.26 to the
Company's 1994 Annual Report on Form 10-K.
12.1** Computation of ratio of earnings to fixed charges.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Arthur Andersen & Co. GmbH.
23.3 Consent of Deloitte & Touche.
23.4 Consent of Katten Muchin & Zavis (contained in its opinion to be filed
as Exhibit 5 hereto).
24** Power of Attorney.
25** Statement of eligibility under the Trust Indenture Act of 1939, as
amended, on Form T-1 of Bankers Trust Company, as Trustee under the
Indenture.
99.1 Form of Letter of Transmittal for New Notes.
99.2 Form of Notice of Guaranteed Delivery for New Notes.
</TABLE>
<PAGE> 174
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ------------------------------------------------------------------------ --------
<S> <C> <C>
99.3 Letter to Brokers.
99.4 Letter to Clients.
99.5 Instruction to Registered Holder and/or Book Entry Transfer Participant
from Beneficial Owner.
99.6 Guidelines for Certificate of Taxpayer Identification Number on
Substitute Form W-9.
</TABLE>
- -------------------------
* Incorporated by reference.
** Previously filed.
<PAGE> 175
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Walbro Corporation:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in Walbro Corporation and
Subsidiaries annual report to shareholders included in this registration
statement, and have issued our report thereon dated February 14, 1995. Our
audits were made for the purpose of forming an opinion on those statements
taken as a whole. The supplemental note to consolidated financial statements
on page S-2 is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not a required part of the basic consolidated financial statements. The
information contained in this supplemental note has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 14, 1995.
S-1
<PAGE> 176
SCHEDULE II
WALBRO CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
VALUATION AND QUALIFYING ACCOUNTS
Following is a summary of changes in the valuation and qualifying
accounts for the three years ended December 31, 1994:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
RESERVE FOR LOSS ON DISCONTINUANCE AND PLANT CLOSINGS:
Balance Beginning of Year $ -- $ 258 $ 1,400
Additions charged to operations -- -- --
Deductions (A) -- (258) (1,142)
------- ------- --------
Balance End of Year $ -- $ -- $ 258
======= ======= ========
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Balance Beginning of Year $ 413 $ 340 $ 162
Additions charged to operations 115 86 178
Deductions for uncollectible accounts
written off, net of recoveries (160) (13) --
-------- ------- --------
Balance End of Year $ 368 $ 413 $ 340
======== ======= ========
RESERVE FOR INVENTORY VALUATION:
Balance Beginning of Year $ 482 $ 669 $ 70
Additions charged to operations 159 2 644
Deductions for inventory disposal (403) (189) (45)
-------- ------- --------
Balance End of Year $ 238 $ 482 $ 669
======== ======= ========
ALLOWANCE FOR NOTES RECEIVABLE:
Balance Beginning of Year $ 214 214 $ --
Additions charged to operations 240 -- 214
Deductions -- -- --
-------- ------- --------
Balance End of Year $ 454 $ 214 $ 214
======== ======= ========
VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS:
Balance Beginning of Year $ 355 $ -- $ --
Additions charged to operations 389 355 --
Deductions -- -- --
-------- ------- --------
Balance End of Year $ 744 $ 355 $ --
======== ======= ========
</TABLE>
- ------------------
(A) Represents costs of discontinuance incurred subsequent to decision date.
S-2
<PAGE> 1
EXHIBIT 5
November 6, 1995
Walbro Corporation
6242 Garfield Street
Cass City, Michigan 48726
Re: Registration Statement on Form S-4 - File No. 33-62951
Ladies and Gentlemen:
We have acted as counsel for Walbro Corporation, a Delaware
corporation (the "Company"), in connection with the preparation and filing of a
registration statement on Form S-4, File No. 33-62951 (the "Registration
Statement") with the Securities and Exchange Commission under the Securities
Act of 1933, as amended. The Registration Statement relates to the exchange of
up to an aggregate principal amount of $110,000,000 of its 9 7/8% Senior Notes
Due 2005, Series B (the "New Notes") for up to an aggregate principal amount of
$110,000,000 of its outstanding 9 7/8% Senior Notes Due 2005, Series A (the
"Old Notes"). Capitalized terms used but not defined herein shall have the
meanings as set forth in the Registration Statement.
In connection with this opinion, we have relied as to matters of fact,
without investigation, upon certificates of public officials and others and
upon affidavits, certificates and written statements of directors, officers and
employees of, and the accountants for, the Company. We have also examined
originals or copies, certified or otherwise identified to our satisfaction, of
such instruments, documents and records as we have deemed relevant and
necessary to examine for the purpose of this opinion, including (a) the
Registration Statement, (b) the Restated Certificate of Incorporation of the
Company, (c) the By-laws of the Company, (d) the minutes of meetings of the
Board of Directors of the Company, (e) the Indenture for the Notes, (f) the
Form of New Note, and (g) the Statements on Form T-1 under the Trust Indenture
Act of 1939, as amended, relating to the Indenture.
In connection with this opinion, we have assumed the accuracy and
completeness of all documents and records that we have reviewed, the
genuineness of all signatures, the due authority of the parties signing such
documents, the authenticity of the documents submitted to us as originals and
the conformity to authentic original documents of all documents submitted to us
as certified, conformed or reproduced copies. We have further assumed that:
(i) All natural persons involved in the transactions contemplated
by the Registration Statement (the "Offering") and the
Indenture have
<PAGE> 2
Walbro Corporation
November 6, 1995
Page 2
sufficient legal capacity to enter into and perform their
respective obligations under the Indenture and to carry out
their roles in the Offering.
(ii) Each party involved in the Offering other than the Company
(collectively the "Other Parties") has satisfied all legal
requirements that are applicable to it to the extent necessary
to make the Indenture enforceable against it.
(iii) Each of the Other Parties has complied with all legal
requirements pertaining to its status as such related to its
rights to enforce the Indenture against the Company.
Based upon and subject to the foregoing, it is our opinion that:
(1) The Company is a corporation duly incorporated and existing
under the laws of the State of Delaware.
(2) The New Notes covered by the Registration Statement, when
executed in the manner set forth in the Indenture and issued
and delivered in the manner set forth in the Registration
Statement, will be legally issued and will be binding
obligations of the Company under the terms of the Indenture,
except (i) as enforceability may be limited by the effects of
bankruptcy, insolvency, reorganization, receivership,
moratorium and other similar laws affecting the rights and
remedies of creditors generally; (ii) as enforceability may be
limited by the effects of general principles of equity,
whether applied by a court of law or equity; (iii) as rights
to indemnity or contribution under the same may be limited by
federal or state securities laws or the public policy
underlying such laws; and (iv) that we express no opinion as
to the waiver of the defense of usury.
