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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 27, 1997
REGISTRATION NO. 333-18317
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
<TABLE>
<S> <C>
WALBRO CORPORATION WALBRO CAPITAL TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) (EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (STATE OR OTHER JURISDICTION OF INCORPORATION OR
ORGANIZATION) ORGANIZATION)
36-1358966 36-6683606
(I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>
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 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)
WITH COPIES TO:
<TABLE>
<S> <C>
HOWARD S. LANZNAR, ESQ. WILLIAM M. HARTNETT, ESQ.
LAWRENCE D. LEVIN, ESQ. RICHARD E. FARLEY, ESQ.
KATTEN MUCHIN & ZAVIS CAHILL GORDON & REINDEL
525 WEST MONROE STREET, SUITE 1600 EIGHTY PINE STREET
CHICAGO, ILLINOIS 60661-3693 NEW YORK, NEW YORK 10005
(312) 902-5200 (212) 701-3000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
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 SAID SECTION 8(A),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 27, 1997
PRELIMINARY PROSPECTUS
$50,000,000
2,000,000 CONVERTIBLE TRUST PREFERRED SECURITIES
WALBRO CAPITAL TRUST
% CONVERTIBLE TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER CONVERTIBLE TRUST PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY,
[LOGO] AND CONVERTIBLE INTO COMMON STOCK OF,
WALBRO CORPORATION
------------------
The % Convertible Trust Preferred Securities (the "Preferred Securities")
offered hereby (the "Offering") represent preferred undivided beneficial
interests in the assets of Walbro Capital Trust, a statutory business trust
formed under the laws of the State of Delaware (the "Trust"). Walbro
Corporation, a Delaware corporation (the "Company"), will directly or indirectly
own all the common securities (the "Common Securities" and, together with the
Preferred Securities, the "Trust Securities") representing undivided beneficial
interests in the assets of the Trust. The Trust exists for the sole purpose of
issuing the Preferred Securities and the Common Securities and investing the
proceeds thereof in an equivalent amount of % Convertible Subordinated
Debentures due 2017 (the "Convertible Debentures") of the Company.
(Continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS, INCLUDING THE PERIOD AND
CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS OF DISTRIBUTIONS ON THE PREFERRED
SECURITIES MAY BE DEFERRED AND THE RELATED UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF SUCH DEFERRAL.
------------------
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.
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<CAPTION>
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PUBLIC PROCEEDS TO
OFFERING PRICE(1) UNDERWRITING TRUST(3)(4)
COMMISSIONS(2)
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<S> <C> <C> <C>
Per Preferred Security........... $25.00 (3) $
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Total(5)......................... $50,000,000 (3) $
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</TABLE>
(1) Plus accrued distributions, if any, from , 1997.
(2) For information regarding indemnification of the Underwriters, see
"Underwriting."
(3) Because the proceeds of the sale of the Preferred Securities will be
invested in the Convertible Debentures, the Company has agreed to pay to
the Underwriters, as compensation for their arranging the investment
therein of such proceeds, $ per Preferred Security (or $ in
the aggregate). See "Underwriting."
(4) Expenses of the offering, which are payable by the Company, are estimated
to be $500,000.
(5) The Trust and the Company have granted the Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase up
to 300,000 additional Preferred Securities solely to cover
over-allotments, if any. If the option is exercised in full, the total
Public Offering Price, Underwriting Commissions and Proceeds to Trust will
be $ , $ and $ , respectively.
------------------
The Preferred Securities offered hereby are being offered by the several
Underwriters named herein, subject to prior sale, when, as and if accepted by
them and subject to certain conditions, including approval of certain legal
matters by Cahill Gordon & Reindel, counsel for the Underwriters. It is expected
that delivery of the Preferred Securities will be made in New York, New York, on
or about , 1997.
------------------
Smith Barney Inc. Interstate/Johnson Lane
Corporation
, 1997
<PAGE> 3
[WALBRO CORPORATION LOGO]
Walbro Automotive Products
[PLASTIC FUEL TANK DIAGRAM]
Walbro supplies complete automotive fuel storage and delivery systems including
plastic fuel tank, fuel module (with pump, reservoir and level sensor), fill
pipe, and emission control devices.
Walbro Engine Management Products
[PHOTO]
Float feed and diaphragm carburetors
are designed to meet new environ-
mental standards.
[PHOTO]
[PHOTO]
Walbro provides both ignition sys-
tems and carburetors, which are the
basis of new engine management
systems.
Innovative electronic systems includ-
ing ignition modules enhance engine
performance.
<PAGE> 4
(Cover continued from previous page)
Each Preferred Security is convertible on or after , 1997
(60 days after the date of issue), at the option of the holder thereof into
shares of common stock, par value $.50 per share (the "Common Stock"), of the
Company, at a conversion rate of shares of Common Stock for each Preferred
Security (equivalent to $ per share of Common Stock), subject to
adjustment in certain circumstances. The Common Stock is quoted on the Nasdaq
National Market (the "NNM") under the symbol "WALB." On January 24, 1997, the
last reported sale price of the Common Stock on the NNM was $18. The Preferred
Securities have been approved for quotation on the NNM, subject to official
notice of issuance, under the symbol "WALBP". Trading of the Preferred
Securities on the NNM is expected to commence within 30 days after initial
delivery of the Preferred Securities. See "Underwriting."
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of % of the liquidation amount of $25 per
Preferred Security, accruing from, and including, , 1997 and
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year, commencing March 31, 1997 ("distributions"). The payment of
distributions out of moneys held by the Trust and payments on liquidation of the
Trust or the redemption of Preferred Securities, as set forth below, are
guaranteed by the Company (the "Guarantee") to the extent described under
"Description of the Guarantee." The Guarantee covers payments of distributions
and other payments on the Preferred Securities only if and to the extent that
the Company has made a payment of interest or principal or other payments on the
Convertible Debentures held by the Trust as its sole assets. The Guarantee, when
taken together with the Company's obligations under the Convertible Debentures,
the Indenture (as defined herein) pursuant to which the Convertible Debentures
are issued and its obligations under the Declaration, including its obligations
to pay costs, expenses, debts and liabilities of the Trust (other than with
respect to the Trust Securities), provides a full and unconditional guarantee of
amounts due on the Preferred Securities. The obligations of the Company under
the Guarantee rank (i) subordinate and junior in right of payment to all other
liabilities of the Company, (ii) pari passu with the most senior preferred or
preference stock, if any, issued from time to time by the Company and (iii)
senior to the Common Stock. The obligations of the Company under the Convertible
Debentures are subordinate and junior in right of payment to all present and
future Senior Indebtedness (as defined herein) of the Company, which aggregated
approximately $272 million at September 30, 1996, after giving effect to the
application of the net proceeds of the Offering, and rank pari passu with the
Company's other general unsecured obligations. The obligations of the Company
under the Convertible Debentures are also effectively subordinated to all
existing and future indebtedness and other liabilities, including trade
payables, of the Company's subsidiaries. At September 30, 1996, the indebtedness
and other liabilities of such subsidiaries, after giving effect to the
application of the net proceeds of the Offering, aggregated $369 million
(including the $272 million referred to above).
The distribution rate and the distribution payment dates and other payment
dates for the Preferred Securities will correspond to the interest rate and
interest payment dates and other payment dates on the Convertible Debentures,
which will be the sole assets of the Trust. As a result, if principal or
interest is not paid on the Convertible Debentures, no amounts will be paid on
the Preferred Securities because the Trust will not have sufficient funds to
make distributions on the Preferred Securities. In such event, the Guarantee
will not apply to such distributions until the Trust has sufficient funds
available therefor.
The Company has the right to defer payments of interest on the Convertible
Debentures by extending the interest payment period on the Convertible
Debentures at any time for up to 20 consecutive quarters (each, an "Extension
Period"); provided, that no such Extension Period may extend beyond the maturity
date of the Convertible Debentures. If interest payments are so deferred,
distributions on the Preferred Securities will also be deferred. During any
Extension Period, distributions on the Preferred Securities will continue to
accrue with interest thereon (to the extent permitted by applicable law) at an
annual rate of % per annum compounded quarterly. Additionally, during any
Extension Period, holders of Preferred Securities will be required to include
deferred interest income in the form of original issue discount ("OID") in their
gross income for United States federal income tax purposes in advance of receipt
of cash distributions with respect to such deferred interest payments. See
"Description of the Convertible Debentures -- Interest Income and Option to
Extend Interest Payment Periods," "Risk Factors -- Company Option to Extend
Interest Payment
3
<PAGE> 5
(Cover continued from previous page)
Periods; OID Risk" and "United States Federal Income Taxation -- Interest Income
and Original Issue Discount."
The Convertible Debentures are redeemable by the Company, in whole or in
part, from time to time, on or after , 2000, at the redemption
price specified herein, or at any time, in whole or in part, in certain
circumstances upon the occurrence of a Tax Event (as defined herein). If the
Company redeems Convertible Debentures, the Trust will redeem Trust Securities
having an aggregate liquidation amount equal to the aggregate principal amount
of the Convertible Debentures so redeemed at the redemption price specified
herein per Trust Security, plus accrued and unpaid distributions thereon to the
date fixed for redemption. See "Description of the Preferred Securities --
Mandatory Redemption of Trust Securities." The Preferred Securities will be
redeemed upon maturity of the Convertible Debentures on , 2017. In
addition, upon the occurrence of a Special Event arising from a change in laws
or a change in legal interpretation regarding tax or investment company matters,
unless the Convertible Debentures are redeemed in the limited circumstances
described herein, the Trust shall be dissolved, with the result that the
Convertible Debentures will be distributed to the holders of the Trust
Securities, on a pro rata basis, in lieu of any cash distribution. See
"Description of the Preferred Securities -- Special Event Redemption or
Distribution." In certain circumstances, the Company will have the right to
redeem the Convertible Debentures prior to , 2000, which would
result in the redemption by the Trust of Trust Securities in the same amount on
a pro rata basis. If the Convertible Debentures are distributed to the holders
of the Preferred Securities, the Company will use its best efforts to have the
Convertible Debentures quoted on the NNM or on such other exchange as the
Preferred Securities are then listed. See "Description of the Preferred
Securities -- Special Event Redemption or Distribution" and "Description of the
Convertible Debentures."
In the event of the involuntary or voluntary dissolution, winding up or
termination of the Trust, after satisfaction of liabilities to creditors of the
Trust as required by applicable law, the holders of the Preferred Securities
will be entitled to receive for each Preferred Security a liquidation amount of
$25 plus accrued and unpaid distributions thereon (including interest thereon)
to the date of payment, unless, in connection with such dissolution, winding up
or termination of the Trust, the Convertible Debentures are distributed to the
holders of the Preferred Securities. See "Description of the Preferred
Securities -- Liquidation Distribution Upon Dissolution."
------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AND OF THE COMMON STOCK OF WALBRO CORPORATION AT LEVELS ABOVE
THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
4
<PAGE> 6
AVAILABLE INFORMATION
The Company and the Trust have filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits and schedules thereto, to which reference is hereby
made. Statements made in this Prospectus as to the contents of any agreement or
other document are not necessarily complete; with respect to each such 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 this
reference.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (Commission File No.
0-6955), and in accordance therewith files periodic reports, proxy statements
and other information with the Commission relating to its business, financial
statements and other matters. The Registration Statement, as well as such
reports, proxy statements and other information, may be inspected and copied at
prescribed rates at the public reference facilities maintained by the Commission
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and should be
available for inspection and copying at the regional offices of the Commission
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and at
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of
such material can be obtained at prescribed rates by writing to the Commission
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission also maintains a Web site that contains reports, proxy statements and
other information regarding registrants that file electronically with the
Commission. The address of such site is http://www.sec.gov. Such material can
also be inspected at the reading room of the library of the National Association
of Securities Dealers, Inc., 1735 K Street, N.W., 2nd Floor, Washington, D.C.
20006.
No separate financial statements of the Trust have been included herein.
The Company does not consider that such financial statements would be material
to holders of Preferred Securities because (i) all of the voting securities of
the Trust will be owned, directly or indirectly, by the Company, a reporting
company under the Exchange Act, (ii) the Trust has no independent operations and
exists for the sole purpose of issuing securities representing undivided
beneficial interests in the assets of the Trust and investing the proceeds
thereof in the Convertible Debentures issued by the Company and (iii) the
obligations of the Trust under the Trust Securities are fully and
unconditionally guaranteed by the Company to the extent that the Trust has funds
available to meet such obligations. See "Walbro Capital Trust," "Description of
the Guarantee" and "Description of the Convertible Debentures."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act, are incorporated herein by reference:
(1) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
(2) the Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996; and
(3) the Company's Current Reports on Form 8-K dated July 27, 1995, December
19, 1996, January 7, 1997 and January 23, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Preferred Securities shall be deemed
incorporated by reference in this Prospectus and a part hereof from the
respective date of filing each such document. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so
5
<PAGE> 7
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company undertakes to provide, without charge, to each person to whom a
copy of this Prospectus has been delivered, upon the written or oral request of
any such person, a copy of any or all of the documents referred to above that
have been incorporated in this Prospectus by reference, other than exhibits to
such documents. Requests for such copies should be directed to the Secretary,
Walbro Corporation, 6242 Garfield Street, Cass City, Michigan 48726, telephone
(517) 872-2131.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 concerning
certain aspects of the business of the Company. These forward-looking statements
are subject to risks and uncertainties that could cause actual results to differ
materially from those contemplated in such forward-looking statements,
including, without limitation, changes in demand for automobiles and light
trucks, relationships with significant customers, price pressures, the timing
and structure of future acquisitions or dispositions, the impact of
environmental regulations, continued availability of adequate funding sources,
currency and other risks inherent in international sales, and general economic
and business conditions. See "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." Prospective investors are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. The Company undertakes no obligation to release publicly any revisions
to these forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
6
<PAGE> 8
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 appearing elsewhere or
incorporated by reference in this Prospectus. Unless the context otherwise
requires, all references in this Prospectus to the Company or Walbro refer to
Walbro Corporation and its consolidated subsidiaries and assume no exercise of
the Underwriters' over-allotment option.
THE COMPANY
The Company is a global leader in the design, development and manufacture
of precision fuel storage and delivery systems and products for automotive and
small engine markets worldwide. The Company manufactures plastic fuel tanks,
fuel pumps, fuel modules, fuel rails and fuel level sensors for sale to
automotive original equipment manufacturers ("OEMs"). 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 1990 to 1995, the
Company (excluding Dyno as defined herein) increased net sales at the compound
rate of approximately 17% per year. 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 net sales
of $459.3 million in 1995 and net sales of $440.5 million for the first nine
months of 1996.
WALBRO AUTOMOTIVE
Approximately 75% of the Company's net sales for the first nine months of
1996 were generated by Walbro Automotive. Through Walbro Automotive, the Company
designs, develops and manufactures fuel storage and delivery systems and
components for a broad range of U.S. and foreign manufacturers of passenger
automobiles and light trucks (including minivans). The Company and its joint
ventures hold a strong market position in North America, Europe and South
America and a growing market presence in Asia. In July 1995, the Company
substantially expanded its European automotive business by acquiring the fuel
systems business of Dyno Industrier A.S ("Dyno"), of Oslo, Norway (the "Dyno
Acquisition"). In 1996, management estimates that the Company supplied Chrysler
with approximately three-quarters of its fuel pump and fuel module requirements,
including all requirements for Chrysler's passenger cars and minivans and
approximately one-half of its requirements for Chrysler's light trucks. In
addition, the Company manufactures fuel pumps, fuel modules and fuel rails for a
number of Ford's minivans and light vehicles. Management believes that the
Company manufactures substantially all of the fuel tank systems for Saab and
Volvo light vehicles and all of the fuel tanks for the Mercedes-Benz C Class,
Volkswagen Polo and Renault Twingo. Other automotive customers of the Company,
and its joint ventures, include Audi, Daewoo, Fiat, General Motors, Hyundai,
Kia, Nedcar, Peugeot and Rover. The Company has recently been awarded
significant new contracts that include new fuel tank business for a variety of
General Motors platforms, including Saturn, Monte Carlo/Impala, Sonoma truck,
the Suburban, Yukon/Tahoe and Blazer/Jimmy sport utility vehicles, fuel tanks
for the redesigned Mercedes-Benz C Class, and a complete fuel tank system for
the Dodge Durango sport utility vehicle. In addition, the Company has been
awarded new contracts for the first time with Honda, Toyota and Ssangyong.
The Company's growth strategy is to position itself 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. Due to 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 systems ("FSDS") which would integrate
all of the components necessary for fuel delivery. By assuming responsibility
for the development of complete systems, the Company allows its OEM customers to
reduce their 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.
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<PAGE> 9
The Company and its joint ventures in Europe, South America and East Asia
design, develop, manufacture and distribute fuel delivery components and systems
worldwide to support OEMs as they produce vehicles for the global automotive
market. The Company's product development efforts focus on the regulatory and
competitive challenges facing its customers worldwide. For example, the Company
has used its technical skills to develop multi-layer plastic fuel tanks and
onboard running and vapor recovery ("ORVR") devices, which are designed, in
part, to assist OEMs in complying with increasingly strict emission regulations.
WALBRO ENGINE MANAGEMENT
Approximately 25% of the Company's net sales for the first nine months of
1996 were generated by Walbro Engine Management. Through Walbro Engine
Management, 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 marine engines) 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 75%
share of the global diaphragm carburetor market including sales to such leading
chain saw and weed trimmer manufacturers as Poulan/Weedeater, Deere and Company
(Homelite), Stihl Incorporated, McCulloch Corporation, Ryobi Ltd. and Kioritz
(Echo) Corporation. The Company believes it has an approximate 10% 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 Mercury Marine, a major manufacturer of outboard
marine engines. The Company produces substantial volumes of float feed
carburetors for the Chinese two-wheeled vehicle market. The Company also
manufactures replacement products for both the automotive and small engine
aftermarkets, sales of which are included within its small engine product
business.