This opinion is given as of the date hereof and we assume no
obligation to advise you of changes that may hereafter be brought to our
attention.
<PAGE> 3
Walbro Corporation
November 6, 1995
Page 3
We hereby consent to the reference to our name in the Registration
Statement under the caption "Legal Matters" and further consent to the filing
of this opinion as Exhibit 5 to the Registration Statement.
Very truly yours,
KATTEN MUCHIN & ZAVIS
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated February 14, 1995 (except with respect to the matters discussed in Notes
20 and 21, as to which the date is June 30, 1995), with respect to the
consolidated balance sheets of Walbro Corporation and Subsidiaries as of
December 31, 1994, 1993 and 1992 and the related consolidated statements of
income, stockholders' equity and cash flows for the years then ended, included
in or made a part of this Amendment No. 1 to this registration statement.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
November 6, 1995
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated May 12, 1995, with respect to the combined balance sheet of the Fuel
Tank Division of Dyno Industrier A.S as of December 31, 1994 and the related
combined statements of income, stockholders' and divisional equity, and cash
flows for the year then ended, included in or made a part of this registration
statement.
ARTHUR ANDERSEN & Co. G.m.b.H.
Stuttgart, Germany,
November 2, 1995
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation of our report dated May 12, 1995 of the combined
balance sheet of the Fuel Tank System Division of Dyno Industrier A.S as of
December 31, 1993 and the related combined statements of income and cash flows
for the year then ended, and our report dated May 30, 1995 of the combined
statement of revenues and direct costs and expenses of the Fuel Tank System
Division of Dyno Industrier A.S for the year ended December 31, 1992, which
reports are included in this Amendment No. 1 to this Registration Statement on
form S-4 of Walbro Corporation.
DELOITTE & TOUCHE
Oslo, Norway
November 6, 1995
<PAGE> 1
[WALBRO LOGO]
LETTER OF TRANSMITTAL
FOR
TENDER OF 9 7/8% SENIOR NOTES DUE 2005, SERIES A
IN EXCHANGE FOR
9 7/8% SENIOR NOTES DUE 2005, SERIES B
WALBRO CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON DECEMBER 8, 1995, UNLESS EXTENDED (THE "EXPIRATION DATE").
OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXPIRATION DATE.
DELIVER TO THE EXCHANGE AGENT:
BANKERS TRUST COMPANY
By Hand/Overnight Courier: By Mail:
Bankers Trust Company Bankers Trust Company
Corporate Trust & Agency Group Corporate Trust & Agency Group
Receipt & Delivery Window Reorganization Department
123 Washington St., 1st Floor P.O. Box 1458
New York, NY 10006 Church Street Station
New York, NY 10008-1458
By Facsimile:
(212) 250-3290 and (212) 250-6275
Confirm by Telephone:
(212) 250-6270
------------------
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL
IS COMPLETED.
The undersigned hereby acknowledges receipt and review of the Prospectus
dated November 6, 1995 (the "Prospectus") of Walbro Corporation (the "Company")
and this Letter of Transmittal (the "Letter of Transmittal"), which together
describe the Company's offer (the "Exchange Offer") to exchange its 9 7/8%
Senior Notes due July 15, 2005, Series B (the "New Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement of which the Prospectus is a part, for a
like principal amount of its issued and outstanding 9 7/8% Senior Notes due July
15, 2005, Series A (the "Old Notes"). Capitalized terms used but not defined
herein have the respective meaning given to them in the Prospectus.
The Company reserves the right, at any time or from time to time, to extend
the Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the latest time and date in which the Exchange Offer is extended. The
Company shall notify the holders of the Old Notes of any extension by oral
<PAGE> 2
or written notice prior to 9:00 A.M., New York City time, on the next business
day after the previously scheduled Expiration Date.
This Letter of Transmittal is to be used by a Holder of Old Notes either if
original Old Notes are to be forwarded herewith or if delivery of Old Notes, if
available, is to be made by book-entry transfer to the account maintained by the
Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer
Facility") pursuant to the procedures set forth in the Prospectus under the
caption "The Exchange Offer-Book-Entry Transfer." Holders of Old Notes whose Old
Notes are not immediately available, or who are unable to deliver their Old
Notes and all other documents required by this Letter of Transmittal to the
Exchange Agent on or prior to the Expiration Date, or who are unable to complete
the procedure for book-entry transfer on a timely basis, must tender their Old
Notes according to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer-Guaranteed Delivery
Procedures." See Instruction 1. Delivery of documents to the Book-Entry Transfer
Facility does not constitute delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person in
whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
Holder. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must complete
this Letter of Transmittal in its entirety.
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Old Notes to which this Letter of Transmittal relates. If
the space below is inadequate, list the registered numbers and principal amounts
on a separate signed schedule and affix the list to this Letter of Transmittal.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES TENDERED
- -------------------------------------------------------------------------------------------------------------------------
AGGREGATE
PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S), AMOUNT PRINCIPAL
EXACTLY AS NAMES(S) APPEAR(S) ON OLD NOTES REGISTERED REPRESENTED AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBER(S)* BY NOTE(S) TENDERED**
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
TOTAL
- -------------------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry Holders.
** Unless otherwise indicated, any tendering Holder of Old Notes will be deemed to have tendered the entire aggregate
principal amount represented by such Old Notes. All tenders must be in integral multiples of $1,000.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
/ / CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE
INSTITUTIONS ONLY):
Name of Tendering Institution:
--------------------------------------------------
Account Number:
-----------------------------------------------------------------
Transaction Code Number:
--------------------------------------------------------
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING (FOR
USE BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered Holder(s) of Old Notes:
-----------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-----------------------------
Window Ticket Number (if available):
--------------------------------------------
Name of Eligible Institution that Guaranteed Delivery:
-------------------------
Account Number (if delivered by book-entry transfer):
---------------------------
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
---------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of New
Notes. If the undersigned is a broker-dealer that will receive New Notes for its
own account in exchange for Old Notes, it acknowledges that the Old Notes were
acquired as a result of market-making activities or other trading activities and
that it will deliver a prospectus in connection with any resale of such New
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company for exchange the principal amount of Old Notes
indicated above. Subject to and effective upon the acceptance for exchange of
the principal amount of Old Notes tendered in accordance with this Letter of
Transmittal, the undersigned hereby exchanges, assigns and transfers to the
Company all right, title and interest in and to the Old Notes tendered for
exchange hereby. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent, the agent and attorney-in-fact of the undersigned (with full
knowledge that the Exchange Agent also acts as the agent of the Company in
connection with the Exchange Offer) with respect to the tendered Old Notes with
full power of substitution to (i) deliver such Old Notes, or transfer ownership
of such Old Notes on the account books maintained by the Book-Entry Transfer
Facility, to the Company and deliver all accompanying evidences of transfer and
authenticity, and (ii) present such Old Notes for transfer on the books of the
Company and receive all benefits and otherwise exercise all rights of beneficial
ownership of such Old Notes, all in accordance with the terms of the Exchange
Offer. The power of attorney granted in this paragraph shall be deemed to be
irrevocable and coupled with an interest.