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 and India, to profit from the growing
market for carburetors for two-wheeled vehicles, gasoline-powered portable tools
used for infrastructure development and other small engine applications.
RECENT DEVELOPMENTS
On December 16, 1996, the Company announced that earnings for the fourth
quarter and the full year of 1996 were likely to be lower than analysts'
estimates. As announced at that time, weak passenger car sales in Europe, the
strong dollar and continued insourcing of products by a major U.S. automotive
customer adversely affected profits. Third quarter production at the Company's
new plastic fuel tank facility in Brazil did not begin as planned, and although
production at the facility did begin in the fourth quarter, the customer-
scheduled ramp-up was below anticipated levels and adversely affected margins.
In addition, production at the Company's new carburetor plant in China increased
more slowly than expected, with shipments remaining below anticipated levels in
the fourth quarter.
On January 23, 1997, the Company announced that earnings would be lower
than analysts' revised estimates and that it expects to report a slight loss for
the quarter ended December 31, 1996. The Company believes that several factors,
in addition to the factors discussed above, contributed to this loss, including
an inventory adjustment at the Company's Norwegian operations and weaker than
expected demand from the Company's Marwal Systems joint venture in France and
the Company's Marwal do Brasil joint venture in South America. In addition,
worldwide orders from the Company's lawn-and-garden customers did not rebound as
expected in the fourth quarter, and some customers deferred product shipments
late in the quarter.
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THE OFFERING
General....................... The Preferred Securities represent undivided
beneficial interests in the Trust's assets,
which will consist solely of the Convertible
Debentures. The Convertible Debentures, in
which the proceeds of the Preferred Securities
offered hereby will be invested, mature on
, 2017, unless the Convertible
Debentures are redeemed by the Company prior to
such maturity as described under "Description
of the Preferred Securities -- Mandatory
Redemption of Trust Securities" and
"Description of the Preferred Securities --
Special Event Redemption or Distribution."
Distributions................. The distributions payable on each Preferred
Security will be fixed at a rate per annum of
% of the stated liquidation amount of $25 per
Preferred Security, will be cumulative, will
accrue from , 1997, the date of
issuance of the Preferred Securities, and will
be payable quarterly in arrears, on March 31,
June 30, September 30 and December 31 of each
year, commencing March 31, 1997. See
"Description of the Preferred Securities --
Distributions."
Option to Extend Interest
Payment Period................ The Company has the right at any time, and from
time to time, during the term of the
Convertible Debentures, to defer payments of
interest on the Convertible Debentures for a
period not exceeding 20 consecutive quarters;
provided, that no Extension Period may extend
beyond the maturity date of the Convertible
Debentures. As a consequence of the Company's
extension of the interest payment period,
quarterly distributions on the Preferred
Securities would be deferred (though such
distributions would continue to accrue with
interest thereon compounded quarterly, since
interest would continue to accrue on the
Convertible Debentures) during any such
extended interest payment period. In the event
that the Company exercises its right to extend
an interest payment period, then (a) the
Company shall not declare or pay any dividend
on, make any distributions or liquidation
payments with respect to, or redeem, purchase
or acquire any of its capital stock (other than
(i) purchases or acquisitions of shares of
Common Stock in connection with the
satisfaction by the Company of its obligations
under any employee benefit plans or the
satisfaction by the Company of its obligations
pursuant to any contract or security requiring
the Company to purchase shares of the Common
Stock, (ii) as a result of a reclassification
of the Company's capital stock or the exchange
or conversion of one class or series of the
Company's capital stock for another class or
series of the Company's capital stock, (iii)
the purchase of fractional interests in shares
of the Company's capital stock pursuant to the
conversion or exchange provisions of such
capital stock or the security being converted
or exchanged or (iv) stock dividends paid by
the Company where the dividend stock is the
same stock as that on which the dividend is
paid), (b) the Company shall not make any
payment of interest on or principal of (or
premium, if any, on) or repay, repurchase or
redeem any debt securities (including
guarantees) issued by the Company which rank
pari passu with or junior to the Convertible
9
<PAGE> 11
Debentures and (c) the Company shall not make
any guarantee payments with respect to the
foregoing (other than pursuant to the
Guarantee). Prior to the termination of any
Extension Period, the Company may further
extend such Extension Period, provided that
such Extension Period together with all such
previous and further extensions thereof may not
exceed 20 consecutive quarters. Upon the
termination of any Extension Period and the
payment of all amounts then due, the Company
may commence a new Extension Period, subject to
the foregoing requirements. Should an Extension
Period occur, Preferred Security holders will
continue to recognize interest income for
United States federal income tax purposes. As a
result, such holders will be required to
include such interest in gross income for
United States federal income tax purposes in
advance of the receipt of cash, and such
holders will not receive the cash from the
Trust related to such income if such holders
dispose of Preferred Securities prior to the
record date for payment of distributions. See
"United States Federal Income Taxation --
Interest Income and Original Issue Discount."
Conversion into Common
Stock......................... Each Preferred Security is convertible on or
after , 1997 (60 days after the
date of issue), at the option of the holder
into shares of Common Stock, at the rate of
shares of Common Stock for each Preferred
Security (equivalent to a conversion price of
$ per share of Common Stock), subject to
adjustment in certain circumstances. The last
reported sale price of the Common Stock on the
NNM on January 24, 1997 was $18 per share. In
connection with any conversion of a Preferred
Security, the Conversion Agent (as defined
herein) will exchange such Preferred Security
for the appropriate principal amount of
Convertible Debentures held by the Trust and
immediately convert such Convertible Debentures
into shares of Common Stock. No fractional
shares of Common Stock will be issued as a
result of conversion, but in lieu thereof such
fractional interest will be paid by the Company
in cash. See "Description of the Preferred
Securities -- Conversion Rights." In addition,
no additional shares of Common Stock will be
issued upon conversion of the Preferred
Securities to account for any accrued and
unpaid distributions on the Preferred
Securities at the time of conversion. See
"Description of the Convertible Debentures --
Optional Redemption," "Description of Preferred
Securities -- Conversion Rights" and "--
Mandatory Redemption of Trust Securities."
Mandatory Redemption.......... Upon the repayment of the Convertible
Debentures, whether at maturity or upon earlier
redemption as provided in the Indenture, the
proceeds from such repayment will be applied by
the Institutional Trustee to redeem a like
amount of Trust Securities, upon the terms and
conditions described herein. See "Description
of the Preferred Securities -- Mandatory
Redemption of Trust Securities."
Optional Redemption........... The Company has the right to redeem the
Convertible Debentures (a) on or after
, 2000, in whole at any time or
in part from time to time, subject to the
conditions described in "Description of the
Preferred Securities -- Optional Redemption" at
the
10
<PAGE> 12
redemption prices set forth herein, together
with any accrued but unpaid interest to, but
not including, the redemption date or (b) at
any time, in whole or in part, in certain
circumstances upon the occurrence of a Tax
Event (as defined herein) as described under
"Description of the Preferred Securities --
Special Event Redemption or Distribution," at
100% of the principal amount of Convertible
Debentures being redeemed, together with any
accrued but unpaid interest to, but not
including, the redemption date. See
"Description of the Convertible Debentures --
Optional Redemption." If the Company redeems
any Convertible Debentures, the proceeds from
such redemption will be applied by the
Institutional Trustee to redeem a like amount
of Trust Securities.
Special Event Distribution.... Subject to certain conditions and except in
limited circumstances, if at any time a Special
Event (as defined herein) shall occur and be
continuing, the Trust shall be dissolved with
the result that Convertible Debentures with an
aggregate principal amount equal to the
aggregate stated liquidation amount of, with an
interest rate identical to the distribution
rate of, and with accrued and unpaid interest
equal to accrued and unpaid distributions on,
the Trust Securities outstanding at such time,
would be distributed to the holders of the
Trust Securities in liquidation of such
holders' interests in the Trust on a pro rata
basis within 90 days following the occurrence
of such Special Event. See "Description of the
Preferred Securities -- Special Event
Redemption or Distribution."
Voting Rights................. Generally, the holders of the Preferred
Securities will not have any voting rights. See
"Description of the Preferred Securities --
Voting Rights." Subject to certain conditions,
including the Institutional Trustee obtaining
the opinion of counsel described under
"Description of the Preferred Securities --
Voting Rights" prior to taking certain actions,
the holders of a majority in aggregate
liquidation amount of the Preferred Securities
have the right to direct the time, method and
place of conducting any proceeding for any
remedy available to the Institutional Trustee,
or direct the exercise of any trust or power
conferred upon the Institutional Trustee under
the Declaration, including the right to direct
the Institutional Trustee, as holder of the
Convertible Debentures, to (i) exercise the
remedies available under the Indenture with
respect to the Convertible Debentures, (ii)
waive any past Indenture Event of Default (as
defined herein) that is waivable under the
Indenture, (iii) exercise any right to rescind
or annul a declaration that the principal of
all the Convertible Debentures shall be due and
payable, or (iv) consent to any amendment,
modification or termination of the Indenture or
the Convertible Debentures where such consent
shall be required; provided, however, that
where a consent or action under the Indenture
would require the consent or act of a Super
Majority (as defined herein) of holders of the
Convertible Debentures affected thereby, only
the holders of at least such Super Majority in
aggregate liquidation amount of the Preferred
Securities may direct the Institutional Trustee
to give such consent or take such action. See
"Description of the Preferred Securities --
Voting Rights."
11
<PAGE> 13
Use of Proceeds............... The proceeds from the sale of the Preferred
Securities offered hereby will be used by the
Trust to purchase the Convertible Debentures
issued by the Company. The Company expects to
use such proceeds to repay a portion of the
borrowings under the Credit Facility. See "Use
of Proceeds."
Listing....................... The Preferred Securities have been approved for
quotation on the NNM, subject to official
notice of issuance. Trading of the Preferred
Securities on the NNM is expected to commence
within a 30-day period after the initial
delivery of the Preferred Securities.
RISK FACTORS
Prospective investors should consider carefully, in addition to the other
information contained in this Prospectus, the matters set forth under the
caption "Risk Factors" before purchasing the Preferred Securities offered
hereby.
12
<PAGE> 14
SUMMARY HISTORICAL FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The following table sets forth summary historical financial data of the
Company. 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 nine-month periods ended September 30 was 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 reflects the results of Dyno
subsequent to its acquisition in July 1995 and should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of the Company included
elsewhere or incorporated by reference herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales................ $440,501 $312,786 $459,272 $325,205 $273,463 $241,416 $200,130
Cost of sales............ 361,951 256,030 377,755 261,501 216,804 185,712 158,743
Gross margin............. 78,550 56,756 81,517 63,704 56,659 55,704 41,387
Selling and
administrative
expenses............... 52,847 35,975 57,495 39,318 33,043 33,614 26,961
Reorganization and
restructuring
charges................ -- -- -- -- 1,760 -- 2,230
Operating income......... 25,703 20,781 24,022 24,386 21,856 22,090 12,196
Interest expense, net.... 14,644 6,638 11,111 3,771 2,559 3,113 6,014
Equity in (income) loss
of joint ventures...... (3,969) (2,612) (3,877) (2,609) 89 (179) 465
Net income(1)............ 11,704 11,212 13,830 14,595 9,667 12,526 4,838
Net income per
share(2)............... 1.35 1.30 1.61 1.70 1.13 1.63 .98
Weighted average shares
outstanding............ 8,642,598 8,599,392 8,609,431 8,602,077 8,537,375 7,675,974 4,952,951
Ratio of earnings to
fixed charges.......... 1.5x 2.6x 1.8x 4.5x 6.2x 4.2x 1.9x
OTHER DATA:
Depreciation and
amortization........... $ 20,201 $ 13,568 $ 22,451 $ 14,672 $ 11,339 $ 10,339 $ 6,996
Capital expenditures..... 70,453 33,319 46,240 18,844 20,260 14,681 9,717
EBITDA(3)................ 45,932 33,924 45,245 36,345 31,128 31,513 19,192
BALANCE SHEET DATA:
(at end of period)
Total assets............. $574,858 $500,627 $493,473 $257,366 $215,295 $193,020 $161,243
Total long-term debt,
less current portion... 295,489 246,918 233,389 66,136 52,392 49,638 62,777
Total debt............... 310,857 263,620 249,396 81,548 58,175 59,349 70,922
Total stockholders'
equity(4)(5)........... 139,983 135,058 135,427 127,915 114,146 99,910 50,339
</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 $2,581, $2,571, $3,429, $3,426, $3,403,
$3,192 and $610 in the nine months ended September 30, 1996 and 1995 and the
years ended December 31, 1995, 1994, 1993, 1992 and 1991, 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.
13
<PAGE> 15
RISK FACTORS
This Prospectus contains certain forward-looking statements that involve
substantial known and unknown risks and uncertainties. When used in this
Prospectus, the terms "anticipates," "expects," "estimates," "believes," and
similar terms as they relate to the Company or its management are intended to
identify such forward-looking statements. The Company's actual results,
performance or achievements may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause or
contribute to such differences include those disclosed below. Prospective
purchasers of the Preferred Securities offered hereby should consider carefully
the following factors, as well as other information set forth or incorporated by
reference in this Prospectus, in evaluating an investment in the Preferred
Securities.
RISK FACTORS RELATING TO THE COMPANY
SUBSTANTIAL LEVERAGE
The Company has consolidated indebtedness that is substantial in relation
to its stockholders' equity. As of September 30, 1996, the Company had
outstanding approximately $311 million of total debt and approximately $140
million of stockholders' equity.
The Company's indebtedness will have several important consequences for the
holders of the Preferred Securities (or Common Stock which may be acquired upon
conversion), 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 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 satisfy its 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 Credit Facility (as defined herein) will be sufficient to permit the
Company to meet its operating expenses and to service its debt requirements,
including the Convertible Debentures underlying the Preferred Securities, 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. In addition,
there can be no assurance that the Company will not increase its leverage to
meet capital requirements in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The indenture relating to the 2005 Notes (the "2005 Note 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 other person or sell, assign, transfer, lease, convey or otherwise dispose
of all or substantially all of their assets. In addition, the Credit Facility
contains other and more restrictive covenants. The agreement under which the
2004 Notes were issued (the "2004 Note Agreement") requires, and the 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
14
<PAGE> 16
Credit Facility. In an event of default under the 2004 Note Agreement or the
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 Credit Facility could terminate all commitments
thereunder. Such event would constitute an event of default under the 2005 Note
Indenture pursuant to which the 2005 Notes were issued, entitling the holders of
the 2005 Notes to declare the principal and interest on the 2005 Notes to be
immediately due and payable. 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. See
"Description of Certain Indebtedness."
DEPENDENCE ON CUSTOMER RELATIONSHIPS
Sales to Chrysler, the Company's largest customer, accounted for 20%, 19%,
23% and 21% of the Company's consolidated net sales for the nine months ended
September 30, 1996 and the years 1995, 1994 and 1993, respectively. Although the
Company has ongoing supply relationships with Chrysler and certain of its other
OEM customers, there can be no assurance that sales to these customers will
continue at current levels. Further, continuation of the Company's customer
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 Chrysler or any
of the Company's other significant customers were to reduce substantially or
discontinue its purchases, the Company would be adversely affected. See
"Business -- Walbro Automotive -- Automotive Markets and Customer Base."
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, weather 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.
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.
RISKS ASSOCIATED WITH FOREIGN OPERATIONS
Walbro has significant international operations, specifically in Europe,
South America and Asia 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 receives a substantial portion of its net sales 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 -- Foreign Currency Transactions."
15
<PAGE> 17
IMPACT OF ENVIRONMENTAL REGULATIONS
In 1992, the California Air Resources Board promulgated comprehensive air
quality regulations limiting small engine emissions, which became effective in
August 1995. A more stringent phase is scheduled to become effective in 1999. In
addition, the Environmental Protection Agency ("EPA") has imposed similar
regulations which became effective in August 1996, with the more stringent phase
expected to become effective during the 2002 to 2005 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
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 to replace gasoline-powered lawn and garden equipment with
electric-powered equipment. 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 -- 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 has received claims against it and requests for
payment from its OEM customers to remedy complaints made by the ultimate
consumers. 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 -- Automotive Warranty and Other Product
Exposure."
RISK FACTORS RELATING TO THE PREFERRED SECURITIES
RANKING OF SUBORDINATE OBLIGATIONS UNDER THE GUARANTEE AND CONVERTIBLE
DEBENTURES
The Company's obligations under the Guarantee are subordinate and junior in
right of payment to all liabilities of the Company and pari passu with the most
senior preferred or preference stock issued, from time to time, if any, by the
Company. The obligations of the Company under the Convertible Debentures are
subordinate and junior in right of payment to all present and future Senior
Indebtedness of the Company and pari passu with obligations to or rights of the
Company's other general unsecured creditors. No payment of principal (including
redemption payments, if any), or premium, if any, or interest on the Convertible
Debentures may be made if (i) any Senior Indebtedness of the Company is not paid
when due and any applicable grace period with respect to such default has ended
with such default not having been cured or waived or ceasing to exist, or (ii)
the maturity of any Senior Indebtedness has been accelerated because of a
default. As of September 30, 1996, Senior Indebtedness, after giving effect to
the application of the net proceeds of the Offering, aggregated approximately
$272 million. In addition, because a significant portion of the Company's
operations are conducted through its subsidiaries and the subsidiaries have not
guaranteed the payment of principal of and interest on the Convertible
Debentures, all liabilities of such subsidiaries, including trade payables, are
effectively senior to the Convertible Debentures and the Guarantee. As of
September 30, 1996, the subsidiaries, after giving effect to the application of
the net proceeds of the Offering, had indebtedness and other liabilities of
approximately $369 million (including the $272 million referred to above)
outstanding. There are no terms in the Preferred Securities, the Convertible
Debentures or the Guarantee that limit the Company's or any subsidiary's ability
to incur additional indebtedness, including indebtedness that ranks senior to
the Convertible Debentures and the Guarantee. See "Description of the Guarantee
- -- Status of the Guarantee" and "Description of the Convertible Debentures."
16
<PAGE> 18
HOLDING COMPANY STRUCTURE AND SUBORDINATION
The ability of the Trust to pay amounts due on the Preferred Securities is
wholly dependent upon the Company making payments on the Convertible Debentures.
Since the Company is a holding company with a substantial portion of its
operations conducted through its subsidiaries, the ability of the Company to pay
interest and principal on the Convertible Debentures, and, therefore, for the
Trust to make distributions and other payments on the Preferred Securities, will
be dependent on such subsidiaries' ability to pay dividends to the Company.
Because such subsidiaries do not guarantee the payment of principal of and
interest on the Convertible Debentures, claims of holders of the Preferred
Securities effectively will be subordinate to the claims of creditors of the
subsidiaries, including trade creditors. See "-- Ranking of Subordinate
Obligations Under the Guarantee and Convertible Debentures."
The ability of the Company's subsidiaries to pay dividends, as well as to
repay debt, is dependent on the Company's financial and operating performance
which, in turn, is subject to prevailing economic conditions and to financial,
business and other factors beyond its control.
RIGHTS UNDER THE GUARANTEE
The Guarantee will be qualified as an indenture under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). The Guarantee Trustee (as
defined herein) will act as indenture trustee under the Guarantee for the
purposes of compliance with the provisions of the Trust Indenture Act. The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
Preferred Securities.
The Guarantee guarantees to the holders of the Preferred Securities the
payment of (i) any accrued and unpaid distributions that are required to be paid
on the Preferred Securities, to the extent the Trust has funds available
therefor, (ii) the Redemption Price, including all accrued and unpaid
distributions with respect to the Preferred Securities called for redemption by
the Trust, to the extent the Trust has funds available therefor, and (iii) upon
a voluntary or involuntary dissolution, winding-up or termination of the Trust
(other than in connection with the distribution of Convertible Debentures to the
holders of Preferred Securities or a redemption of all the Preferred
Securities), the lesser of (a) the aggregate of the liquidation amount and all
accrued and unpaid distributions on the Preferred Securities to the date of the
payment, to the extent the Trust has funds available therefor, or (b) the amount
of assets of the Trust remaining available for distribution to holders of the
Preferred Securities in liquidation of the Trust. The holders of a majority in
liquidation amount of the Preferred Securities have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Guarantee Trustee or to direct the exercise of any trust or power conferred
upon the Guarantee Trustee under the Guarantee. Notwithstanding the foregoing,
if the Company has failed to make a payment under the Guarantee, any holder of
Preferred Securities may directly institute a legal proceeding against the
Company to enforce its rights under the Guarantee without first instituting a
legal proceeding against the Trust, the Guarantee Trustee or any other person or
entity. If the Company were to default on its obligation to pay amounts payable
on the Convertible Debentures, the Trust would lack available funds for the
payment of distributions or amounts payable on redemption of the Preferred
Securities or otherwise, and, in such event, holders of the Preferred Securities
would not be able to rely upon the Guarantee for payment of such amounts.
Instead, holders of the Preferred Securities would be required to rely on the
enforcement by (i) the Institutional Trustee (as defined herein) of its rights
as registered holder of the Convertible Debentures against the Company pursuant
to the terms of the Convertible Debentures or (ii) such holder of its right
against the Company under certain circumstances to enforce payments on the
Convertible Debentures. See "-- Enforcement of Certain Rights by Holders of
Preferred Securities," "Description of the Guarantee" and "Description of the
Convertible Debentures." The Declaration provides that each holder of Preferred
Securities, by acceptance thereof, agrees to the provisions of the Guarantee,
including the subordination provisions thereof, and the Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Declaration Event of Default (as defined herein) occurs and is
continuing, then the holders of Preferred Securities would rely on the
enforcement by the Institutional Trustee of its rights as a holder of the
17
<PAGE> 19
Convertible Debentures against the Company. In addition, the holders of a
majority in liquidation amount of the Preferred Securities will have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Institutional Trustee or to direct the exercise of any trust or
power conferred upon the Institutional Trustee under the Declaration, including
the right to direct the Institutional Trustee to exercise the remedies available
to it as a holder of the Convertible Debentures. If the Institutional Trustee
fails to enforce its rights under the Convertible Debentures, to the fullest
extent permitted by law, any holder of Preferred Securities may directly
institute a legal proceeding against the Company to enforce the Institutional
Trustee's rights under the Convertible Debentures without first instituting any
legal proceeding against the Institutional Trustee or any other person or
entity. Notwithstanding the foregoing, if a Declaration Event of Default has
occurred and is continuing and such event is attributable to the failure of the
Company to pay interest or principal on the Convertible Debentures on the date
such interest or principal is otherwise payable (or in the case of redemption,
on the redemption date), then a holder of Preferred Securities may directly
institute a proceeding for enforcement of payment to such holder of the
principal of or interest on the Convertible Debentures having a principal amount
equal to the aggregate liquidation amount of the Preferred Securities of such
holder (a "Direct Action") on or after the respective due date specified in the
Convertible Debentures. In connection with such Direct Action, the Company will
be subrogated to the rights of such holder of Preferred Securities under the
Declaration to the extent of any payment made by the Company to such holder of
Preferred Securities in such Direct Action. The holders of Preferred Securities
will not be able to exercise directly any other remedy available to the holders
of the Convertible Debentures. The Indenture provides that the Indenture Trustee
(as defined herein) shall give holders of the Convertible Debentures notice of
all uncured defaults or events of default within 30 days after occurrence.
However, except in the case of a default or an event of default in payment on
the Convertible Debentures, the Indenture Trustee (as defined herein) is
protected in withholding such notice if its officers or directors in good faith
determine that withholding of such notice is in the interest of the holders.
COMPANY OPTION TO EXTEND INTEREST PAYMENT PERIODS; OID RISK
The Company has the right under the Indenture to defer payments of interest
on the Convertible Debentures by extending the interest payment period at any
time, and from time to time, on the Convertible Debentures. As a consequence of
such an extension, quarterly distributions on the Preferred Securities would be
deferred (but despite such deferral would continue to accrue interest thereon,
compounded quarterly) by the Trust during any such extended interest payment
period. Such right to extend the interest payment period for the Convertible
Debentures is limited to a period not exceeding 20 consecutive quarters, during
which no interest shall be due and payable, provided, that no such Extension
Period may extend beyond the maturity date of the Convertible Debentures. In the
event that the Company exercises this right to defer interest payments, the
Company has agreed, among other things, (a) not to declare or pay dividends on,
or make a distribution with respect to, or redeem or purchase or acquire, or
make a liquidation payment with respect to, any of its capital stock (other than
(i) purchases or acquisitions of shares of Common Stock in connection with the
satisfaction by the Company of its obligations under any employee benefit plans
or the satisfaction by the Company of its obligations pursuant to any contract
or security requiring the Company to purchase shares of Common Stock, (ii) as a
result of a reclassification of the Company's capital stock or the exchange or
conversion of one class or series of the Company's capital stock for another
class or series of the Company's capital stock or (iii) the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged), (b) not to make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by the Company that rank pari passu with or junior
to the Convertible Debentures and (c) not to make any guarantee payments with
respect to the foregoing (other than pursuant to the Guarantee). Prior to the
termination of any such Extension Period, the Company may further extend the
interest payment period; provided, that such Extension Period, together with all
such previous and further extensions thereof, may not exceed 20 consecutive
quarters or extend beyond the maturity date of the Convertible Debenture. Upon
the termination of any Extension Period and the payment of all amounts then due,
the Company may commence a new Extension Period, subject to the above
18
<PAGE> 20
requirements. See "Description of the Preferred Securities -- Distributions" and
"Description of the Convertible Debentures -- Interest Income and Option to
Extend Interest Payment Periods."
Should the Company exercise its right to defer payments of interest by
extending the interest payment period, each holder of Preferred Securities will
continue to accrue income (as OID) in respect of the deferred interest allocable
to its Preferred Securities for United States federal income tax purposes, which
will be allocated but not distributed, to holders of record of Preferred
Securities. As a result, each such holder of Preferred Securities will recognize
income for United States federal income tax purposes in advance of the receipt
of cash and will not receive the cash from the Trust related to such income if
such holder disposes of its Preferred Securities prior to the record date for
the date on which distributions of such amounts are made. The Company has no
current intention of exercising its right to defer payments of interest by
extending the interest payment period on the Convertible Debentures. However,
should the Company determine to exercise such right in the future, the market
price of the Preferred Securities is likely to be affected. A holder that
disposes of its Preferred Securities during an Extension Period might not
receive the same return on its investment as a holder that continues to hold its
Preferred Securities. In addition, as a result of the existence of the Company's
right to defer interest payments, the market price of the Preferred Securities
(which represent an undivided beneficial interest in the Convertible Debentures)
may be more volatile than other securities on which OID accrues that do not have
such rights. See "United States Federal Income Taxation -- Interest Income and
Original Issue Discount."
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
Upon the occurrence of a Special Event (as defined), the Trust shall be
dissolved, except in the limited circumstance described below, with the result
that the Convertible Debentures would be distributed to the holders of the Trust
Securities in connection with the liquidation of the Trust. In the case of a
Special Event that is a Tax Event, in certain circumstances, the Company shall
have the right to redeem the Convertible Debentures, in whole or in part, in
lieu of a distribution of the Convertible Debentures by the Trust, in which
event the Trust will redeem the Trust Securities on a pro rata basis to the same
extent as the Convertible Debentures are redeemed by the Company. See
"Description of the Preferred Securities -- Special Event Redemption or
Distribution."
Under current United States federal income tax law, a distribution of
Convertible Debentures upon the dissolution of the Trust would not be a taxable
event to holders of the Preferred Securities. Upon occurrence of a Tax Event,
however, a dissolution of the Trust in which holders of the Preferred Securities
receive cash would be a taxable event to such holders. See "United States
Federal Income Taxation -- Receipt of Convertible Debentures or Cash Upon
Liquidation of the Trust."
There can be no assurance as to the market prices for the Preferred
Securities or the Convertible Debentures that may be distributed in exchange for
the Preferred Securities if a dissolution or liquidation of the Trust were to
occur. Accordingly, the Preferred Securities that an investor may purchase,
whether pursuant to the offer made hereby or in the secondary market, or the
Convertible Debentures that a holder of Preferred Securities may receive on
dissolution and liquidation of the Trust, may trade at a discount to the price
that the investor paid to purchase the Preferred Securities offered hereby.
Because holders of Preferred Securities may receive Convertible Debentures upon
the occurrence of a Special Event, prospective purchasers of Preferred
Securities are also making an investment decision with regard to the Convertible
Debentures and should carefully review all the information regarding the
Convertible Debentures contained in this Prospectus. See "Description of the
Preferred Securities -- Special Event Redemption or Distribution."
PROPOSED TAX LEGISLATION
On March 19, 1996, the U.S. Treasury Department proposed certain tax law
changes (the "Proposed Legislation") that would, among other things, generally
deny corporate issuers a deduction for interest in respect of certain debt
obligations, with a maximum term of more than 20 years, that are not shown as
indebtedness on the consolidated balance sheet of the issuer. The Convertible
Debentures have a maximum term of 20 years, and therefore would not be adversely
affected by passage of the Proposed Legislation, even if
19
<PAGE> 21
the Proposed Legislation has a retroactive effective date. However, there can be
no assurance that any Proposed Legislation, if enacted, would not apply to debt
obligations with a term of 20 or fewer years, including the Convertible
Debentures.
On March 29, 1996, Senate Finance Committee Chairman William V. Roth, Jr.
and House Ways and Means Committee Chairman Bill Archer issued a joint statement
(the "Joint Statement") indicating their intent that the Proposed Legislation,
if adopted by either of the tax-writing committees of Congress, would have an
effective date that is no earlier than the date of "appropriate Congressional
action." Based upon the Joint Statement, it is expected that if the Proposed
Legislation were to be enacted, such legislation would not apply to the
Convertible Debentures because they will be issued prior to the date of any
"appropriate Congressional action." There can be no assurance, however, that any
proposed legislation enacted after the date hereof will not otherwise adversely
affect the ability of the Company to deduct the interest payable on the
Convertible Debentures. Accordingly, there can be no assurance that a Tax Event
will not occur. See "Description of the Preferred Securities -- Special Event
Redemption or Distribution."
LIMITED VOTING RIGHTS
Holders of Preferred Securities will have limited voting rights and will
not be entitled to vote to appoint, remove, replace, or increase or decrease the
number of Trustees, which voting rights are vested exclusively in the holder of
the Common Securities. Prior to any conversion, holders of Preferred Securities
will not have any voting rights with respect to the Common Stock of Walbro. See
"Description of the Preferred Securities -- Voting Rights."
UNCERTAINTY WITH RESPECT TO TRADING PRICE
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying
Convertible Debentures. In addition, as a result of the Company's right to defer
interest payments, the market price of the Preferred Securities (which represent
an undivided interest in the assets of the Trust) may be more volatile than
other similar securities where the issuer does not have such right to defer
interest payments. A holder who disposes of his Preferred Securities between
record dates for payments of distributions thereon will be required to include
accrued but unpaid interest on the Convertible Debentures through the date of
disposition in income as ordinary income (i.e., OID) and to add such amount to
his adjusted tax basis in his pro rata share of the underlying Convertible
Debentures deemed disposed. To the extent the selling price is less than the
holder's adjusted tax basis (which will include, in the form of OID, all accrued
but unpaid interest), a holder will recognize a capital loss. Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for federal income tax purposes. See "United States Federal Income Taxation --
Interest Income and Original Issue Discount" and "-- Sales of Preferred
Securities."
20
<PAGE> 22
WALBRO CAPITAL TRUST
The Trust is a statutory business trust created under Delaware law pursuant
to (i) a declaration of trust, dated as of December 17, 1996, executed by the
Company, as sponsor (the "Sponsor"), and certain of the trustees of the Trust
(as described below) and (ii) the filing of a certificate of trust with the
Secretary of State of the State of Delaware on December 17, 1996. Such
declaration will be amended and restated in its entirety (as so amended and
restated, the "Declaration") substantially in the form filed as an exhibit to
the Registration Statement of which this Prospectus forms a part. The
Declaration will be qualified as an indenture under the Trust Indenture Act.
Upon issuance of the Preferred Securities, the purchasers thereof will own all
of the Preferred Securities. See "Description of the Preferred Securities --
Book-Entry Only Issuance -- The Depository Trust Company." The Company will
directly or indirectly acquire Common Securities in an aggregate liquidation
amount equal to 3% or more of the total capital of the Trust. The Trust exists
for the exclusive purposes of (i) issuing the Trust Securities representing
undivided beneficial interests in the assets of the Trust, (ii) investing the
gross proceeds of the Trust Securities in the Convertible Debentures and (iii)
engaging in only those other activities necessary or incidental thereto.
The Trust's business and affairs are conducted by its trustees, each
appointed by the Company as holder of the Common Securities. Pursuant to the
Declaration, the number of trustees of the Trust will be five: Bankers Trust
Company, as the institutional trustee (the "Institutional Trustee"), Bankers
Trust (Delaware), as the Delaware trustee (the "Delaware Trustee"), and three
individual trustees (the "Regular Trustees" and, together with the Institutional
Trustee and the Delaware Trustee, the "Trustees") will be persons who are
employees or officers of, or who are affiliated with the Company. Initially, the
Regular Trustees will be Lambert E. Althaver, Daniel L. Hittler and Michael A.
Shope, each of whom is an officer of the Company. The Institutional Trustee will
act as the sole indenture trustee under the Declaration for purposes of
compliance with the Trust Indenture Act until removed or replaced by the holder
of the Common Securities. Bankers Trust Company will act as indenture trustee
(the "Guarantee Trustee") under the Guarantee for the purposes of compliance
with the provisions of the Trust Indenture Act. See "Description of the
Guarantee" and "Description of Convertible Debentures."
The Institutional Trustee will hold title to the Convertible Debentures for
the benefit of the holders of the Trust Securities and, in its capacity as the
holder, the Institutional Trustee will have the power to exercise all rights,
powers and privileges under the indenture pursuant to which the Convertible
Debentures are issued. In addition, the Institutional Trustee will maintain
exclusive control of a segregated non-interest bearing bank account (the
"Property Account") to hold all payments made in respect of the Convertible
Debentures for the benefit of the holders of the Trust Securities. The
Institutional Trustee will make payments of distributions and payments on
liquidation, redemption and otherwise for the holders of the Trust Securities
out of funds from the Property Account. The Guarantee Trustee will hold the
Guarantee for the benefit of the holders of the Preferred Securities. The
Company, as the direct or indirect holder of all the Common Securities, will
have the right, subject to certain restrictions constrained in the Declaration,
to appoint, remove or replace any Trustee and to increase or decrease the number
of Trustees. The Company will pay all fees and expenses related to the Trust and
the offering of the Trust Securities. See "Description of the Convertible
Debentures -- Miscellaneous."
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights are set forth in the
Declaration, the Delaware Business Trust Act, as amended (the "Trust Act") and
the Trust Indenture Act. See "Description of the Preferred Securities."
The place of business and the telephone number of the Trust are the
principal executive offices and telephone numbers of the Company.
21
<PAGE> 23
ACCOUNTING TREATMENT
The financial statements of the Trust will be reflected in the Company's
consolidated financial statements, with the Preferred Securities shown as
"Company-Obligated Mandatorily Redeemable Convertible Preferred Securities of
Walbro Capital Trust Holding Solely Convertible Debentures." See
"Capitalization."
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Company's Common Stock is traded on the Nasdaq National Market ("NNM")
under the symbol "WALB." The following table sets forth, for the quarters
indicated, the high and low sales prices as reported by NNM, and the per share
cash dividends declared in such quarters.