<PAGE> 4
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the Old Notes
tendered hereby and to acquire the New Notes issuable upon the exchange of such
tendered Old Notes, and that the Company will acquire good and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim, when the same are accepted
for exchange by the Company.
The undersigned acknowledge(s) that this Exchange Offer is being made in
reliance upon interpretations contained in no-action letters issued to third
parties by the staff of the Securities and Exchange Commission (the
"Commission") that the New Notes issued in exchange for the Old Notes pursuant
to the Exchange Offer may be offered for resale, resold and otherwise
transferred by Holders thereof (other than any such Holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act), 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 are not engaging
in and do not intend to engage in a distribution of the New Notes and have no
arrangement or understanding with any person to participate in a distribution of
such New Notes. The undersigned hereby further represent(s) to the Company that
(i) any New Notes acquired in exchange for Old Notes tendered hereby are being
acquired in the ordinary course of business of the person receiving such New
Notes, whether or not the undersigned, (ii) neither the undersigned not any such
other person is engaging in or intends to engage in a distribution of the New
Notes, (iii) neither the undersigned not any such other person has an
arrangement or understanding with any person to participate in the distribution
of such New Notes, and (iv) neither the Holder not any such other person is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company or,
if it is an affiliate, it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable.
If the undersigned or the person receiving the New Notes is a broker-dealer
that is receiving New Notes for its own account in exchange for Old Notes that
were acquired as a result of market-making activities or other trading
activities, the undersigned acknowledges that it or such other person will
deliver a prospectus in connection with any resale of such New Notes; however,
by so acknowledging and by delivering a prospectus, the undersigned will not be
deemed to admit that the undersigned or such other person is an "underwriter"
within the meaning of the Securities Act. The undersigned acknowledges that if
the undersigned is participating in the Exchange Offer for the purpose of
distributing the New Notes (i) the undersigned cannot rely on the position of
the staff of the Commission in certain no-action letters and, in the absence of
an exemption therefrom, must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction of the New Notes, in which case the registration statement
must contain the selling security holder information required by Item 507 or
Item 508, as applicable, of Regulation S-K of the Commission, and (ii) failure
to comply with such requirements in such instance could result in the
undersigned incurring liability under the Securities Act for which the
undersigned is not indemnified by the Company.
If the undersigned or the person receiving the New Notes is an "affiliate"
(as defined in Rule 405 under the Securities Act), the undersigned represents to
the Company that the undersigned understands and acknowledges that the New Notes
may not be offered for resale, resold or otherwise transferred by the
undersigned or such other person without registration under the Securities Act
or an exemption therefrom.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the Old Notes
tendered hereby, including the transfer of such Old Notes on the account books
maintained by the Book-Entry Transfer Facility.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange validly tendered Old Notes when, as and if the Company
gives oral or written notice thereof to the Exchange Agent. Any tendered Old
Notes that are not accepted for exchange pursuant to the Exchange Offer for any
reason will be returned, without expense, to the undersigned at the address
shown below or at a different address as may be indicated herein under "Special
Delivery Instructions" as promptly as practicable after the Expiration Date.
<PAGE> 5
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned acknowledges that the Company's acceptance of properly
tendered Old Notes pursuant to the procedures described under the caption "The
Exchange Offer--Procedures for Tendering" in the Prospectus and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Company upon the terms and subject to the conditions of the Exchange
Offer.
Unless otherwise indicated under "Special Issuance Instructions," please
issue the New Notes issued in exchange for the Old Notes accepted for exchange
and return any Old Notes not tendered or not exchanged, in the name(s) of the
undersigned. Similarly, unless otherwise indicated under "Special Delivery
Instructions," please mail or deliver the New Notes issued in exchange for the
Old Notes accepted for exchange and any Old Notes not tendered or not exchanges
(and accompanying documents, as appropriate) to the undersigned at the address
shown below the undersigned's signature(s). In the event that both "Special
Issuance Instructions" and "Special Delivery Instructions" are completed, please
issue the New Notes issued in exchange for the Old Notes accepted for exchange
in the name(s) of, and return any Old Notes not tendered or not exchanged to,
the person(s) so indicated. The undersigned recognizes that the Company has no
obligation pursuant to the "Special Issuance Instructions" and "Special Delivery
Instructions" to transfer any Old Notes from the name of the registered holer(s)
thereof if the Company does not accept for exchange any of the Old Notes so
tendered for exchange.
<PAGE> 6
- ----------------------------------------------------------
- ----------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY (i) if Old
Notes in a principal amount not
tendered, or New Notes issued in
exchange for Old Notes accepted for
exchange, are to be issued in the
name of someone other than the
undersigned, or (ii) if Old Notes
tendered by book-entry transfer which
are not exchanged are to be returned
by credit to an account maintained by
at the Book-Entry Transfer Facility.
Issue New Notes and/or Old Notes to:
Name(s):
-----------------------------
-------------------------------------
(Please Type or Print)
Address:
-----------------------------
-------------------------------------
(Include Zip Code)
-------------------------------------
(Tax Identification or Social
Security No.)
(Complete Substitute Form W-9)
/ / Credit unexchanged Old Notes
delivered by book-entry transfer
to the Book-Entry Transfer
Facility set forth below:
-------------------------------------
(Book-Entry Transfer Facility Account
Number, if applicable)
- ----------------------------------------------------------
- ----------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
(Complete Accompanying Substitute Form W-9 on Reverse Side)
<TABLE>
<S> <C> <C>
X
------------------------------------------------------------------------- ---------------------
Date
X
------------------------------------------------------------------------- ---------------------
Date
</TABLE>
Area Code and Telephone Number:
-----------------------------------------------
The above lines must be signed by the registered Holder(s) of Old Notes
as name(s) appear(s) on the Old Notes or on a security position listing, or by
person(s) authorized to become registered Holder(s) by a properly completed
bond power from the registered Holder(s), a copy of which must be transmitted
with this Letter of Transmittal. If Old Notes to which this Letter of
Transmittal relate are held of record by two or more joint Holders, then all
such Holders must sign this Letter of Transmittal. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
then such person must (i) set forth his or her full title below and (ii)
unless waived by the Company, submit evidence satisfactory to the Company of
such person's authority so to act. See Instruction 5 regarding the completion
of this Letter of Transmittal, printed below.