<TABLE>
<CAPTION>
MARKET PRICE
------------ DIVIDENDS
HIGH LOW PER SHARE
---- ---- ---------
<S> <C> <C> <C>
1997
First Quarter (through January 24)................................. $18 3/4 $16 1/2 $ --
1996
Fourth Quarter..................................................... $21 1/4 $18 1/4 $ .10
Third Quarter...................................................... 21 18 1/4 .10
Second Quarter..................................................... 22 1/2 19 5/8 .10
First Quarter...................................................... 20 3/4 17 3/4 .10
----
$ .40
====
1995
Fourth Quarter..................................................... $21 $17 1/4 $ .10
Third Quarter...................................................... 23 1/2 17 3/4 .10
Second Quarter..................................................... 20 3/4 17 1/2 .10
First Quarter...................................................... 20 17 1/4 .10
----
$ .40
====
</TABLE>
On January 24, 1997, the closing price of the Common Stock as reported on
the NNM was $18. On January 23, 1997, the Common Stock was held by 1,120
stockholders of record. On December 5, 1996, the Company declared a dividend of
$0.10 per share of Common Stock, payable on January 31, 1997 to stockholders of
record on December 31, 1996. The Company currently intends to continue to
declare and pay cash dividends on its Common Stock on a quarterly basis.
However, all dividend payments are subject to the Company's earnings, financial
condition and capital requirements at the time of declaration and will be paid
only if, as and to the extent declared by the Company's Board of Directors.
The Credit Facility, the 2004 Note Agreement and the 2005 Note Indenture
contain restrictions on the Company's ability to pay dividends. See "Description
of Certain Indebtedness."
22
<PAGE> 24
USE OF PROCEEDS
The proceeds from the sale of the Preferred Securities offered hereby will
be invested by the Trust in the Convertible Debentures. The Company intends to
apply the net proceeds (net of the underwriting commissions and estimated
expenses) from the sale of the Convertible Debentures, estimated to be
approximately $47,937,500 ($55,203,125 if the Underwriters' over-allotment
option is exercised in full) to repay a portion of the borrowings under the
Credit Facility (as defined herein). Borrowings under the Credit Facility bear
interest at a per annum rate equal to LIBOR plus 1.75%. See "Capitalization."
After giving effect to the application of the net proceeds of the Offering,
management believes the availability under the Credit Facility, combined with
funds from operations, will provide the Company with sufficient financial
flexibility to fund planned capital expenditures, most of which are associated
with expansion programs related to contract awards for new automotive OEM
platforms and facilities for new small engine business, and increased working
capital requirements for the foreseeable future. The Company's plans for 1997
capital expenditures, which total approximately $70 million, are principally for
new blow molding machines, tooling and equipment to produce fuel tank systems
for five new platforms the Company has been awarded by U.S. OEM customers and
for facilities to support new small engine business.
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of September 30, 1996 and as adjusted to give effect to the issuance of the
Preferred Securities being offered hereby, the receipt by the Company of the net
proceeds of approximately $47.9 million therefrom and the application of the
estimated net proceeds as described under "Use of Proceeds." This table should
be read in conjunction with "Selected Financial Information" and the condensed
consolidated financial statements of the Company and related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1996
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash................................................................... $ 15,227 $ 15,227
======== ========
Total short-term debt, including current portion of long-term debt..... $ 15,368 $ 15,368
Long-term debt, net of current portion................................. 295,489 247,551
-------- --------
Total debt........................................................ 310,857 262,919
Company-Obligated Mandatorily Redeemable Convertible Preferred
Securities of Walbro Capital Trust holding solely Convertible
Debentures(1)........................................................ -- 50,000
Total stockholders' equity............................................. 139,983 139,983
-------- --------
Total capitalization.............................................. $450,840 $ 452,902
======== ========
</TABLE>
- -------------------------
(1) As described herein, the sole assets of the Trust will be the %
Convertible Debentures with a principal amount of approximately $50 million
($57.5 million if the Underwriters' over-allotment option is exercised in
full), and upon redemption of such debt, the Preferred Securities will be
mandatorily redeemable.
(2) Excludes the shares of Common Stock reserved for issuance upon conversion of
the Convertible Debentures.
23
<PAGE> 25
SELECTED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The following table sets forth selected historical financial and operating
data of the Company. 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 nine months ended September 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 reflects the results of Dyno subsequent to its acquisition in
July 1995 and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements of the Company and the notes thereto, included elsewhere or
incorporated by reference herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales......................... $440,501 $312,786 $459,272 $325,205 $273,463 $241,416 $200,130
Cost of sales..................... 361,951 256,030 377,755 261,501 216,804 185,712 158,743
Gross margin...................... 78,550 56,756 81,517 63,704 56,659 55,704 41,387
Selling and administrative
expenses........................ 52,847 35,975 57,495 39,318 33,043 33,614 26,961
Reorganization and restructuring
charges......................... -- -- -- -- 1,760 -- 2,230
Operating income.................. 25,703 20,781 24,022 24,386 21,856 22,090 12,196
Interest expense, net............. 14,644 6,638 11,111 3,771 2,559 3,113 6,014
Equity in (income) loss of joint
ventures........................ (3,969) (2,612) (3,877) (2,609) 89 (179) 465
Net income(1)..................... 11,704 11,212 13,830 14,595 9,667 12,526 4,838
Net income per share(2)........... 1.35 1.30 1.61 1.70 1.13 1.63 .98
Weighted average shares
outstanding..................... 8,642,598 8,599,392 8,609,431 8,602,077 8,537,375 7,675,974 4,952,951
Ratio of earnings to fixed
charges......................... 1.5x 2.6x 1.8x 4.5x 6.2x 4.2x 1.9x
OTHER DATA:
Depreciation and amortization..... $ 20,201 $ 13,568 $ 22,451 $ 14,672 $ 11,339 $ 10,339 $ 6,996
Capital expenditures.............. 70,453 33,319 46,240 18,844 20,260 14,681 9,717
EBITDA(3)......................... 45,932 33,924 45,245 36,345 31,128 31,513 19,192
BALANCE SHEET DATA: (at end of
period)
Total assets...................... $574,858 $500,627 $493,473 $257,366 $215,295 $193,020 $161,243
Total long-term debt, less current
portion......................... 295,489 246,918 233,389 66,136 52,392 49,638 62,777
Total debt........................ 310,857 263,620 249,396 81,548 58,175 59,349 70,922
Total stockholders'
equity(4)(5).................... 139,983 135,058 135,427 127,915 114,146 99,910 50,339
</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 $2,581, $2,571, $3,429, $3,426, $3,403,
$3,192, and $610 in the nine months ended September 30, 1996 and 1995 and
the years ended December 31, 1995, 1994, 1993, 1992 and 1991, 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.
24
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus, including the disclosures below, contains certain
forward-looking statements that involve substantial risks and uncertainties.
When used herein, the terms "anticipates," "expects," "estimates," "believes,"
and similar terms as they relate to the Company or its management are intended
to identify such forward-looking statements. The Company's actual results,
performance or achievements may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause or
contribute to such material differences include those disclosed in the "Risk
Factors" section of this Prospectus, which prospective purchasers of the
Preferred Securities offered hereby should consider carefully.
The following is a discussion of the financial condition and results of
operations of the Company for the nine months ended September 30, 1995 and 1996
and the years ended December 31, 1993, 1994 and 1995. The information contained
in the table below and the following discussion reflect the results of Dyno
subsequent to its acquisition in July 1995 and should be read in conjunction
with the consolidated and condensed consolidated financial statements of the
Company and the related notes thereto and other financial information included
elsewhere in this Prospectus.
GENERAL
The Company's business is operated in two segments: automotive and small
engine. Selected financial information about the Company's continuing operations
by business segment is set forth below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net Sales:
Automotive.............................. $329,759 $204,786 $318,143 $198,260 $167,201
Small Engine............................ 110,742 108,000 141,129 126,945 106,262
-------- -------- -------- -------- --------
Total................................ $440,501 $312,786 $459,272 $325,205 $273,463
======== ======== ======== ======== ========
Cost of Sales:
Automotive.............................. $273,569 $170,437 $264,906 $161,649 $133,989
Small Engine............................ 88,382 85,593 112,849 99,852 82,815
-------- -------- -------- -------- --------
Total................................ $361,951 $256,030 $377,755 $261,501 $216,804
======== ======== ======== ======== ========
Gross Margin:
Automotive.............................. $ 56,190 $ 34,349 $ 53,237 $ 36,611 $ 33,212
Small Engine............................ 22,360 22,407 28,280 27,093 23,447
-------- -------- -------- -------- --------
Total................................ $ 78,550 $ 56,756 $ 81,517 $ 63,704 $ 56,659
======== ======== ======== ======== ========
</TABLE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Net Sales. Net sales for the first nine months of 1996 increased 40.8% to
$440.5 million compared to $312.8 million for the same period of 1995. Net sales
for the first nine months of 1995 included two months of Dyno net sales. Net
sales for the first nine months of 1996, excluding net sales relating to Dyno,
increased 1.8%. Net sales of automotive products increased 61.0% to $329.8
million for the first nine months of 1996 compared to $204.8 million for the
same period of 1995 (1.3% increase excluding Dyno net sales). The increased
automotive product net sales were primarily the result of increased net sales
due to the inclusion of Dyno net sales for the entire 1996 period, partially
offset by lower net sales of fuel pumps and fuel modules to one of the Company's
largest customers as a result of the customer's increased in-house production.
Net sales of small engine products increased 2.7% to $88.7 million for the
first nine months of 1996 compared to $86.4 million for the same period of 1995.
The increased small engine product net sales were the result of increased net
sales of ignition systems products and carburetors in China. These increased net
sales were mostly offset by declines in diaphragm carburetors in the U.S. due to
reduced demand for handheld
25
<PAGE> 27
power equipment caused by drought in the Southeast and Southwest U.S. and cold,
wet spring conditions in other areas of the United States, and in Japan because
of lower demand and because of the lower yen-dollar exchange rate.
Net sales to the aftermarket decreased 4.7% to $18.3 million for the first
nine months of 1996 compared to $19.2 million for the same period of 1995. Net
sales of aftermarket products declined during the first nine months of 1996
because of increased in-house production by one of the Company's aftermarket
customers.
Cost of Sales. The Company's cost of sales is composed primarily of
material, labor, and manufacturing and engineering overhead. Cost of sales for
the first nine months of 1996 increased 41.4% to $362.0 million compared to
$256.0 million for the same period of 1995 (0.5% increase without Dyno). Cost of
sales as a percent of net sales was 82.2% for the first nine months of 1996
compared to 81.9% for the same period of 1995. For the first nine months of
1996, gross margin decreased slightly primarily as a result of the inclusion of
Dyno, which had a lower margin product mix, partially offset by higher sales
volumes of fuel tanks and fuel rails. In February 1996, the Company announced
its plans to sell the steel fuel rail business at its Ligonier, Indiana plant,
and is currently evaluating its strategic alternatives related to this business.
In small engine products, gross margin decreased primarily because of lower
diaphragm carburetor volume, partially offset by higher volume of ignition
system products.
Selling and Administrative Expenses. Selling and Administrative ("S&A")
expenses (which include research and development ("R&D") expenses) increased by
46.9% for the first nine months of 1996 compared to the same period of 1995. R&D
expenses increased by 29.5% for the first nine months of 1996 compared to the
same period of 1995. As a percent of net sales, S&A expenses increased to 12.0%
for the first nine months of 1996, from 11.5% for the same period in 1995. The
increase in S&A expenses was due primarily to the inclusion of nine months of
Dyno results in 1996 and to start-up costs for the Company's new plastic fuel
tank facility near Sao Paulo, Brazil, its new carburetor facility in Tianjin,
China and its new diecast facility in Tucson, Arizona.
Net Interest Expense. Net interest expense for the first nine months of
1996 increased 121.2% to $14.6 million compared to $6.6 million for the same
period of 1995. This increase was a result of increased borrowings relating to
the Dyno Acquisition and for additional working capital required to support
sales growth and for capital expenditures.
Income Taxes. The provision for income taxes was 34.7% lower for the first
nine months of 1996 compared to the same period of 1995 because of lower taxable
income and a lower effective tax rate of 28.2% for the 1996 nine month period
compared to 35.1% for the same 1995 period. The lower effective tax rate
resulted from research and development tax credits.
Joint Venture Income. The equity in income from joint ventures was $4.0
million for the first nine months of 1996 compared to $2.6 million for the same
period of 1995 because of the increased net sales and improved profitability at
Marwal Systems (France), Marwal do Brasil and Mitsuba-Walbro (Japan) during the
first nine months of 1996, which more than offset the start-up costs at Korea
Automotive Fuel Systems, Ltd.
Net Income and Income Per Share. Net income for the first nine months of
1996 was $11.7 million, an increase of 4.4% compared to net income of $11.2
million for the same period of 1995. The increase was due to the reasons
described above. Net income per share was $1.35 for the first nine months of
1996 compared to $1.30 for the first nine months of 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO 1994, 1994 COMPARED TO 1993
Net Sales. The Company reported record net sales in 1995 of $459.3 million,
an increase of 41.2%. Excluding net sales of $88.5 million contributed by Dyno,
1995 net sales increased 14.0%. Net sales in 1994 were $325.2 million compared
to net sales of $273.5 million in 1993, an increase of 18.9%. The $134.1 million
of additional net sales in 1995 were divided primarily among the automotive
market with a $119.8 million increase and the small engine market with a $10.8
million increase. On a percentage basis, net sales to the automotive market
increased 60.4% in 1995 (15.8% increase without Dyno net sales) compared to an
18.6% increase in 1994, while net sales to the small engine market increased
10.6% in 1995 compared to a 16.5% increase in 1994. Aftermarket net sales were
flat in 1995 compared to an increase of 32.8% in 1994.
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Net sales of the Company's original equipment automotive products were
$318.1 million in 1995 ($229.6 million without Dyno), up from $198.3 million in
1994 and $167.2 million in 1993. In 1995, the Company was able to increase U.S.
based automotive product net sales (representing all automotive net sales other
than those of Dyno) by $31.4 million or 15.8% in spite of the U.S. light vehicle
market decline. The U.S. light vehicle market declined in 1995 to approximately
14.8 million vehicles compared to approximately 15.1 million in 1994, a 2.1%
decrease. U.S. light vehicle sales increased by 8.4% in 1994 and by 8.0% in
1993. The Company was able to record a net sales increase of its U.S. based
automotive products in the face of a declining vehicle market due to increased
net sales of fuel modules (up 23.7%) because of increased use of fuel modules in
the light truck market and increased net sales of fuel modules with higher
dollar content. Light trucks (which include minivans) experienced moderate sales
growth in 1995. The increase in fuel module net sales was partially offset by
the slower than scheduled start-up of a customer's major new vehicle line with
significant fuel module product content.
Net sales of fuel pumps decreased by 3.3% and net sales of fuel rails
declined by 14.9% in 1995 compared to 1994 because of the decline in U.S.
passenger car net sales during 1995. Net sales of plastic fuel tanks were $3.0
million in 1995 compared to $0.6 million in 1994, as the Company's U.S. net
sales of plastic fuel tanks did not begin until the fourth quarter of 1994.
Production of plastic fuel tanks increased in the fourth quarter of 1995 for a
second vehicle platform. Net sales of component parts in 1995 were $20.5 million
compared to $3.8 million in 1994. Dyno automotive product net sales were $88.5
million for the last five months of 1995.
In 1994, the Company was able to increase automotive product net sales by
18.6% while the U.S. light vehicle market grew by 8.4%. Automotive product net
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, net sales of fuel pumps increased modestly while net sales of
fuel rails increased by 22.3% and net sales of fuel modules increased by 32.2%.
Net sales of the Company's small engine products also hit a record level of
$112.6 million in 1995, up from $101.8 million in 1994 and $87.4 million in
1993. Overall net sales growth of small engine products was 10.6% in 1995
compared to 16.5% during 1994. Net sales of diaphragm carburetors increased
16.1% in 1995 compared to 7.4% for 1994, from $58.3 million in 1993 to $62.6
million in 1994 to $72.7 million in 1995. Part of the 1995 increase reflects
depressed U.S. diaphragm carburetor sales in the second half of 1994 because of
delays in the emission certification by the California Air Resources Board for
customers' engines during that period. Increases in U.S. sales of diaphragm
carburetors in the first half of 1994 combined with increases in Europe and the
Far East during all of 1994 more than offset the second half decline in the
U.S., resulting in the overall increase of 7.4% for 1994.
Net sales of float feed carburetors decreased 8.7% in 1995 compared to a
27.7% increase for 1994, with $27.4 million of net sales in 1995 versus $30.0
million in 1994 and $23.5 million in 1993. During 1995, float feed carburetor
sales in the U.S. declined as heavy rain in the spring and a drought during the
summer caused lower sales of lawn and garden products and outdoor power
equipment. Also during 1995, the weak market for marine engines contributed to
lower float feed carburetor sales. The significant increase in 1994 float feed
carburetor net sales was primarily due to a 36% increase in net sales to the
Company's largest lawn and garden customer and a 36% increase in net sales of
marine carburetors.
Net sales of small engine ignition systems were $7.9 million in 1995
compared to $7.1 million in 1994 and $5.1 million in 1993 as customer demand has
grown for this expanding family of products. In addition, carburetor net sales
from the Company's subsidiary in China, Fujian Hualong Carburetor, which the
Company acquired in January, 1994, were $4.6 million in 1995 compared to $1.9
million in 1994.
The Company's aftermarket business for both automotive and small engine
products is consolidated as a business unit within Walbro Engine Management, but
reported separately in this discussion. Aftermarket net sales were $25.2 million
in 1995 compared to $25.1 million in 1994. Aftermarket net sales in 1995 were
flat compared to 1994 for two significant reasons. First, the aftermarket
distribution center in Cass City, Michigan was struck by lightning in August,
1995, causing substantial smoke and water damage to the building and its
contents. Aftermarket operations were shut down for three weeks in August as a
result of the fire and subsequent order levels were lower because of the reduced
inventory available to fill orders. Secondly, a major aftermarket
customer/competitor for fuel pumps chose to manufacture more of its
requirements. The 32.8%
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increase in 1994 aftermarket net sales was the result of the addition of several
new aftermarket customers and the expansion of the product offering for
aftermarket net sales.
Cost of Sales. Cost of sales was $377.8 million in 1995 ($300.9 million
without Dyno) compared to $261.5 million in 1994 and $216.8 million in 1993.
Cost of sales as a percent of net sales was 82.3% in 1995 (81.1% without Dyno)
compared to 80.4% in 1994 and 79.3% in 1993.
Gross margin for U.S. based automotive products decreased in 1995 because
of lower volumes of fuel rails partially offset by higher volumes of fuel
modules and plastic fuel tanks. The Company's Ligonier, Indiana plant, which
makes steel fuel rails, experienced significantly higher costs in the second
half of 1995 because of lower volumes related to lower passenger car sales. Cost
of sales as a percent of net sales at Dyno was 86.9% for the last five months of
1995. The Dyno gross margin was lower than anticipated during the last five
months of 1995 because of higher raw material prices and lower volumes due to
seasonally lower production schedules and because of a weaker European
automotive market during this period. Also contributing to the higher cost of
sales as a percent of net sales were continuing start-up costs at the Company's
Ossian, Indiana plastic fuel tank plant. The 1994 cost of sales as a percent of
net sales increased because of the Ossian plant start-up costs and additional
costs of expanding production capacity for fuel modules at the Company's
Meriden, Connecticut plant.
Cost of sales as a percent of net sales for small engine products increased
for 1995 because of lower volume of float feed carburetors in the U.S., lower
production volumes at the Company's Singapore manufacturing facility and the
stronger Singapore Dollar versus the U.S. Dollar. These increased costs were
partially offset by higher volume of diaphragm carburetors in Japan and Mexico
and higher volume of float feed carburetors in China. Gross margin decreased in
1994 primarily because of lower volume of diaphragm carburetors in the U.S.
during the second half of the year. A secondary factor for the decreased gross
margin was the higher cost of manufacturing carburetors in Japan and Singapore
as a result 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 12 of
the Notes to the Consolidated Financial Statements for a detailed discussion of
the impact of this change.
Selling and Administrative Expenses. S&A expenses were $57.5 million in
1995, an increase of 46.3% (25.6% without Dyno) compared to $39.3 million in
1994. The 1994 S&A expenses increased by 19.0% compared to $33.0 million in
1993. As a percent of net sales, S&A expenses were 12.5% in 1995 (13.3% without
Dyno), 12.1% in 1994 and 12.1% in 1993. In 1995, S&A expenses increased because
of increased spending for research and development, expansion of the Company's
automotive systems center in Auburn Hills, Michigan and its automotive testing
center in Caro, Michigan, the inclusion of five months of Dyno results in 1995
and general expenses related to adding manufacturing capacity in Meriden,
Connecticut. In 1994, most S&A expense categories increased to support the net
sales growth. Research and development spending increased by 37.3% (14.4%
without Dyno) in 1995 and by 28.6% in 1994 to support the new product
development efforts required by emission regulations for both automotive and
small engine products. Incentive compensation expense in the small engine
business increased in 1994 and again in 1995 because of higher profitability.
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. In
1993, $1.0 million was paid and the remaining $0.8 million was paid in 1994. See
Note 7 of the Notes to the 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 the Company's foreign 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 amortized as foreign currency exchange loss. In 1993 and 1994,
the Company entered into foreign exchange contracts to hedge the Company's
foreign currency risk from foreign currency
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commitments which did not qualify for deferred accounting treatment and the
losses were recorded as foreign currency exchange loss in 1993 and 1994. The
foreign currency exchange loss in 1995, 1994 and 1993 was $1.5 million, $2.6
million and $1.5 million, respectively. See Note 14 of the Notes to the
Consolidated Financial Statements.
Net Interest Expense. Net interest expense was $11.1 million in 1995, $3.8
million in 1994 and $2.6 million in 1993. To finance the Dyno Acquisition in
July 1995, the Company sold $110 million in aggregate principal amount of the
2005 Notes (as defined herein) and obtained a $135 million secured Credit
Facility (as defined herein). Borrowing levels were also higher in 1995 to
support the higher level of capital expenditures for facility expansions.
General interest rates declined during 1995 but the additional borrowings and
the shift to a higher percentage of long-term fixed rate debt raised the average
cost of capital and caused the higher interest expense. The 1994 increased
interest expense resulted from higher interest rates, increased borrowings for
additional working capital and the full year effect of financing the Company's
Ossian, Indiana plant. During October of 1994, the Company sold $45 million of
the 2004 Notes (as defined herein) which contributed to the higher net interest
expense. The average cost of borrowing was 7.4% in 1995, 5.9% in 1994 and 4.9%
in 1993. See Note 8 of the Notes to Consolidated Financial Statements for
details of the borrowings.
Income Taxes. The provision for income taxes was lower for 1995 compared to
1994 because of an R&D tax credit recorded in 1995. This tax credit resulted
from a change by the Internal Revenue Service in defining the R&D activities
which qualify for the tax credit. The $3.0 million credit results from R&D
activities at the Company from 1988 through 1995. The R&D tax credit resulted in
an effective tax rate of 10.8% for 1995 compared to 32.5% for 1994.
Joint Venture Income. The Company's equity in income of joint ventures was
$3.9 million in 1995, $2.6 million in 1994 and a loss of $89,000 in 1993. The
loss in 1993 was due primarily to first year losses of $538,000 in Brazil and
the significant income in 1994 and 1995 resulted from increased net sales and
profits in all the Company's joint ventures.
Net Income and Income Per Share. Net income for 1995 was $13.8 million, a
decrease of 5.5% compared to $14.6 million in 1994. Income before cumulative
effect of accounting change was $12.6 million in 1993 with net income of $9.7
million for the same period. Net income per share was $1.61 for 1995 compared
with $1.70 for 1994. Income per share before cumulative effect of accounting
change was $1.47 with net income per share of $1.13 for 1993. Net income as a
percent of net sales was 3.0% in 1995, 4.5% in 1994 and 4.6% in 1993 (income
before accounting change as a percent of net sales). The decline in net income
as a percent of net sales in 1995 was related to the Dyno Acquisition, which
contributed to lower profit margins in 1995 and resulted in increased interest
expense. The decline in net income as a percent of net sales during 1994 was the
result of higher cost of sales, higher interest expense and foreign exchange
losses as explained above.
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 material purchases, labor
and other costs. In many cases, the Company has limited ability to pass through
inflation-related cost increases due to the competitive nature of the markets
that the Company serves. In the past three years, however, inflation has not
been a significant factor for the Company.
FOREIGN CURRENCY TRANSACTIONS
Approximately 51% of the Company's net sales during the first nine months
of 1996 were derived from manufacturing operations in Europe, Asia and Mexico.
The financial position and the results of operations of the Company's
subsidiaries in Europe (36% of net sales), Japan (4% of net sales) and China (1%
of net sales) are measured in the local currency of the countries in which they
operate and translated into U.S. dollars. The effects of foreign currency
fluctuations in Europe, Japan and China are somewhat mitigated by the fact that
expenses are generally incurred in the same currencies in which net 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.
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For the Company's subsidiary in Singapore (3% of net sales) the expenses
are generally incurred in the local currency, but net 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 (7% of net sales) operates as a maquiladora, or contract manufacturer,
where certain direct manufacturing expenses are incurred in the local currency
and net 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 46% of the Company's assets at September 30, 1996 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 stockholders' 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,
Korea and Mexico. 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 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 certain of its firm transaction commitments in foreign currencies and to
hedge its equity investment in certain foreign joint ventures.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company had outstanding $15.4 million in
short-term debt, including current portion of long-term debt, and $295.5 million
in long-term debt. The approximate minimum principal payments required on the
Company's long-term debt in each of the five fiscal years subsequent to December
31, 1995 are $1.1 million in 1996, $1.3 million in 1997, $7.9 million in 1998,
$7.6 million in 1999, $64.6 million in 2000 and $152.0 million thereafter.
The net purchase price of the Dyno Acquisition was approximately $114
million (approximately $130 million less approximately $16 million cash acquired
by the Company). The Company financed the acquisition through the combination of
an issuance of $110 million in aggregate principal amount of its 2005 Notes (as
defined herein) and a $135 million secured Credit Facility (as defined herein)
with a group of commercial banks. At September 30, 1996, the Company had
available to it approximately $9 million under the Credit Facility.
In the first nine months of 1996, net working capital increased by $10.0
million and cash used for investing activities was $70.4 million. Financing
activities provided $66.5 million with the remaining cash generated from
operations. In the first nine months of 1995, net working capital increased by
$19.4 million, net of acquisition, while cash used for investing activities was
$169.7 million. Financing activities provided $168.6 million with the remaining
cash generated from operations.
As of September 30, 1996, accounts receivable amounted to $140.8 million,
an increase of $9.9 million, compared to $130.9 million at September 30, 1995.
The increase was due to longer collection periods due to revised payment terms
with certain customers. The average collection period at September 30, 1996 was
89.2 days compared to the average collection period at September 30, 1995 of
77.8 days.
The Company's plans for 1996 capital expenditures total approximately $80
million, of which $70 million had been spent in the first nine months of 1996.
The major projects for 1996 included new blow molding machines for plastic fuel
tanks, expansion of the Ossian, Indiana plant and new plants in Meriden,
Connecticut, Belgium and Brazil. The Company's plans for 1997 capital
expenditures, which total approximately $70 million, are principally for new
blow molding machines, tooling and equipment to produce fuel tank systems for
five new platforms the Company has been awarded by U.S. OEM customers and for
facilities to support new small engine business.
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. Management believes the availability under the
Credit Facility, combined with funds from operations, will provide the Company
with sufficient financial flexibility to fund planned capital expenditures and
increased working capital requirements for the foreseeable future.
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BUSINESS
GENERAL
Walbro Corporation is a global leader in the design, development and
manufacture of precision fuel storage and delivery systems and products for
automotive and small engine markets worldwide. The Company manufactures plastic
fuel tanks, fuel pumps, fuel modules, fuel rails and fuel level sensors for sale
to automotive OEMs. 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 1990 to 1995, the Company (excluding Dyno) increased net
sales at the compound rate of approximately 17% per year. 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 net sales of $459.3 million in 1995 and net sales of $440.5 million
for the first nine months of 1996.
Approximately 75% of the Company's net sales for the first nine months of
1996 were generated by Walbro Automotive. Through Walbro Automotive, the Company
designs, develops and manufactures fuel storage and delivery systems and
components for a broad range of U.S. and foreign manufacturers of passenger
automobiles and light trucks (including minivans). The Company and its joint
ventures hold a strong market position in North America, Europe and South
America and growing market presence in Asia. In 1996, management estimates that
the Company supplied Chrysler with approximately three-quarters of its fuel pump
and fuel module requirements, including all requirements for Chrysler's
passenger cars and minivans and approximately one-half the requirements for
Chrysler's light trucks. In addition, the Company manufactures fuel pumps, fuel
modules and fuel rails for a number of Ford's passenger cars, minivans and light
trucks. Management believes that the Company manufactures substantially all of
the fuel tank systems for Saab and Volvo light vehicles and all of the fuel
tanks for the Mercedes-Benz C Class, Volkswagen Polo and Renault Twingo. Other
automotive customers of the Company and its joint ventures, include Audi,
Daewoo, Fiat, General Motors, Hyundai, Kia, Nedcar, Peugeot and Rover.
Approximately 25% of the Company's net sales for the first nine months of
1996 were generated by Walbro Engine Management. Through Walbro Engine
Management, 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 marine engines) 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 75%
share of the global diaphragm carburetor market including sales to leading chain
saw and weed trimmer manufacturers such as Poulan/Weedeater, Deere and Company
(Homelite), Stihl Incorporated, McCulloch Corporation, Ryobi Ltd. and Kioritz
(Echo) Corporation. The Company believes it has an approximate 10% 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 Mercury Marine, a major manufacturer of outboard
marine engines. The Company produces substantial volumes of float feed
carburetors for the Chinese two-wheeled vehicle market. The Company also
manufactures replacement products for both the automotive and small engine
aftermarkets, sales of which are included within its small engine product
business.
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.
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WALBRO AUTOMOTIVE
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. Automotive OEMs are relying increasingly on
suppliers who can provide entire systems rather than a number of different
parts. OEMs can reduce their own internal engineering efforts and the number of
suppliers by purchasing 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 is being
adopted outside North America and that the Company will be able to provide
systems to the European market in the future.
Globalization of the OEM Supplier Base. Several OEMs, including Ford,
General Motors and Volkswagen, 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 is
requiring suppliers to establish international development and manufacturing
facilities capable of providing system components with consistent quality on a
worldwide basis. The Company believes it is well positioned as a major supplier
of fuel storage and delivery systems ("FSDS") to the world automotive markets.
Expansion of OEM Supplier Responsibilities. Since the 1980s, Ford, Chrysler
and General Motors have been actively reducing their respective supplier bases
to those 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 key suppliers. The
Company has received a number of quality awards from its OEM customers,
including the Ford Q1 Award, Chrysler QE Award and General Motors Supplier of
the Year 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 fuel injection systems. 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 reduce
evaporative emissions and the development of new "flexible" fuels such as
ethanol and methanol blends. In response to these changes, the Company has
developed a number of products including electric pumps designed for electronic
fuel injection systems, onboard running and vapor recovery ("ORVR") systems and
plastic fuel tanks which reduce hydrocarbon permeation and are corrosion
resistant to flexible fuels.
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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 to develop integrated FSDS 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 product content on each
vehicle in which its products are installed while providing customers with
substantial performance and cost benefits. This systems approach has made
possible an increase in the dollar value of the Company's products per vehicle.
For example, the new Dodge Durango, which is scheduled to begin volume
production in the third quarter of 1997, is equipped with the Company's fuel
storage and delivery system. These products have a selling price of greater than
$120, compared to a typical 1987 Chrysler vehicle equipped with only $15 of the
Company's products. The Company's ability to assume responsibility for the
development of FSDS allows OEMs to reduce internal engineering efforts and use
fewer suppliers through the purchase of systems rather than components.
Global Capabilities. The Company's international manufacturing and market
presence allows the Company to offer its current and future FSDS technology to
the global automotive market. The Company's presence in Europe provides it 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. The Company's international sales
for the first nine months of 1996 were 51% of the Company's net sales (excluding
joint ventures) compared to 20% in 1994. The Company's plastic tank
manufacturing capability allows it to pursue its systems strategy in Europe and
serve 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 a market presence in Brazil, South Korea
and Japan and it has entered into joint ventures with foreign manufacturers in
Brazil, France, India, Japan, Mexico, Argentina and South Korea which enable the
Company to access those foreign markets.
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. An
example of these products is the ORVR system which captures fuel vapors from the
fuel system and routes them to a carbon canister for storage and reuse.
The Company has made substantial investments in fuel systems technology,
product design and test capability and technical personnel to advance 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 and
has longer term plans to expand its technical capabilities in Asia.
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 injected engines demand an
uninterrupted supply of fuel under pressure and some vehicles require complex
fuel tank
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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 sold by General Motors, Ford and
Chrysler in North America in 1995 used fuel modules. In 1995, the Company
supplied approximately 70% of all of the fuel modules purchased in North
America, principally to Ford and Chrysler.
Approximately 25% of North American vehicles and 70% of European vehicles
produced in 1995 contained 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 America for more sophisticated fuel tanks, the
Company built a new facility in Ossian, Indiana in 1993 to produce plastic
multi-layer fuel tanks. The Company began production of three-layer plastic fuel
tanks during the fourth quarter of 1994 for the 1995 Ford Windstar. The
multi-layer construction of the Company's new, six-layer plastic tank
substantially eliminates fuel permeation, making this one of the first plastic
tanks which complies with the U.S. Environmental Protection Agency (the "EPA")
permeability requirements which became effective beginning in model year 1996.
The first production run of six-layer tanks began in 1996 for the GM T600.
The Company is currently producing mono-layer plastic fuel tanks, which
include coatings and permeation barriers that meet European emission
requirements, for Audi, Mercedes-Benz, Nedcar, Peugeot, Renault, Rover, Saab,
Volkswagen and Volvo. As these customers require more sophisticated fuel tanks,
the Company will likely supplement a portion of its mono-layer blow molding
machines with multi-layer blow molding machines to provide the Company's OEM
customers in Europe with advanced, plastic fuel tank 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. 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
1996, Chrysler began to install this rail on the V-8 engine for its Dodge Ram
truck.
An important advantage of the Company's systems approach is that it assists
customers in responding to developments in safety and environmental standards.
For example, current 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 has developed a variety of ORVR devices which
help prevent fuel vapor loss from fuel delivery systems. These devices are
expected to enter production during 1997.