Name(s):
----------------------------------------------------------------------
------------------------------------------------------------------------------
(Please Type or Print)
Capacity:
---------------------------------------------------------------------
Address:
----------------------------------------------------------------------
------------------------------------------------------------------------------
(Include Zip Code)
MEDALLION SIGNATURE GUARANTEE
(If Required by Instruction 5)
Certain signatures must be Guaranteed by an Eligible Institution.
Signature(s) Guaranteed by an Eligible Institution:
---------------------------
(Authorized Signature)
------------------------------------------------------------------------------
(Title)
------------------------------------------------------------------------------
(Name of Firm)
------------------------------------------------------------------------------
(Address, Include Zip Code)
------------------------------------------------------------------------------
(Area Code and Telephone Number)
Dated: , 1995
-------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY if Old
Notes in a principal amount not
tendered, or New Notes issued in
exchange for Old Notes accepted for
exchange, are to be mailed or
delivered to someone other than the
undersigned, or to the undersigned at
an address other than that shown
below the undersigned's signature.
Mail or deliver New Notes and/or Old
Notes to:
-------------------------------------
Name:
---------------------------------
(Please Type or Print)
-------------------------------------
Address:
-----------------------------
(Include Zip Code)
-------------------------------------
(Tax Identification or Social
Security No.)
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Old Notes or Book-Entry
Confirmations. All physically delivered Old Notes or any confirmation of a
book-entry transfer to the Exchange Agent's account at the Book-Entry Transfer
Facility of Old Notes tendered by book-entry transfer (a "Book-Entry
Confirmation"), as well as a properly completed and duly executed copy of this
Letter of Transmittal or facsimile hereof, and any other documents required by
this Letter of Transmittal, must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. The method of delivery of the tendered Old Notes, this Letter
of Transmittal and all other required documents to the Exchange Agent is at the
election and risk of the Holder and, except as otherwise provided below, the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. Instead of delivery by mail, it is recommended that the Holder
use an overnight or hand delivery service. In all cases, sufficient time should
be allowed to assure delivery to the Exchange Agent before the Expiration Date.
No Letter of Transmittal or Old Notes should be sent to the Company.
2. Guaranteed Delivery Procedures. Holders who wish to tender their Old
Notes and (a) whose Old Notes are not immediately available, or (b) who cannot
deliver their Old Notes, this Letter of Transmittal or any other documents
required hereby to the Exchange Agent prior to the Expiration Date or (iii) who
are unable to complete the procedure for book-entry transfer on a timely basis,
must tender their Old Notes according to the guaranteed delivery procedures set
forth in the Prospectus. Pursuant to such procedures: (i) such tender must be
made by or through a firm which is a member of a registered national securities
exchange or of the National Association of Securities Dealers Inc. or a
commercial bank or a trust company having an office or correspondent in the
United States (an "Eligible Institution"); (ii) prior to the Expiration Date,
the Exchange Agent must have received from the Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address of the
Holder of the Old Notes, the registration number(s) of such Old Notes and the
principal amount of Old Notes tendered, stating that the tender is being made
thereby and guaranteeing that, within three (3) New York Stock Exchange, Inc.
("NYSE") trading days after the Expiration Date, this Letter of Transmittal (or
facsimile hereof) together with the Old Notes (or a Book-Entry Confirmation) in
proper form for transfer, must be received by the Exchange Agent within three
(3) NYSE trading days after the Expiration Date; and (iii) the certificates for
all physically tendered shares of Old Notes, in proper form for transfer, or
Book-Entry Confirmation, as the case may be, and all other documents required by
this Letter are received by the Exchange Agent within three (3) NYSE trading
days after the date of execution of the Notice of Guaranteed Delivery.
Any Holder of Old Notes who wishes to tender Old Notes pursuant to the
guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery prior to 5:00 p.m., New York
City time, on the Expiration Date. Upon request of the Exchange Agent, a Notice
of Guaranteed Delivery will be sent to Holders who wish to tender their Old
Notes according to the guaranteed delivery procedures set forth above.
See "The Exchange Offer -- Guaranteed Delivery Procedures" section of the
Prospectus.
3. Tender by Holder. Only a Holder of Old Notes may tender such Old Notes
in the Exchange Offer. Any beneficial Holder of Old Notes who is not the
registered Holder and who wishes to tender should arrange with the registered
Holder to execute and deliver this Letter of Transmittal on his behalf or must,
prior to completing and executing this Letter of Transmittal and delivering his
Old Notes, either make appropriate arrangements to register ownership of the Old
Notes in such Holder's name or obtain a properly completed bond power from the
registered Holder.
4. Partial Tenders. Tenders of Old Notes will be accepted only in integral
multiples of $1,000. If less than the entire principal amount of any Old Notes
is tendered, the tendering Holder should fill in the principal amount tendered
in the third column of the box entitled "Description of Old Notes" above. The
entire principal amount of Old Notes delivered to the Exchange Agent will be
deemed to have been tendered unless
<PAGE> 8
otherwise indicated. If the entire principal amount of all Old Notes is not
tendered, then Old Notes for the principal amount of Old Notes not tendered and
New Notes issued in exchange for any Old Notes accepted will be sent to the
Holder at his or her registered address, unless a different address is provided
in the appropriate box on this Letter of Transmittal, promptly after the Old
Notes are accepted for exchange.
5. Signatures on This Letter of Transmittal; Bond Powers and Endorsements;
Medallion Guarantee of Signatures. If this Letter of Transmittal (or facsimile
hereof) is signed by the record Holder(s) of the Old Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the Old
Notes without alteration, enlargement or any change whatsoever. If this Letter
of Transmittal is signed by a participant in the Book-Entry Transfer Facility,
the signature must correspond with the name as it appears on the security
position listing as the Holder of the Old Notes.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders of Old Notes listed and tendered hereby and the New
Notes issued in exchange therefor is to be issued (or any untendered principal
amount of Old Notes is to be reissued) to the registered Holder, the said Holder
need not and should not endorse any tendered Old Notes, nor provide a separate
bond power. In any other case, such Holder must either properly endorse the Old
Notes tendered or transmit a properly completed separate bond power with this
Letter of Transmittal, with the signatures on the endorsement or bond power
guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder or Holders of any Old Notes listed, such Old
Notes must be endorsed or accompanied by appropriate bond powers, in each case
signed as the name of the registered Holder or Holders appears on the Old Notes.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes or
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, or 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, evidence satisfactory to the Company of their
authority so to act must be submitted with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by this
Instruction 5 must be guaranteed by an Eligible Institution.