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 Company has recently been
awarded significant new contracts that include new fuel tank business for a
variety of General Motors platforms, including Saturn, Monte Carlo/Impala,
Sonoma
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<PAGE> 36
truck, the Suburban, Yukon/Tahoe and Blazer/Jimmy sport utility vehicles, fuel
tanks for the redesigned Mercedes-Benz C Class, and a complete fuel tank system
for the Dodge Durango sport utility vehicle. In addition, the Company has been
awarded new contracts for the first time with Honda, Toyota and Ssangyong for a
variety of platforms. The following table depicts a summary of the various
customers and platforms for which the Company expects to supply products during
1997:
<TABLE>
<CAPTION>
CUSTOMER PLATFORM PRODUCT
- ------------------------- --------------------------------------- -------------------------
<S> <C> <C>
Chrysler................. Cirrus/Stratus, Dodge Dakota, Dodge Fuel Pump/Module
Durango, Dodge B-Van, Dodge Ram Truck, Assembly, Service
K-Base Passenger Car, LH (Intrepid, Pump/Module
Vision, Concord, New Yorker and LHS),
Minivan (Caravan, Voyager and Town &
Country), Neon, Viper, Prowler
Dodge Ram Truck Plastic Fuel Rail
Dodge Durango Plastic Fuel Tank
Assembly
Ford..................... Windstar Plastic Fuel Tank
Mustang, Ranger Oil Separator
Aerostar, Cougar, Crown Victoria, Grand Fuel Rail
Marquis, Mustang, Ranger, Sable,
Taurus, Thunderbird, Town Car
F-Series, E-Series Light Trucks Fuel Pump
All North American Light Vehicle Service Fuel Pump
Platforms
F-100(1), BE-6(1), CE-14(1) Fuel Module
General Motors........... T600 Truck Plastic Fuel Tank
Saturn, Corvette Fuel Module
Fiat..................... Tempra(1), Uno(1), 178(1) Fuel Module
Dedra(2), Miero(2), Panda(2), Punto(2), Fuel Pump, Bracket
Tempra(2), Tipo(2), Uno(2) Assembly and Level Sensor
Land Rover/Rover......... Discovery, Defender Plastic Fuel Tank, Fill
Pipe and various
blow-molded parts
Rover, R-8(2), 200(2), 400(2) Fuel Pump and Bracket
Assembly
Mercedes-Benz............ C Class, Truck Glendewagen, Light Truck Plastic Fuel Tank, Filler
Pipe, Expansion Tank
Nedcar................... S-40 Plastic Fuel Tank
300(2), 400(2) Fuel Module, Fuel Pump,
Bracket Assembly and
Sensor
Peugeot.................. 306, 309, 405, 505 Plastic Fuel Tank, Filler
Tubes and Air Ducts
106(2), 205(2), 306(2), 405(2), 504(2), Fuel Pump, Bracket
505(2), 605(2) Assembly and Level Sensor
Renault.................. Twingo, Safrane, Espace, Spider Plastic Fuel Tank
R-19(1), CL10(1) Fuel Module
R-5(2), R-9/11(2), Twingo(2), X-S4(2), Fuel Pump/Module
X-06(2)
</TABLE>
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<PAGE> 37
<TABLE>
<CAPTION>
CUSTOMER PLATFORM PRODUCT
- ------------------------- --------------------------------------- -------------------------
<S> <C> <C>
Saab..................... 900, 9000, 640 Plastic Fuel Tank, Air
Hose, Air Duct and
Coolant Reservoir
900(2), 9000(2), I16(2) Fuel Pump
Volkswagen/Audi.......... Polo, Golf, Audi 100 Diesel, Audi V8, Plastic Fuel Tank
Van and GOL
Golf(1), Santana(1) Fuel Sending Unit
Volvo.................... 850, 1150, 940, 960, P80, S-40, P-2X Plastic Fuel Tanks,
various other blow-molded
parts and Coolant
Reservoir
Heavy Truck Coolant Reservoir
Daewoo................... J-Car(3), T-Car(3), V-Car(3) Fuel Pump
Honda.................... AWD Fuel Module and Air Ducts
KIA...................... Various Platforms Fuel Pump
S-2 ORVR
Ssangyong................ FJ(3), KJ(3) Fuel Module
Toyota................... Carina, Corolla Plastic Fuel Tank
Carina Air Duct
</TABLE>
- -------------------------
(1) South American customers supplied by Marwal do Brasil, Ltda.
(2) European customers supplied by Marwal Systems, S.N.C.
(3) Korean customers supplied through Korean Automotive Fuel Systems, Ltd.
In addition to the customers described above, the Company also supplies a
variety of its products to a number of other customers including, but not
limited to, the following: IBC, Iveco, J.I. Case, Lister Petter, New Holland,
Scandia, VME and Steyr-Puch.
North America. Net sales to Chrysler and Ford for the first nine months of
1996 accounted for 20% and 11% of the Company's consolidated net sales,
respectively. 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 Chrysler and Ford. 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 Chrysler and Ford, and to assume a key role in
the development of new fuel system products, such as ORVR devices. General
Motors historically developed and produced substantially all of its fuel storage
and delivery systems internally but recently has sourced a significant portion
of future plastic fuel tank programs to outside suppliers, including the
Company.
In October 1996, the Company announced its intent to form a joint venture
with two minority business owners to produce automotive components in Detroit's
Empowerment Zone. The joint venture is expected to manufacture FSDS products
(including blow-molded plastic fuel tanks), air ducts, reservoirs and similar
small blow-molded components for automotive applications. General Motors has
awarded $300 million of new business to the proposed joint venture over a
five-year period commencing in 1998. Chrysler has also committed to awarding new
business to the proposed joint venture. In September 1996, the Company received
a tax credit worth an estimated $13.6 million from the Michigan Economic Growth
Authority for this new facility.
Europe. In 1991, the Company began operations in Europe with the
establishment of its Marwal Systems joint venture in France with Magneti Marelli
S.p.A. of Italy to serve customers that include Fiat, Nissan, Peugeot, Renault,
Rover, Saab and Volvo. As a result of the Dyno Acquisition, the Company is the
only integrated FSDS supplier in Europe, which has provided the Company with the
immediate opportunity to increase its participation in the European automotive
market. In addition, the Company is using its
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<PAGE> 38
relationships in the U.S. to increase its sales to North American manufacturers
in Europe. Similarly, the Company is leveraging its relationships with
Mercedes-Benz, Peugeot, Renault, Saab, Volkswagen, Volvo and other European
manufacturers to enhance the Company's marketing efforts with these European
manufacturers around the world. Approximately 70% of the European light duty
vehicles and 25% of the North American light duty vehicles are equipped with
plastic fuel tanks. The Company's management estimates that operations in Europe
produced plastic fuel tanks accounting for approximately 20% of the European
plastic fuel tank market in the first nine months of 1996.
South America. In January 1993, operations began at the Company's Marwal do
Brasil joint venture, which targets the South American automotive market of
approximately two million units per year. In September 1995, the Company
established Walbro Automotive do Brasil to manufacture plastic fuel tanks for
the Brazilian automotive market. It began production of plastic fuel tanks for
Volkswagen in November 1996. The Company recently received an order from Ford
for a supply of plastic fuel tanks for Ranger trucks to be produced in
Argentina.
Asia. In December 1986, the Company entered into a joint venture in Japan
known as Mitsuba-Walbro, Inc. with Mitsuba Electric Manufacturing Company to
manufacture fuel pump components. 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 export markets established by Korean OEMs. In November 1995, the
Company established Mutual Walbro P. Ltd., a joint venture with Mutual
Industries Ltd., in India to manufacture plastic fuel tanks for the Indian
automotive market.
AUTOMOTIVE COMPETITION
The Company competes with several other manufacturers, including the OEMs
themselves, many 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, Denso Corp., Ltd., VDO (a division of Mannesmann), Electronics and
Fuel Handling Division of Ford and Delphi Automotive Systems (GM's component
group). In the fuel rail market, the Company's major competitors include Delphi,
Ford, Echlin Inc. and Siemens A.G. The Company has competition in the fuel
module market from Delphi and Ford. The Company's largest competitors in the
plastic fuel tank market include Kautex Werke Reinold Hagen A.G. (which signed a
definitive agreement in November 1996 to be acquired by Textron Inc., subject to
regulatory approval), 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 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 three 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, the Company is generally able to determine a few years in
advance the models for which it will supply products. The Company's sales force
works closely with the Company's engineering departments and systems center in
Auburn Hills in the research, design, development and improvement of its
products. When the Company's systems center in Europe is completed, the Company
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
capability to provide comprehensive engineering
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<PAGE> 39
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.
WALBRO ENGINE MANAGEMENT
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 emissions of gasoline-powered small engines
were 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 implemented similar
regulations that became effective in August 1996, with a more stringent phase
expected to be phased in beginning 2002. The products designed to meet these new
emission standards in the small engine market will require more sophisticated
product research and new production 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, 5.2 million in 1994 and management estimates 1995 production to
have been approximately 7.8 million units. In addition, management believes
demand for diaphragm carburetors used in gasoline-powered portable tools will
grow in these developing countries. The inaccessibility of electrical power
distribution and geographic isolation of many 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, the Company 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.
In addition to developing new technologies, the Company intends to grow its
small engine business through expansion into foreign markets. The Company'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.
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<PAGE> 40
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. The Company's diaphragm carburetor, float feed
carburetor and ignition system sales accounted for 53%, 23% and 6%,
respectively, of the Company's 1995 small engine net sales. The remaining 18% of
small engine net sales 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 is integrating 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 that became effective 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 2002 to 2005. 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.
The Company has acquired an exclusive license to apply electronic fuel
injection to two stroke engines. It has operating prototypes for outboard marine
(including personal watercraft) and snowmobile applications. The Company
believes that this technology known as "side wall injection" offers competitive
and performance benefits and expects to obtain new supply contracts beginning in
1998. Also, the Company has developed an all-mechanical fuel injection system
for application to small displacement (150 cc or less) two-wheeled vehicles.
This system has also been presented as an operating prototype to potential
customers.
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 the Company's sales and 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, Deere and Company (Homelite), Stihl
Incorporated, McCulloch Corporation, 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 major outboard engine manufacturer,
buys all of its outboard engine carburetors from the Company.
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<PAGE> 41
One of the Company's opportunities for growth in the small engine industry
is the Chinese market. In January 1994, the Company acquired a 60% interest,
increased to 70% in 1995, 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 has built a new manufacturing
facility in Tianjin to provide additional capacity to take advantage of growth
in the two-wheeled vehicle market. This new facility began production in October
1996.
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
Products, both of which have greater sales and financial resources than the
Company. The Company's major competitor in the ignition systems market is R.E.
Phelon Company Inc.
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 Corporation and Standard Motor Products, Inc., 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 $25.2 million in 1995 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.
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 systems product manufacturers 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 it 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 new acquisitions or joint ventures.
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<PAGE> 42
MANUFACTURING AND FACILITIES
The Company (including the Company's joint ventures) conducts operations in
approximately 1.9 million square feet of space in a total of 31 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 the Company'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, the Company's Norway facility
has been named a General Motors Supplier of the Year four years in a row
beginning in 1991. In 1995, Walbro Automotive was named a supplier of the year
by General Motors. Various other Company factories have been recognized by
customers such as Mercury Marine, Stihl and Federal-Mogul Corporation for
excellence in product quality and delivery.
In addition, the Company's domestic automotive customers have cooperated in
the development of a broad based quality procedure for which their suppliers are
required to be certified. The procedure, known as QS 9000, has been derived from
the International Standards Organization's ISO 9000 procedure. General Motors
requires its Tier I suppliers to be certified by December 1997; Chrysler
requires its suppliers to be certified by July 1997; and Ford required its
suppliers to complete the self-assessment portion of the procedure during 1996
but has not set a specific date by which suppliers must be certified. The
Company has an aggressive program in place to achieve the required
certifications on or prior to such dates. Management believes that its
manufacturing facilities at Meriden, Connecticut, Caro, Michigan and Ligonier
and Ossian, Indiana will complete certification by the second quarter of 1997.
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 Ettlingen, Germany, the Company uses
a fully automated assembly line for production of plastic fuel tanks for the
Mercedes-Benz 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 1995, 1994 and 1993, the
Company spent approximately $16.7 million, $12.2 million and $9.5 million,
respectively, 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
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<PAGE> 43
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 production basis and does not maintain a
significant finished product inventory.
EMPLOYEES
As of December 31, 1996, the Company had approximately 4,670 employees. The
Company believes that its relations with its employees are satisfactory. All of
the Company's approximately 850 European plant employees are unionized. All of
the Company's United States plant employees are non-unionized except
approximately 450 employees at both of its Michigan manufacturing locations. The
Company's three-year contract with the bargaining unit for these Michigan plants
expires in November 1998.
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> 44
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........... 65 Chairman of the Board, Chief Executive Officer and
Director
Frank E. Bauchiero............ 62 President, Chief Operating Officer and Director
Robert H. Walpole............. 56 Vice President and a Director; President of Walbro
Engine Management
Gary L. Vollmar............... 45 Vice President; President of Walbro Automotive
Richard H. Whitehead, III..... 52 Vice President
Daniel L. Hittler............. 61 Chief Administrative Officer and Secretary
Michael A. Shope.............. 52 Chief Financial Officer and Treasurer
William T. Bacon, Jr. ........ 73 Director
Herbert M. Kennedy............ 67 Director
Vernon E. Oechsle............. 54 Director
Robert D. Tuttle.............. 71 Director
John E. Utley................. 55 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. 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. Messrs. Bacon, Bauchiero and
Oechsle have been elected to serve for a term expiring in 1999.
Lambert E. Althaver has been Chief Executive Officer of the Company since
1982, served as President from 1977 until August 1996, 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.
Frank E. Bauchiero was appointed President and Chief Operating Officer in
August 1996. He became a Director of the Company in 1990. Mr. Bauchiero served
as President-Industrial, North American Operations, Dana Corporation from
December 1990 until July 1996. 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 of Regal Beloit Corp., a manufacturer of cutting tools for
metalworking applications; Rockford Products Corp., a manufacturer of bolts,
nuts, rivets and washers, cold form fasteners and components for general
industrial use; Madison-Kipp Corp., a manufacturer of aluminum-zinc alloy and
nonferrous die castings; and M and I Bank of Beloit.
Robert H. Walpole has been a Vice President of the Company since 1983 and
President of Walbro Engine Management 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 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.
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<PAGE> 45
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 1993. 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 ABN Amro Chicago Corporation since 1994. Mr.
Bacon also served as an Honorary Director of Stifel Financial Corp. from 1984 to
1994. Prior to that, he was a Managing Partner of Bacon Whipple & Co., Inc.
Herbert M. Kennedy has served as a Director of the Company since 1981. In
July 1995, he 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 the President, Chief Executive Officer and a Director of Quanex
Corporation, a manufacturer of specialty steel and aluminum products, since
1996. He served as the Chief Operating Officer of Quanex Corporation from 1993
to 1995. 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. Mr. Oechsle
also serves as a director of Precision Castparts Corporation, a manufacturer of
investment castings for aerospace and power generation customers, as well as for
industrial, automotive, medical and other commercial applications.
Robert D. Tuttle became a Director of the Company in 1981. Mr. Tuttle is
also a Director of 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. He is Senior Vice
President of LucasVarity, PLC, a supplier of automotive braking systems,
electrical systems and diesel systems. From 1994 until September 1996 he was
Senior Vice President of Varity Corporation. Mr. Utley was the Chairman of the
Board of Kelsey-Hayes Company from 1992 to September 1996 and was Vice Chairman
and Vice President from 1989 to 1992.
During the first quarter of 1997, the Company plans to modify its
management structure to reflect a matrix organization. In this regard, the
Company expects to appoint three regional presidents from its existing
management team who will have operating responsibilities for the North America,
Europe/South America and Asia-Pacific regions. In addition, global
responsibility for automotive products, small engine products and the Company's
strategic development activities will be allocated to one of each of these three
regional presidents. The Company believes that the benefits of this matrix
organizational structure will include (i) improved focus on the Company's
customers in their local markets, (ii) a better global coordination of the
Company's product lines and development activities, (iii) reduced overhead
expenses, (iv) avoidance of duplication of costs between the Company's product
lines and (v) improved utilization of management expertise and technical
facilities.
44
<PAGE> 46
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 31, 1996 the total number of
shares of Common Stock of the Company beneficially owned, and the percentage so
owned, by (i) each director of the Company, (ii) each person known to the
Company to be the beneficial owner of more than five percent of the outstanding
Common Stock of the Company, (iii) each of the Company's executive officers and
(iv) all directors and executive officers as a group. The number of shares owned
are those "beneficially owned," as determined under the rules of the Commission,
and such information is not necessarily indicative of beneficial ownership for
any other purpose.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENTAGE
NAME BENEFICIAL OWNERSHIP(1) OF CLASS
- --------------------------------------------------------------- ----------------------- ----------
<S> <C> <C>
Franklin Resources, Inc. ...................................... 899,735(2) 10.4%
David L. Babson & Co., Inc. ................................... 730,900(3) 8.5%
The Capital Guardian Trust Company and The Capital Group
Companies, Inc. ............................................. 571,300(4) 6.6%
Lambert E. Althaver............................................ 240,231(5) 2.8%
William T. Bacon, Jr. ......................................... 67,775(6) *
Frank E. Bauchiero............................................. 42,494(7) *
Daniel L. Hittler.............................................. 25,007(8) *
Herbert M. Kennedy............................................. 12,500(9) *
Vernon E. Oechsle.............................................. 12,466(10) *
Michael A. Shope............................................... 10,009(11) *
Robert D. Tuttle............................................... 16,000(12) *
John E. Utley.................................................. 13,516(13) *
Gary L. Vollmar................................................ 51,363(14) *
Robert H. Walpole.............................................. 194,425(15) 2.2%
Richard H. Whitehead, III...................................... 124,790(16) 1.4%
All Directors and Executive Officers as a Group (12 persons)... 810,576(17) 9.4%
</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 August 9, 1996 filed with the
Commission by Franklin Resources, Inc. According to such Schedule 13G,
Franklin Resources, Inc. has sole voting power with respect to 648,400 of
these shares, shared voting power with respect to 215,300 of these shares
and shared dispositive power with respect to all 899,735 of these shares.
The address of the Stockholder is 777 Mariners Island Boulevard, San Mateo,
California 94404.
(3) As reported on a Schedule 13G dated February 15, 1996 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 403,300
of these shares, shared voting power with respect to 327,600 of these
shares and sole dispositive power with respect to all 730,900 of these
shares. The address of the Stockholder is One Memorial Drive, Cambridge,
Massachusetts 02142-1300.
(4) As reported on a Schedule 13G dated February 12, 1996 filed with the
Commission by The Capital Group Companies, Inc. and Capital Guardian Trust
Company. 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 Capital Guardian Trust Company each have sole
voting power with respect to 471,300 of these shares and no voting power
with respect to the remaining 100,000 shares and have sole dispositive
power with respect to all 571,300 of these shares. The address of the
Stockholder is 333 South Hope Street, Los Angeles, California 90071.
(5) Includes 74,643 shares owned by Mr. Althaver's wife. Mr. Althaver disclaims
beneficial ownership of these shares. Also includes 70,974 shares which are
covered by presently exercisable options under the
45
<PAGE> 47
Company's stock option plans and 17,791 shares held for the account of Mr.
Althaver by the trustee of the Company's Advantage Plan.
(6) 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 Company's Equity Plan.
(7) Includes 11,466 shares which are exercisable under the Equity Plan. Also
includes 30,000 shares restricted per terms of an agreement dated October
3, 1996.
(8) Includes 1,600 shares owned by Mr. Hittler's wife. Mr. Hittler disclaims
beneficial ownership of these shares. Also includes 20,669 shares which are
covered by 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.
(9) 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.
(10) Includes 11,466 shares which are exercisable under the Equity Plan.
(11) Includes 7,809 shares which are covered by presently exercisable options
under the Company's stock option plans.
(12) 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.
(13) Includes 500 shares over which Mr. Utley has voting power as trustee of a
trust and 12,016 shares which are exercisable under the Equity Plan.
(14) Includes 38,115 shares which are covered by presently exercisable options
under the Company's stock option plans and 5,250 shares held for the
account of Mr. Vollmar by the trustee of the Company's Advantage Plan.
(15) 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
690 shares held for the account of Mr. Walpole by the trustee of the
Company's Advantage Plan.
(16) Includes 23,583 shares which are covered by presently exercisable options
under the Company's stock option plans. Also includes 1,207 shares held for
the account of Mr. Whitehead by the trustee of the Company's Advantage
Plan.
(17) Includes 226,098 shares which are covered by presently exercisable options
under the Company's stock option plans. Also includes 24,938 shares held
for the account of four 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.
46
<PAGE> 48
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the
Declaration, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The Declaration will be qualified
as an indenture under the Trust Indenture Act. Bankers Trust Company, as
Institutional Trustee, will act as indenture trustee under the Declaration for
purposes of compliance with the provisions of the Trust Indenture Act. The terms
of the Preferred Securities will include those stated in the Declaration and
those made part of the Declaration by the Trust Indenture Act. The following
summary of the material terms and provisions of the Preferred Securities does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, the Declaration, the Trust Act and the Trust Indenture Act.
GENERAL
The Declaration authorizes the Regular Trustees to issue on behalf of the
Trust the Trust Securities, which represent undivided beneficial interests in
the assets of the Trust. All of the Common Securities will be owned, directly or
indirectly, by the Company. The Common Securities rank pari passu, and payments
will be made thereon on a pro rata basis, with the Preferred Securities, except
that upon the occurrence and during the continuance of a Declaration Event of
Default, the rights of the holders of the Common Securities to receive payment
of periodic distributions and payments upon liquidation, redemption and
otherwise will be subordinated to the rights of the holders of the Preferred
Securities. The Declaration does not permit the issuance by the Trust of any
securities other than the Trust Securities or the incurrence of any indebtedness
by the Trust. Pursuant to the Declaration, the Institutional Trustee will hold
title to the Convertible Debentures purchased by the Trust for the benefit of
the holders of the Trust Securities. The payment of distributions out of money
held by the Trust, and payments upon redemption of the Preferred Securities or
liquidation of the Trust out of money held by the Trust, are guaranteed by the
Company to the extent described under "Description of the Guarantee." The
Guarantee will be held by Bankers Trust Company, the Guarantee Trustee, for the
benefit of the holders of the Preferred Securities. The Guarantee does not cover
payment of distributions when the Trust does not have sufficient available funds
to pay such distributions. In such event, the remedy of a holder of Preferred
Securities is to (i) vote to direct the Institutional Trustee to enforce the
Institutional Trustee's rights under the Convertible Debentures or (ii) if the
failure of the Trust to pay distributions is attributable to the failure of the
Company to pay interest or principal on the Convertible Debentures, to institute
a proceeding directly against the Company for enforcement of payment to such
holder of the principal of or interest on the Convertible Debentures having a
principal amount equal to the aggregate liquidation amount of the Preferred
Securities of such holder on or after the respective due date specified in the
Convertible Debentures. See "-- Voting Rights."
DISTRIBUTIONS
Distributions on Preferred Securities will be fixed at a rate per annum of
% of the stated liquidation amount of $25 per Preferred Security.
Distributions in arrears beyond the first date such distributions are payable
(or would be payable, if not for any Extension Period or default by the Company
on the Convertible Debentures) will bear interest thereon at the rate per annum
of % thereof compounded quarterly. The term "distribution" as used herein
includes any such interest payable unless otherwise stated. The amount of
distributions payable for any period will be computed on the basis of a 360-day
year of twelve 30-day months.
Distributions on the Preferred Securities will be cumulative, will accrue
from the date of initial issuance and will be payable quarterly in arrears on
each March 31, June 30, September 30 and December 31, commencing March 31, 1997.
When, as and if available for payment, distributions will be made by the
Institutional Trustee, except as otherwise described below.
The distribution rate and the distribution payment dates and other payment
dates for the Preferred Securities will correspond to the interest rate and
interest payment dates and other payment dates on the Convertible Debentures.
The Company has the right under the Indenture to defer payments of interest
on the Convertible Debentures by extending the interest payment period from time
to time on the Convertible Debentures for an
47
<PAGE> 49
Extension Period not exceeding 20 consecutive quarterly interest periods during
which no interest shall be due and payable; provided, that no such Extension
Period may extend beyond the maturity date of the Convertible Debentures. As a
consequence of the Company's extension of the interest payment period, quarterly
distributions on the Preferred Securities would be deferred (though such
distributions would continue to accrue with interest thereon compounded
quarterly since interest would continue to accrue on the Convertible Debentures)
during any such extended interest payment period. In the event that the Company
exercises its right to extend the interest payment period, then (a) the Company
shall not declare or pay dividends on, or make any distributions or liquidation
payments with respect to, or redeem, purchase or acquire any of its capital
stock (other than (i) purchases or acquisitions of shares of Common Stock in
connection with the satisfaction by the Company of its obligations under any
employee benefit plans or the satisfaction by the Company of its obligations
pursuant to any contract or security requiring the Company to purchase shares of
the Common Stock, (ii) as a result of a reclassification of the Company's
capital stock or the exchange or conversion of one class or series of the
Company's capital stock for another class or series of the Company's capital
stock, (iii) the purchase of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged or (iv) stock dividends paid
by the Company where the dividend stock is the same stock as that on which the
dividend is paid), (b) the Company shall not make any payment of interest on or
principal of (or premium, if any, on) or repay, repurchase or redeem any debt
securities (including guarantees) issued by the Company which rank pari passu
with or junior to the Convertible Debentures and (c) the Company shall not make
any guarantee payments with respect to the foregoing (other than pursuant to the
Guarantee). Prior to the termination of any Extension Period, the Company may
further extend such Extension Period; provided, that such Extension Period,
together with all previous and further extensions thereof may not exceed 20
consecutive quarters; and provided further that no Extension Period may extend
beyond the maturity date of the Convertible Debentures. Upon the termination of
any Extension Period and the payment of all amounts then due, the Company may
commence a new Extension Period, subject to the above requirements. See
"Description of the Convertible Debentures -- Interest" and "Description of the
Convertible Debentures -- Interest Income and Option to Extend Interest Payment
Periods." The Regular Trustees shall give the holders of the Preferred
Securities notice of any Extension Period upon receipt of notice thereof from
the Company. See "Description of the Convertible Debentures -- Interest Income
and Option to Extend Interest Payment Periods." If distributions are deferred as
a result of an Extension Period, the deferred distributions and accrued interest
thereon shall be paid to holders of record of the Preferred Securities as they
appear on the books and records of the Trust on the record date next following
the termination of such deferral period.
Distributions on the Preferred Securities will be made on the dates payable
to the extent that the Trust has funds available for the payment of such
distributions in the Property Account. The Trust's funds available for
distribution to the holders of the Preferred Securities will be limited to
payments received by the Trust from the Company pursuant to the Convertible
Debentures. See "Description of the Convertible Debentures." The payment of
distributions out of monies held by the Trust is guaranteed by the Company to
the extent set forth under "Description of the Guarantee."
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the books and records of the Trust at the close of
business on the March 15, June 15, September 15 and December 15, as the case may
be, next preceding the relevant payment dates. Such distributions will be paid
through the Institutional Trustee who will hold amounts received in respect of
the Convertible Debentures in the Property Account for the benefit of the
holders of the Trust Securities. In the event that any date on which
distributions are payable on the Preferred Securities is not a Business Day,
then payment of the distributions payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment will be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date. A "Business Day" shall mean any day other than Saturday, Sunday or
any other day on which banking institutions in New York, New York, Detroit,
Michigan or Wilmington, Delaware are permitted or required by any applicable law
to close.
48
<PAGE> 50
CONVERSION RIGHTS
General. Preferred Securities will be convertible at any time on or after
, 1997 (60 days after the date of issue) and prior to the close of
business on the Business Day immediately preceding the date of repayment of such
Preferred Securities, whether at maturity or upon redemption (either at the
option of the Company or pursuant to a Tax Event), at the option of the holder
thereof and in the manner described below, into shares of Common Stock at an
initial conversion rate of shares of Common Stock for each Preferred
Security (equivalent to a conversion price of $ per share of Common Stock),
subject to adjustment as described under "-- Conversion Price Adjustments"
below. The Trust will covenant in the Declaration not to convert Convertible
Debentures held by it except pursuant to a notice of conversion delivered to the
Institutional Trustee, as conversion agent (the "Conversion Agent"), by a holder
of Preferred Securities. A holder of a Preferred Security wishing to exercise
its conversion right will deliver an irrevocable notice of conversion, together,
if the Preferred Security is a Certificated Security (as defined herein), with
such Certificated Security, to the Conversion Agent, which shall, on behalf of
such holder, exchange such Preferred Security for a portion of the Convertible
Debentures and immediately convert such Convertible Debentures into Common
Stock. Holders may obtain copies of the required form of the notice of
conversion notice from the Conversion Agent. Procedures for converting
book-entry Preferred Securities into shares of Common Stock will differ, as
described under "-- Book-Entry -- The Depository Trust Company."
Holders of Preferred Securities at the close of business on a distribution
record date will be entitled to receive the distribution payable on such
Preferred Securities on the corresponding distribution payment date
notwithstanding the conversion of such Preferred Securities following such
distribution record date but prior to such distribution payment date. If any
Preferred Securities are surrendered for conversion during the period from the
close of business on any record date through and including the next succeeding
distribution payment date (except any such Preferred Securities called for
redemption), such Preferred Securities when surrendered for conversion must be
accompanied by payment in next day funds of an amount equal to the distribution
which the registered holder on such record date is to receive. Except as
described above, no distribution will be payable by the Company on converted
Preferred Securities with respect to any distribution payment date subsequent to
the date of conversion. Except as provided above, neither the Trust nor the
Company will make, or be required to make, any payment, allowance or adjustment
for accumulated and unpaid distributions, whether or not in arrears, on
Preferred Securities. Each conversion will be deemed to have been effected
immediately prior to the close of business on the day on which the related
conversion notice was received by the Conversion Agent.
Shares of Common Stock issued upon conversion of Preferred Securities will
be validly issued, fully paid and nonassessable. No fractional shares of Common
Stock will be issued as a result of conversion, but in lieu thereof such
fractional interest will be paid by the Company in cash based on the last
reported sale price of Common Stock on the date such Preferred Securities are
surrendered for conversion.
Conversion Price Adjustments -- General. The conversion price is subject to
adjustment in certain events, including (a) the issuance of shares of Common
Stock as a dividend or a distribution with respect to Common Stock, (b)
subdivisions, combinations and reclassification of Common Stock, (c) the
issuance to all holders of Common Stock of rights or warrants entitling them
(for a period not exceeding 45 days) to subscribe for shares of Common Stock at
less than the then Current Market Price (as defined below) of the Common Stock,
(d) the distribution to holders of Common Stock of evidences of indebtedness of
the Company, securities or capital stock, cash or assets (including securities,
but excluding those rights, warrants, dividends and distributions referred to
above and dividends and distributions paid exclusively in cash), (e) a
distribution consisting exclusively of cash (excluding any cash distributions
referred to in (d) above) to all holders of Common Stock in an aggregate amount
that, together with (i) all other cash distributions (excluding any cash
distributions referred to in (d) above) made within the 12 months preceding such
distribution and (ii) any cash and the fair market value of other consideration
payable in respect of any tender offer by the Company or a subsidiary of the
Company for the Common Stock consummated within the twelve months preceding such
distribution, exceeds 12.5% of the Company's market capitalization (being the
product of the Current Market Price times the number of shares of Common Stock
then outstanding) on the date fixed for determining the stockholders entitled to
such distribution; and (f) the consummation of a tender offer
49
<PAGE> 51
by the Company or any subsidiary of the Company for the Common Stock which
involves an aggregate consideration that, together with (X) any cash and other
consideration payable in respect of any tender offer consummated by the Company
or a subsidiary of the Company for the Common Stock consummated within the 12
months preceding the consummation of such tender offer and (Y) the aggregate
amount of all cash distributions (excluding any cash distributions referred to
in (d) above) to all holders of the Common Stock within the twelve months
preceding the consummation of such tender offer, exceeds 12.5% of the Company's
market capitalization at the date of consummation of such tender offer. "Current
Market Price" means the average of the daily closing prices for the ten
consecutive trading days selected by the Company commencing not more than 20
trading days before, and ending not later than, the day in question.
The Company from time to time may reduce the conversion price of the
Convertible Debentures (and thus, the conversion price of the Preferred
Securities) by any amount selected by the Company for any period of at least 20
days, in which case the Company shall give at least 15 days' notice of such
reduction. The Company may, at its option, make such reductions in the
conversion price, in addition to those set forth above, as the Company's Board
of Directors deem advisable to avoid or diminish any income tax to holders of
Common Stock resulting from any dividend or distribution of stock (or rights to
acquire stock) or from any event treated as such for income tax purposes. See
"United States Federal Income Taxation -- Conversion of Preferred Securities."
No adjustment of the conversion price will be made upon the issuance of any
shares of Common Stock pursuant to any present or future plan providing for the
reinvestment of dividends or interest payable on securities of the Company and
the investment of additional optional amounts in shares of Common Stock under
any such plan. No adjustment in the conversion price will be required unless
such adjustment would require a change of at least 1% in the conversion price
then in effect; provided, however, that any adjustment that would not be
required to be made shall be carried forward and taken into account in any
subsequent adjustment. If any action would require adjustment of the conversion
price pursuant to more than one of the provisions described above, only one
adjustment shall be made and such adjustment shall be the amount of adjustment
that has the highest absolute value to the holder of the Preferred Securities.
Conversion Price Adjustments -- Merger, Consolidation or Sale of Assets of
the Company. In the event that the Company shall be a party to any transaction
or series of transactions constituting a Fundamental Change (as defined below),
including, without limitation, (i) any recapitalization or reclassification of
the Common Stock (other than a change in par value or as a result of a
subdivision or combination of the Common Stock); (ii) any consolidation or
merger of the Company with or into another corporation as a result of which
holders of Common Stock shall be entitled to receive securities or other
property or assets (including cash) with respect to or in exchange for Common
Stock (other than a merger which does not result in a reclassification,
conversion, exchange or cancellation of the outstanding Common Stock); (iii) any
sale or transfer of all or substantially all of the assets of the Company; or
(iv) any compulsory share exchange, pursuant to any of which holders of Common
Stock shall be entitled to receive other securities, cash or other property or
assets, then appropriate provision shall be made so that the holders of the
Preferred Securities then outstanding shall have the right thereafter to convert
such Preferred Securities only into (x) if any such transaction does not
constitute a Common Stock Fundamental Change (as defined below), the kind and
amount of the securities, cash or other property or assets that would have been
receivable upon such recapitalization, reclassification, consolidation, merger,
sale, transfer or share exchange by a holder of the number of shares of Common
Stock issuable upon conversion of such Preferred Securities immediately prior to
such recapitalization, reclassification, consolidation, merger, sale, transfer
or share exchange, after, in the case of a Non-Stock Fundamental Change (as
defined below), giving effect to any adjustment in the conversion price in
accordance with clause (i) of the following paragraph, and (y) if any such
transaction constitutes a Common Stock Fundamental Change, shares of common
stock of the kind received by holders of Common Stock as a result of such Common
Stock Fundamental Change in an amount determined in accordance with clause (ii)
of the following paragraph. The company formed by such consolidation or
resulting from such merger or which acquires such assets or which acquires the
Common Stock, as the case may be, shall enter into a supplemental indenture with
the Indenture Trustee, satisfactory in form to the Indenture Trustee and
executed and delivered to the Indenture Trustee, the provisions of which shall
establish
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<PAGE> 52
such right. Such supplemental indenture shall provide for adjustments which, for
events subsequent to the effective date of such supplemental indenture, shall be
as nearly equivalent as practical to the relevant adjustments provided for in
the preceding paragraphs and in this paragraph.