No signature guarantee is required if (i) this Letter of Transmittal is
signed by the registered holder(s) of the Old Notes tendered herewith (or by a
participant in the Book-Entry Transfer Facility whose name appears on a security
position listing as the owner of the tendered Old Notes) and the issuance of New
Notes (and any Old Notes not tendered or not accepted) are to be issued directly
to such registered holder(s) (or, if signed by a participant in the Book-Entry
Transfer Facility, any New Notes or Old Notes not tendered or not accepted are
to be deposited to such participant's account at such Book-Entry Transfer
Facility) and neither the box entitled "Special Delivery Instructions" nor the
box entitled "Special Registration Instructions" has been completed, or (ii)
such Old Notes are tendered for the account of an Eligible Institution. In all
other cases, all signatures on this Letter of Transmittal must be guaranteed by
an Eligible Institution.
6. Special Registration and Delivery Instructions. Tendering holders should
indicate, in the applicable box or boxes, the name and address (or account at
the Book-Entry Transfer Facility) to which New Notes or substitute Old Notes for
principal amounts not tendered or not accepted for exchange are to be issued or
sent, if different from the name and address of the person signing this Letter
of Transmittal. In the case of issuance in a different name, the taxpayer
identification or social security number of the person named must also be
indicated.
7. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, New Notes or Old Notes for principal amounts not tendered or accepted
for exchange are to be delivered to, or are to be registered or issued in the
name of, any person other than the registered Holder of the Old Notes tendered
hereby, or if tendered Old Notes are registered in the name of any person other
than the person signing this Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered Holder or any other persons) will be
<PAGE> 9
payable by the tendering Holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with this Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
Holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES LISTED IN THIS LETTER OF
TRANSMITTAL.
8. Tax Identification Number. Federal income tax law required that a holder
of any Old Notes which are accepted for exchange must provide the Company (as
payor) with its correct taxpayer identification number ("TIN"), which, in the
case of a holder who is an individual in his or her social security number. If
the Company is not provided with the correct TIN, the Holder may be subject to a
$50 penalty imposed by Internal Revenue Service. (If withholding results in an
over-payment of taxes, a refund may be obtained.) Certain holders (including,
among others, all corporations and certain foreign individuals) are not subject
to these backup withholding and reporting requirements. See the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional instructions.
To prevent backup withholding, each tendering holder must provide such
holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN), and that (i) the holder has not been notified by the Internal Revenue
Service that such holder is subject to backup withholding as a result of failure
to report all interest or dividends or (ii) the Internal Revenue Service has
notified the holder that such holder is no longer subject to backup withholding.
If the Old Notes are registered in more than one name or are not in the name of
the actual owner, see the enclosed "Guidelines for Certification of Taxpayer
Identification Number of Substitute Form W-9" for information on which TIN to
report.
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligation regarding backup
withholding.
9. Validity of Tenders. All questions as to the validity, form, eligibility
(including time of receipt), and acceptance of tendered Old Notes will be
determined by the Company, in its sole discretion, which determination will be
final and binding. The Company reserves the right to reject any and all Old
Notes not validly tendered or any Old Notes, the Company's acceptance of which
would, in the opinion of the Company or its counsel, be unlawful. The Company
also reserves the right to waive any conditions of the Exchange Offer or defects
or irregularities in tenders of Old Notes as to any 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 (includes this Letter of Transmittal
and the instructions hereto) by the Company shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes must be cured within such time as the Company shall determine. The
Company will use reasonable efforts to give notification of defects or
irregularities with respect to tenders of Old Notes, but shall not incur any
liability for failure to give such notification.
10. Waiver of Conditions. The Company reserves the absolute right to waive,
in whole or part, any of the conditions to the Exchange Offer set forth in the
Prospectus.
11. No Conditional Tender. No alternative, conditional, irregular or
contingent tender of Old Notes on transmittal of this Letter of Transmittal will
be accepted.
12. Mutilated, Lost, Stolen or Destroyed Old Notes. Any Holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions.
13. Requests for Assistance or Additional Copies. Requests for assistance
or for additional copies of the Prospectus or this Letter of Transmittal may be
directed to the Exchange Agent at the address or telephone number set forth on
the cover page of this Letter of Transmittal. Holders may also contact their
broker, dealer, commercial bank, trust company or other nominee for assistance
concerning the Exchange Offer.
<PAGE> 10
14. Acceptance of Tendered Old Notes and Issuance of New Notes; Return of
Old Notes. Subject to the terms and conditions of the Exchange Offer, the
Company will accept for exchange all validly tendered Old Notes as soon as
practicable after the Exchange Date and will issue New Notes therefor as soon as
practicable thereafter. For purposes of the Exchange Offer, the Company shall be
deemed to have accepted tendered Old Notes when, as and if the Company has given
written and oral notice thereof to the Exchange Agent. If any tendered Old Notes
are not exchanged pursuant to the Exchange Offer for any reason, such
unexchanged Old Notes will be returned, without expense, to the undersigned at
the address shown above (or credited to the undersigned's account at the
Book-Entry Transfer Facility designated above) or at a different address as may
be indicated under the box entitled "Special Delivery Instructions."
15. Withdrawal. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "The Exchange
Offer -- Withdrawal of Tenders."
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE HEREOF
(TOGETHER WITH THE OLD NOTES) WHICH MUST BE DELIVERED BY BOOK-ENTRY TRANSFER OR
IN ORIGINAL HARD COPY FROM) OR THE NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION TIME.
<PAGE> 11
(TO BE COMPLETED BY ALL TENDERING HOLDERS (SEE INSTRUCTION 5))
PAYER'S NAME: WALBRO CORPORATION
<TABLE>
<C> <S> <C>
- ---------------------------------------------------------------------------------------------------
SUBSTITUTE PART I--Taxpayer Identification
FORM W-9 No.--For all accounts, enter
DEPARTMENT OF THE TREASURY your taxpayer identification
INTERNAL REVENUE SERVICE number in the appropriate box. Social Security Number
For most individuals and sole
proprietors, this is your OR
social security number. For ----------------------
other entities, it is your
Employer Identification Number.
If you do not have a number,
see How to Obtain a TIN in the
enclosed Guidelines. Note: If
the account is in more than one
name, see Employer identifica-
tion number the chart on page 2
of the enclosed Guidelines to
determine what number to enter.
- ---------------------------------------------------------------------------------------------------
Payer's Request for Taxpayer PART II--For Payees Exempt From Backup Withholding (see enclosed
Identification Number Guidelines)
- ---------------------------------------------------------------------------------------------------
</TABLE>
CERTIFICATION--Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number
(or I am waiting for a number to be issued to me), and either (a) I have
mailed or delivered an application to receive a taxpayer identification
number to the appropriate Internal Revenue Service Center or Social
Security Administration Office or (b) I intend to mail or deliver an
application in the near future. I understand that if I do not provide a
taxpayer identification number within sixty (60) days, 31% of all
reportable payments made to me thereafter will be withheld until I provide
a number;
(2) I am not subject to backup withholding either because (a) I am exempt from
backup withholding, or (b) I have not been notified by the Internal
Revenue Service ("IRS") that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to backup withholding; and
(3) Any other information provided on this form is true, correct and complete.
- --------------------------------------------------------------------------------
SIGNATURE DATE , 1995
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU WITH RESPECT TO THE NEW NOTES. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
for
Tender of 9 7/8% Senior Notes due 2005, Series A
in Exchange for
9 7/8% Senior Notes due 2005, Series B
WALBRO CORPORATION
This form or one substantially equivalent hereto must be used by a holder
to accept the Exchange Offer of Walbro Corporation, a Delaware corporation (the
"Company"), who wishes to tender 9 7/8% Senior Notes due 2005, Series A (the
"Old Notes") to the Exchange Agent pursuant to the guaranteed delivery
procedures described in "The Exchange Offer -- Guaranteed Delivery Procedures"
of the Company's Prospectus, dated November 6, 1995 (the "Prospectus") and in
Instruction 2 to the related Letter of Transmittal. Any holder who wishes to
tender Old Notes pursuant to such guaranteed delivery procedures must ensure
that the Exchange Agent receives this Notice of Guaranteed Delivery prior to the
Expiration Date (as defined below) of the Exchange Offer. Capitalized terms used
but not defined herein have the meanings ascribed to them in the Prospectus or
the Letter of Transmittal.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
DECEMBER 8, 1995, UNLESS EXTENDED (THE "EXPIRATION DATE"). OLD NOTES TENDERED IN
THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
The Exchange Agent for the Exchange Offer is:
BANKERS TRUST COMPANY
<TABLE>
<CAPTION>
By Hand/Overnight Courier: By Mail:
<S> <C>
Bankers Trust Company Bankers Trust Company
Corporate Trust & Agency Group Corporate Trust & Agency Group
Receipt & Delivery Window Reorganization Department
123 Washington St., 1st Floor P.O. Box 1458
New York, NY 10006 Church Street Station
New York, NY 10008-1458
</TABLE>
By Facsimile:
(212) 250-3290 and (212) 250-6275
Confirm by Telephone:
(212) 250-6270
------------------
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET
FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED BOX ON THE
LETTER OF TRANSMITTAL FOR GUARANTEE OF SIGNATURES.
1
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Old Notes set forth below pursuant to the guaranteed delivery procedures set
forth in the Prospectus and in Instruction 2 of the Letter of Transmittal.
The undersigned hereby tenders the Old Notes listed below:
<TABLE>
<CAPTION>
AGGREGATE
CERTIFICATE NUMBER(S) (IF KNOWN) OF OLD NOTES OR PRINCIPAL AGGREGATE PRINCIPAL
ACCOUNT NUMBER AT THE BOOK-ENTRY FACILITY AMOUNT REPRESENTED AMOUNT TENDERED
- ------------------------------------------------ ------------------ -------------------
<S> <C> <C>
</TABLE>
PLEASE SIGN AND COMPLETE
<TABLE>
<S> <C>
Signatures of Registered Holder(s) or Date:
---------------------------------------------
Authorized Signatory:
----------------------
Address:
------------------------------------
- ---------------------------------------------
---------------------------------------------
- ---------------------------------------------
Name(s) of Registered Holder(s): Area Code and Telephone No.
------------- ------------------
</TABLE>
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly
as their name(s) appear on certificates for Old Notes or on a security position
listing as the owner of Old Notes, or by person(s) authorized to become
Holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Names(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Capacity:
- --------------------------------------------------------------------------------
Address(es):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934,
guarantees deposit with the Exchange Agent of the Letter of Transmittal (or
facsimile thereof), together with the Old Notes tendered hereby in proper form
for transfer (or confirmation of the book-entry transfer of such Old Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility described in
the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery
Procedures" and in the Letter of Transmittal and any other required documents,
all by 5:00 p.m., New York City time, within five New York Stock Exchange
trading day following the Expiration Date.
<TABLE>
<S> <C>
Name of Firm:
-------------------------------- ------------------------------
(AUTHORIZED SIGNATURE)
Address: Name:
------------------------------------- -------------------------
(INCLUDE ZIP CODE) Title:
------------------------
Area Code and Tel. Number: (PLEASE TYPE OR PRINT)
- -------------------------------------------- Date: , 1995
-------------------
</TABLE>
DO NOT SEND OLD NOTES WITH THIS FORM. ACTUAL SURRENDER OF OLD NOTES MUST BE MADE
PURSUANT TO, AND BE ACCOMPANIED BY A PROPERLY COMPLETED AND DULY EXECUTED LETTER
OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
3
<PAGE> 4
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other documents
required by this Notice of Guaranteed Delivery must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. The method
of delivery of this Notice of Guaranteed Delivery and any other required
documents to the Exchange Agent is at the election and sole risk of the holder,
and the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. As an alternative to delivery by mail, the
holders may wish to consider using an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. For a
description of the guaranteed delivery procedures, see Instruction 2 of the
Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Old Notes
referred to herein, the signature must correspond with the name(s) written on
the face of the Old Notes without alteration, enlargement, or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of
the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of the Old Notes, the signature must correspond with the
name shown on the security position listing as the owner of the Old Notes.
If this Notice of Guaranteed Delivery is signed by a person other than
the registered holder(s) of any Old Notes listed or a participant of the
Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must be
accompanied by appropriate bond powers, signed as the name of the
registered holder(s) appears on the Old Notes or signed as the name of the
participant shown on the Book-Entry Transfer Facility's security position
listing.
If this Notice of Guaranteed Delivery is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a
corporation, or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing and submit with the
Letter of Transmittal evidence satisfactory to the Company of such person's
authority to so act.
3. Requests for Assistance or Additional Copies. Questions and requests for
assistance and requests for additional copies of the Prospectus may be directed
to the Exchange Agent at the address specified in the Prospectus. Holders may
also contact their broker, dealer, commercial bank, trust company, or other
nominee for assistance concerning the Exchange Offer.
4
<PAGE> 1
[WALBRO LOGO]
for
Tender of 9 7/8% Senior Notes Due 2005, Series A
in Exchange for
9 7/8% Senior Notes Due 2005, Series B
WALBRO CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON DECEMBER 8, 1995, UNLESS EXTENDED (THE "EXPIRATION DATE").
OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXPIRATION DATE.
To Registered Holders and Depository
Trust Company Participants:
We are enclosing herewith the material listed below relating to the offer
by Walbro Corporation (the "Company"), a Delaware corporation, to exchange its
9 7/8% Senior Notes Due 2005, Series B (the "New Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for a like principal amount of its issued and outstanding 9 7/8 Senior Notes Due
2005, Series A (the "Old Notes") upon the terms and subject to the conditions
set forth in the Company's Prospectus, dated November 6, 1995, and the related
Letter of Transmittal (which together constitute the "Exchange Offer").
Enclosed herewith are copies of the following documents:
1. Prospectus dated November 6, 1995;
2. Letter of Transmittal (together with accompanying Substitute Form
W-9 Guidelines);
3. Notice of Guaranteed Delivery; and
4. Letter which may be sent to your clients for whose account you hold
Old Notes in your name or in the name of your nominee, with space provided
for obtaining such client's instruction with regard to the Exchange Offer.
We urge you to contact your clients promptly. Please note that the Exchange
Offer will expire on the Expiration Date unless extended.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered.
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to the Company that (i) the New Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
undersigned, (ii) neither the undersigned nor any such other person has an
arrangement or understanding with any person to participate in the distribution
within the meaning of the Securities Act of such New Notes, (iii) if the
undersigned is not a broker-dealer, or is a broker-dealer but will not receive
New
<PAGE> 2
Notes for its own account in exchange for Old Notes, neither the undersigned nor
any such other person is engaged in or intends to participate in the
distribution of such New Notes and (iv) neither the undersigned nor any such
other person is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act or, if the undersigned is an "affiliate," that the
undersigned will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. If the undersigned
is a broker-dealer (whether or not it is also an "affiliate") that will receive
New Notes for its own account in exchange for Old Notes, it represents that such
Old Notes were acquired as a result of market-making activities or other trading
activities, and it acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. By acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Notes, the undersigned is not deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The enclosed Letter to Clients contains an authorization by the beneficial
owners of the Old Notes for you to make the foregoing representations.
The Company will not pay any fee or commission to any broker or dealer or
to any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Old Notes pursuant to the Exchange Offer. The Company
will pay or cause to be paid any transfer taxes payable on the transfer of Old
Notes to it, except as otherwise provided in Instruction 7 of the enclosed
Letter of Transmittal.
Additional copies of the enclosed material may be obtained from the
undersigned.
Very truly yours,
BANKERS TRUST COMPANY
2
<PAGE> 1
[WALBRO LOGO]
for
Tender of 9 7/8% Senior Notes Due 2005, Series A
in Exchange for
9 7/8% Senior Notes Due 2005, Series B
WALBRO CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON DECEMBER 8, 1995, UNLESS EXTENDED (THE "EXPIRATION DATE").
NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXPIRATION DATE.
To Our Clients:
We are enclosing herewith a Prospectus, dated November 6, 1995, of Walbro
Corporation (the "Company"), a Delaware corporation, and a related Letter of
Transmittal (which together constitute the "Exchange Offer") relating to the
offer by the Company, to exchange its 9 7/8% Senior Notes Due 2005, Series B
(the "New Notes"), which have been registered under the Securities Act of 1933,
as amended (the "Securities Act") for a like principal amount of its issued and
outstanding 9 7/8% Senior Notes Due 2005, Series A (the "Old Notes"), upon the
terms and subject to the conditions set forth in the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered.
We are the holder of record of Old Notes held by us for your own account. A
tender of such Old Notes can be made only by us as the record holder and
pursuant to your instructions. The Letter of Transmittal is furnished to you for
your information only and cannot be used by you to tender Old Notes held by us
for your account.
We request instructions as to whether you wish to tender any or all of the
Old Notes held by us for your account pursuant to the terms and conditions of
the Exchange Offer. We also request that you confirm that we may on your behalf
make the representations contained in the Letter of Transmittal.
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to the Company that (i) the New Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
undersigned, (ii) neither the undersigned nor any such other person has an
arrangement or understanding with any person to participate in the distribution
within the meaning of the Securities Act of such New Notes, (iii) if the
undersigned is not a broker-dealer, or is a broker-dealer but will not receive
New Notes for its own account in exchange for Old Notes, neither the undersigned
nor any such other person is engaged in or intends to participate in the
distribution of such New Notes and (iv) neither the undersigned nor any such
other person is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act or, if the undersigned is an "affiliate," that the
undersigned will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. If the undersigned
is a
<PAGE> 2
broker-dealer (whether or not it is also an "affiliate) that will receive New
Notes for its own account in exchange for Old Notes, it represents that such Old
Notes were acquired as a result of market-making activities or other trading
activities, and it acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. By acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Notes, the undersigned is not deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
Very truly yours,
2
<PAGE> 1
[WALBRO LOGO]
Instruction to Registered Holder and/or Book
Entry Transfer Participant from Beneficial Owner
for
Tender of 9 7/8% Senior Notes Due 2005, Series A
in Exchange for
9 7/8% Senior Notes Due 2005, Series B
WALBRO CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON DECEMBER 8, 1995, UNLESS EXTENDED (THE "EXPIRATION DATE").
OLD NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO THE EXPIRATION DATE.
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated
November 6, 1995 (the "Prospectus") of Walbro Corporation, a Delaware
corporation (the "Company"), and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer") to exchange its 9 7/8% Senior Notes Due 2005, Series B (the
"New Notes") for all of its outstanding 9 7/8% Senior Notes Due 2005, Series A
(the "Old Notes"). Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Old Notes held by you for the account of the
undersigned.
The aggregate face amount of the Old Notes held by you for the account of
the undersigned is (FILL IN AMOUNT):
$ of the 9-7/8% Senior Notes Due 2005, Series A.
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
/ / To TENDER the following Old Notes held by you for the account of
the undersigned (INSERT PRINCIPAL AMOUNT OF OLD NOTES TO BE TENDERED (IF
ANY): $
/ / NOT to TENDER any Old Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Old Notes held by you for
the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representation and warranties contained in the Letter
of
<PAGE> 2
Transmittal that are to be made with respect to the undersigned as a beneficial
owner, including but not limited to the representations, that (i) the New Notes
acquired pursuant to the Exchange Offer are being acquired in the ordinary
course of business of the undersigned, (ii) neither the undersigned nor any such
other person has an arrangement or understanding with any person to participate
in the distribution within the meaning of the Securities Act of 1933, as amended
(the "Securities Act") of such New Notes, (iii) if the undersigned is not a
broker-dealer, or is a broker-dealer but will not receive New Notes for its own
account in exchange for Old Notes, neither the undersigned nor any such other
person is engaged in or intends to participate in the distribution of such New
Notes and (iv) neither the undersigned nor any such other person is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or, if the undersigned is an "affiliate," that the undersigned will comply
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable. If the undersigned is a broker-dealer (whether or not
it is also an "affiliate") that will receive New Notes for its own account in
exchange for Old Notes, it represents that such Old Notes were acquired as a
result of market-making activities or other trading activities, and it
acknowledges that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes. By acknowledging
that it will deliver and by delivering a prospectus meeting the requirements of
the Securities Act in connection with any resale of such New Notes, the
undersigned is not deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
SIGN HERE
Name of beneficial owner(s):
-------------------------------------------------
Signature(s):
----------------------------------------------------------------
Name(s) (please print):
------------------------------------------------------
Address:
---------------------------------------------------------------------
Telephone Number:
------------------------------------------------------------
Taxpayer Identification or Social Security Number:
---------------------------
Date:
------------------------------------------------------------------------
2
<PAGE> 1
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e., 00-0000000. The table below will help determine the number to
give the payer.
- ------------------------------------------------------------
<TABLE>
<CAPTION>
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- -------------------------------------------------------
<S> <C>
1. An individual's The individual
account
2. Two or more The actual owner of the
individuals account or, if combined
(joint account) funds, any one of the
individuals(1)
3. Husband and wife The actual owner of the
(joint account) account or, if joint
funds, either person(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor The adult or, if the minor
(joint account) is the only contributor,
the minor(1)
6. Account in the name of The ward, minor, or
guardian or committee incompetent person(3)
for a designated ward,
minor or incompetent
person
7. a. The usual revocable The grantor-trustee(1)
savings trust
account (grantor is
also trustee)
b. So-called trust The actual owner(1)
account that is not
a legal or valid
trust under state
law
8. Sole proprietorship The owner(4)
account
</TABLE>
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- -------------------------------------------------------
<S> <C>
9. A valid trust, The legal entity (Do not
estate, or pension furnish the identification
trust number of the personal
representative or trustee
unless the legal entity
itself is not designated
in the account title.)(5)
10. Corporate account The corporation
11. Religious, The organization
charitable, or
educational
organization account
12. Partnership account The partnership
13. Association, club or The organization
other tax-exempt
organization
14. A broker or The broker or nominee
registered nominee
15. Account with the The public entity
Department of
Agriculture in the
name of a public
entity (such as a
State or local
government, school
district, or prison)
that receives
agricultural program
payments
</TABLE>
- ------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under section 501(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), or an individual retirement plan.
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
- - An international organization or any agency or instrumentality thereof.
- - A registered dealer in securities or commodities registered in the United
States or a possession of the United States.
- - A real estate investment trust.
- - A common trust fund operated by a bank under section 584(a) of the Code.
- - An exempt charitable remainder trust, or a nonexempt trust described in
section 4947(a)(1) of the Code.
- - An entity registered at all times under the Investment Company Act of 1940.
- - A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
- - Payments to nonresident aliens subject to withholding under section 1441 of
the Code.
- - Payments to partnerships not engaged in a trade or business in the United
States and which have at least one nonresident partner.
- - Payments of patronage dividends where the amount received is not paid in
money.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- - Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid in
the course of the payer's trade or business and you have not provided your
correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt-interest dividends under
section 852 of the Code).
- - Payments described in section 6049(b)(5) of the Code to non-resident aliens.
- - Payments on tax-free covenant bonds under section 1451 of the Code.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
EXEMPT PAYEES DESCRIBED ABOVE MUST STILL COMPLETE THE SUBSTITUTE FORM W-9
ENCLOSED HEREWITH TO AVOID POSSIBLE ERRONEOUS BACKUP WITHHOLDING. FILE
SUBSTITUTE FORM W-9 WITH THE PAYER, REMEMBERING TO CERTIFY YOUR TAXPAYER
IDENTIFICATION NUMBER ON PART III OF THE FORM, WRITE "EXEMPT" ON THE FACE OF THE
FORM AND SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER.
Payments that are not subject to information reporting are also not subject
to backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044,
6045, 6049, 6050A, and 6050N of the Code and their regulations.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividends,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. The IRS uses the numbers for identification
purposes and to help verify the accuracy of your tax return. Payers must be
given the numbers whether or not recipients are required to file a tax return.
Payers must generally withhold 31% of taxable interest, dividends, and certain
other payments to a payee who does not furnish a taxpayer identification number
to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
<PAGE> 3
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
PAYER'S NAME: BANKERS TRUST COMPANY
- ---------------------------------------------------------------------------------------------------
SUBSTITUTE PART I--PLEASE PROVIDE YOUR TIN PART III--Social Security
FORM W-9 IN THE BOX AT RIGHT AND CERTIFY Number OR Employer
DEPARTMENT OF THE TREASURY BY SIGNING AND DATING BELOW. Identification Number
INTERNAL REVENUE SERVICE
-------------------------------
(If awaiting TIN write "Applied
For")
-----------------------------------------------------------------
Payer's Request for Taxpayer PART II--For Payees Exempt From Backup Withholding, see the
Identification Number (TIN) enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 and complete as instructed therein.
- ---------------------------------------------------------------------------------------------------
</TABLE>
CERTIFICATION--Under penalties of perjury, I certify that:
(1) The Number shown on this form is my correct Taxpayer Identification Number
(or I am waiting for a number to be issued to me); and
(2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (IRS) that I am subject to backup
withholding as a result of a failure to report all interest or dividends,
or the IRS has notified me that I am no longer subject to backup
withholding.
CERTIFICATE INSTRUCTIONS--You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding, you
received another notification from the IRS that you were no longer subject to
backup withholding, do not cross out item (2). (Also see instructions in the
enclosed Guidelines.)
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NAME
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(Please Print)
SIGNATURE DATE
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NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER TO PURCHASE. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING A TIN.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number within sixty (60) days, 31% of all
payments of the Offer Price made to me thereafter will be withheld until I
provide a number.
SIGNATURE DATE
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