Notwithstanding any other provision in the preceding paragraphs, if any
Fundamental Change occurs, the conversion price in effect will be adjusted
immediately after that Fundamental Change as follows:
(i) in the case of a Non-Stock Fundamental Change, the conversion
price per share of Common Stock immediately following such Non-Stock
Fundamental Change will be the lower of (A) the conversion price in effect
immediately prior to such Non-Stock Fundamental Change, but after giving
effect to any other prior adjustments effected pursuant to the preceding
paragraphs, and (B) the product of (X) the greater of the Applicable Price
(as defined below) and the then applicable Reference Market Price (as
defined below) and (Y) a fraction, the numerator of which is $25 and the
denominator of which is (I) the applicable Redemption Price for one
Preferred Security if the redemption date were the date of such Non-Stock
Fundamental Change ($ , if such change occurs before , 2000)
plus (II) any then-accrued but unpaid distributions on one Preferred
Security; and
(ii) in the case of a Common Stock Fundamental Change, the conversion
price per share of Common Stock immediately following the Common Stock
Fundamental Change will be the conversion price in effect immediately prior
to the Common Stock Fundamental Change, but after giving effect to any
other prior adjustments effected pursuant to the preceding paragraphs,
multiplied by a fraction, the numerator of which is the Purchaser Stock
Price (as defined below) and the denominator of which is the Applicable
Price; provided, however, that in the event of a Common Stock Fundamental
Change in which (A) 100% of the value of the consideration received by a
holder of Common Stock (subject to certain limited exceptions) is shares of
common stock of the successor, acquiror or other third party (and cash, if
any, paid with respect to any fractional interests in the shares of common
stock resulting from the Common Stock Fundamental Change) and (B) all of
the Common Stock (subject to certain limited exceptions) shall have been
exchanged for, converted into, or acquired for, shares of common stock (and
cash, if any, with respect to fractional interests) of the successor,
acquiror or other third party, the conversion price per share of Common
Stock immediately following the Common Stock Fundamental Change shall be
the conversion price in effect immediately prior to the Common Stock
Fundamental Change divided by the number of shares of common stock of the
successor, acquiror, or other third party received by a holder of one share
of Common Stock as a result of the Common Stock Fundamental Change.
The foregoing conversion price adjustments are designed, in "Fundamental
Change" transactions where all or substantially all of the Common Stock is
converted into securities, cash, or property and not more than 50% of the value
received by the holders of Common Stock consists of stock listed or admitted for
listing subject to notice of issuance on a national securities exchange or
quoted on the NNM (a "Non-Stock Fundamental Change," as defined herein), to
increase the securities, cash or property into which each Preferred Security is
convertible.
In a Non-Stock Fundamental Change transaction where the initial value
received per share of Common Stock (measured as described in the definition of
Applicable Price below) is lower than the then applicable conversion price of
the Preferred Securities but greater than or equal to the Reference Market
Price, the conversion price will be adjusted as described above with the effect
that each Preferred Security will be convertible into securities, cash or
property of the same type received by the holders of Common Stock in such
transaction but in an amount per Preferred Security equal to the amount
indicated as the denominator as of the date of such transaction as set forth in
clause (i) above with respect to conversion prices for Non-Stock Fundamental
Changes.
In a Non-Stock Fundamental Change transaction where the initial value
received per share of Common Stock (measured as described in the definition of
Applicable Price below) is lower than both the conversion price of a Preferred
Security and the Reference Market Price, the conversion price will be adjusted
as described above but calculated as though such initial value had been the
Reference Market Price.
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<PAGE> 53
In a Fundamental Change transaction where all or substantially all the
Common Stock is converted into securities, cash, or property and more than 50%
of the value received by the holders of Common Stock (subject to certain limited
exceptions) consists of listed or NNM traded common stock (a "Common Stock
Fundamental Change," as defined herein), the foregoing adjustments are designed
to provide in effect that (a) where Common Stock is converted partly into such
common stock and partly into other securities, cash, or property, each Preferred
Security will be convertible solely into a number of shares of such common stock
determined so that the initial value of such shares (measured as described in
the definition of Purchaser Stock Price below) equals the value of the shares of
Common Stock into which such Preferred Security was convertible immediately
before the transaction (measured as aforesaid) and (b) where Common Stock is
converted solely into such common stock, each Preferred Security will be
convertible into the same number of shares of such common stock receivable by a
holder of the number of shares of Common Stock into which such Preferred
Security was convertible before such transaction.
In determining the amount and type of consideration received by a holder of
Common Stock in the event of a Fundamental Change, consideration received by a
holder of Common Stock pursuant to a statutory right of appraisal will be
disregarded.
"Applicable Price" means (i) in the event of a Non-Stock Fundamental Change
in which the holders of Common Stock receive only cash, the amount of cash
receivable by a holder of one share of Common Stock and (ii) in the event of any
other Fundamental Change, the Current Market Price for one share of Common Stock
on the record date for the determination of the holders of Common Stock entitled
to receive cash, securities, property or other assets in connection with such
Fundamental Change or, if there is no such record date, on the date on which the
holders of the Common Stock will have the right to receive such cash,
securities, property or other assets.
"Common Stock Fundamental Change" means any Fundamental Change in which
more than 50% of the value (as determined in good faith by the Company's Board
of Directors) of the consideration received by holders of Common Stock (subject
to certain limited exceptions) pursuant to such transaction consists of shares
of common stock that, for the twenty consecutive trading days immediately prior
to such Fundamental Change, has been admitted for listing or admitted for
listing subject to notice of issuance on a national securities exchange or
quoted on the NNM, provided, however, that a Fundamental Change will not be a
Common Stock Fundamental Change unless either (i) the Company continues to exist
after the occurrence of such Fundamental Change and the outstanding Preferred
Securities continue to exist as outstanding Preferred Securities, or (ii) the
outstanding Preferred Securities continue to exist as Preferred Securities and
are convertible into shares of common stock of the successor to the Company.
"Fundamental Change" means the occurrence of any transaction or event or
series of transactions or events pursuant to which all or substantially all of
the Common Stock is exchanged for, converted into, acquired for or constitutes
solely the right to receive cash, securities, property or other assets (whether
by means of an exchange offer, liquidation, tender offer, consolidation, merger,
combination, reclassification, recapitalization or otherwise); provided,
however, in the case of a plan involving more than one such transaction or
event, for purposes of adjustment of the conversion price, such Fundamental
Change will be deemed to have occurred when substantially all of the Common
Stock has been exchanged for, converted into, or acquired for or constitutes
solely the right to receive cash, securities, property or other assets but the
adjustment shall be based upon the consideration that the holders of Common
Stock received in the transaction or event as a result of which more than 50% of
the Common Stock shall have been exchanged for, converted into, or acquired for,
or shall constitute solely the right to receive such cash, securities, property
or other assets.
"Non-Stock Fundamental Change" means any Fundamental Change other than a
Common Stock Fundamental Change.
"Purchaser Stock Price" means, with respect to any Common Stock Fundamental
Change, the Current Market Price of common stock received by holders of Common
Stock in such Common Stock Fundamental Change on the record date for the
determination of the holders of Common Stock entitled to receive such
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<PAGE> 54
shares of common stock or, if there is no such record date, on the date upon
which the holders of Common Stock shall have the right to receive such shares of
common stock.
"Reference Market Price" will initially mean $ (which, unless
otherwise specified in this Prospectus, will be 66 2/3% of the last reported
sale price per share of Common Stock on the NNM on , 1997) and,
in the event of any adjustment to the conversion price other than as a result of
a Fundamental Change, the Reference Market Price will also be adjusted so that
the ratio of the Reference Market Price to the conversion price after giving
effect to any adjustment will always be the same as the ratio of the initial
Reference Market Price to the initial conversion price of the Preferred
Securities.
Conversion price adjustments or omissions in making such adjustments may,
under certain circumstances, be deemed to be distributions that could be taxable
as dividends to holders of Preferred Securities or to the holders of Common
Stock. See "United States Federal Income Taxation -- Conversion of Preferred
Securities."
MANDATORY REDEMPTION OF TRUST SECURITIES
The Preferred Securities have no stated maturity date but will be redeemed
upon the maturity of the Convertible Debentures or to the extent the Convertible
Debentures are redeemed. The Convertible Debentures will mature on
, 2017. Upon redemption of the Convertible Debentures at the
option of the Company, in whole or in part, at any time on or after
, 2000 (as described under "Description of the Convertible
Debentures -- Optional Redemption"), the Institutional Trustee shall
simultaneously use the proceeds from such redemption to redeem Trust Securities
with an aggregate liquidation amount equal to the aggregate principal amount of
the Convertible Debentures redeemed by the Company at the redemption prices
(expressed as a percentage of the liquidation amount) specified below for the
twelve month period commencing , in the year indicated
( , in the case of 2000):
<TABLE>
<CAPTION>
OPTIONAL
YEAR REDEMPTION PRICE
---------------------------------------------------------- ----------------
<S> <C>
2000...................................................... %
2001...................................................... %
2002...................................................... %
2003...................................................... %
2004...................................................... %
2005...................................................... %
2006...................................................... %
2007 and thereafter....................................... 100.00%
</TABLE>
plus, in each case, accrued and unpaid distributions (including distributions
with respect to Additional Interest and Compound Interest, if any, on the
corresponding Convertible Debentures so redeemed) to the date set for
redemption.
Upon the redemption of the Convertible Debentures by the Company, in whole
or in part, at any time in certain circumstances upon the occurrence of a Tax
Event described under "-- Special Event Redemption or Distribution," the
Institutional Trustee shall simultaneously use the proceeds from such redemption
to redeem Trust Securities with an aggregate liquidation amount equal to the
aggregate principal amount of the Convertible Debentures redeemed by the Company
at a redemption price equal to 100% of the liquidation amount thereof plus
accrued and unpaid distributions (including distributions with respect to
Additional Interest and Compound Interest, if any, on the corresponding
Convertible Debentures so redeemed) to the date set for redemption (subject to
the right of holders of the relevant record date to receive distributions due on
the applicable distribution payment date that is on or prior to the redemption
date).
Holders of the Trust Securities shall be given not less than 30 nor more
than 60 days' notice of any redemption. In the event that fewer than all of the
outstanding Preferred Securities are to be redeemed, the Preferred Securities
will be redeemed pro rata as described under "-- Book-Entry -- The Depository
Trust Company" below.
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<PAGE> 55
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
As used herein, "Tax Event" means that the Regular Trustees shall have
received an opinion of nationally recognized independent tax counsel experienced
in such matters (a "Dissolution Tax Opinion") to the effect that as a result of
(a) any amendment to, or change (including any announced prospective change) in,
the laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein or (b) any amendment to, or
change in, an interpretation or application of such laws or regulations by any
legislative body, court, governmental agency or regulatory authority (including
the enactment of any legislation and the publication of any judicial decision or
regulatory determination on or after the date of this Prospectus), in either
case after the date of this Prospectus, there is more than an insubstantial risk
that (i) the Trust would be subject to United States federal income tax with
respect to income accrued or received on the Convertible Debentures, (ii) the
Trust would be subject to more than a de minimis amount of other taxes, duties
or other governmental charges or (iii) interest payable by the Company to the
Trust on the Convertible Debentures would not be deductible, in whole or in
part, by the Company for United States federal income tax purposes.
As used herein, "Investment Company Event" means that the Regular Trustees
shall have received an opinion of a nationally recognized independent counsel
experienced in practicing under the Investment Company Act of 1940, as amended
(the "1940 Act"), to the effect that, as a result of the occurrence of a change
in law or regulation or a written change in interpretation or application of law
or regulation by any legislative body, court, governmental agency or regulatory
authority (a "Change in 1940 Act Law"), there is more than an insubstantial risk
that the Trust is or will be considered an "investment company" which is
required to be registered under the 1940 Act, which Change in 1940 Act Law
becomes effective on or after the date of this Prospectus.
If, at any time, a Tax Event or an Investment Company Event shall occur and
be continuing, the Trust shall, except in the limited circumstances described
below, be dissolved with the result that Convertible Debentures, with an
aggregate principal amount equal to the aggregate stated liquidation amount of,
with an interest rate identical to the distribution rate of, with accrued and
unpaid interest equal to accrued and unpaid distributions on, and having the
same record date for payment as, the Preferred Securities outstanding at such
time, would be distributed to the holders of the Trust Securities in liquidation
of such holders' interests in the Trust, on a pro rata basis within 90 days
following the occurrence of such Special Event; provided, however, that in the
case of the occurrence of a Tax Event, such dissolution and distribution shall
be conditioned on the Regular Trustees receipt of an opinion of nationally
recognized independent tax counsel experienced in such matters (a "No
Recognition Opinion"), which opinion may rely on, among other things, published
revenue rulings of the Internal Revenue Service, to the effect that the holders
of the Preferred Securities will not recognize any gain or loss for United
States federal income tax purposes as a result of such dissolution and
distribution of Convertible Debentures; and, provided, further, that if at the
time there is available to the Company or the Trust the opportunity to
eliminate, within such 90-day period, the Special Event by taking some
ministerial action, such as filing a form or making an election, or pursuing
some other similar reasonable measure that, in the sole judgment of the Company,
has or will cause no adverse effect on the Trust, the Company or the holders of
the Trust Securities, the Company or the Trust will pursue such measure in lieu
of dissolution. Furthermore, if in the case of the occurrence of a Tax Event,
(i) the Company has received an opinion (a "Redemption Tax Opinion") of
nationally recognized independent tax counsel experienced in such matters that,
as a result of such Tax Event, there is more than an insubstantial risk that the
Company would be precluded from deducting the interest on the Convertible
Debentures for United States federal income tax purposes, even after the
Convertible Debentures were distributed to the holders of Preferred Securities
in liquidation of such holders' interests in the Trust as described above, or
(ii) the Regular Trustees shall have been informed by such tax counsel that it
cannot deliver a No Recognition Opinion to the Regular Trustees, the Company
shall have the right, upon not less than 30 nor more than 60 days' notice to the
holders of the Preferred Securities, to redeem the Convertible Debentures, in
whole or in part, for cash within 90 days following the occurrence of such Tax
Event, and following such redemption, Preferred Securities with an aggregate
liquidation amount equal to the aggregate principal amount of Convertible
Debentures so redeemed shall be redeemed by the Trust at the Redemption Price on
a pro rata basis; provided, however, that if at the
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<PAGE> 56
time there is available to the Company or the Trust the opportunity to
eliminate, within such 90-day period, the Tax Event by taking some ministerial
action, such as filing a form or making an election, or pursuing some other
similar reasonable measure that, in the sole judgment of the Company, will have
no adverse effect on the Trust, the Company or the holders of the Trust
Securities, the Company or the Trust will pursue such measure in lieu of
redemption.
If the Convertible Debentures are distributed to the holders of the
Preferred Securities, the Company will use its best efforts to cause the
Convertible Debentures to be quoted on the NNM or on such other exchange as the
Preferred Securities are then listed.
After the date fixed for any distribution of Convertible Debentures upon
dissolution of the Trust, (i) the Preferred Securities will no longer be deemed
to be outstanding, (ii) the securities depositary or its nominee, as the record
holder of the Preferred Securities, will receive a registered global certificate
or certificates representing the Convertible Debentures to be delivered to the
holders of the Preferred Securities upon such distribution and (iii) any
certificates representing Preferred Securities not held by the securities
depositary or its nominee will be deemed to represent Convertible Debentures
having an aggregate principal amount equal to the aggregate stated liquidation
amount of, with an interest rate identical to the distribution rate of, and with
accrued and unpaid interest equal to accrued and unpaid distributions on, such
Preferred Securities until such certificates are presented to the Company or its
agent for transfer or reissuance.
There can be no assurance as to the market prices for either the Preferred
Securities or the Convertible Debentures that may be distributed in exchange for
Trust Securities if a dissolution and liquidation of the Trust were to occur.
Accordingly, the Preferred Securities that an investor may purchase, whether
pursuant to the offer made hereby or in the secondary market, or the Convertible
Debentures that the investor may receive if a dissolution and liquidation of the
Trust were to occur, may trade at a discount to the price the investor paid to
purchase Preferred Securities.
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all of the outstanding Preferred
Securities unless all accrued and unpaid distributions have been paid on all
Preferred Securities for all quarterly distribution periods occurring on or
prior to the date of redemption.
If the Trust gives a notice of redemption in respect of Preferred
Securities (which notice will be irrevocable), then, if the Company has paid to
the Institutional Trustee a sufficient amount of cash in connection with the
related redemption or maturity of the Convertible Debentures by 12:00 noon New
York City time on the redemption date, the Preferred Securities represented by
the Global Certificates will irrevocably deposit (i) with DTC, funds sufficient
to pay the applicable Redemption Price on redemption of all Preferred Securities
represented by the Global Certificates and will give DTC irrevocable
instructions and authority to pay such amount in respect of Preferred Securities
represented by the Global Certificates (as defined herein) and (ii) with the
paying agent for the Preferred Securities, funds sufficient to pay such amount
in respect of any Certificated Securities and will give such paying agent
irrevocable instructions and authority to pay such amount to the holders of
Certificated Securities upon surrender of their certificates. If notice of
redemption shall have been given and funds are deposited as required, then
immediately prior to the close of business on the date of such deposit
distributions will cease to accrue and all rights of holders of Preferred
Securities so called for redemption will cease, except the right of the holders
of such Preferred Securities to receive the Redemption Price, but without
interest on such Redemption Price. In the event that any date fixed for
redemption of Preferred Securities is not a Business Day, then payment of the
applicable Redemption Price payable on such date will be made on the next
succeeding day that is a Business Day (without any interest or other payment in
respect of any such delay), except that, if such Business Day falls in the next
calendar year, such payment will be made on the immediately preceding Business
Day. In the event that payment of the Redemption Price in respect of Preferred
Securities is improperly withheld or refused and not paid either by the Trust or
by the Company pursuant to the Guarantee, distributions on such Preferred
Securities will continue to accrue at the then applicable rate from the original
redemption date to the date of payment, in which case the actual payment date
will be considered the date fixed for redemption for purposes of calculating the
Redemption Price.
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<PAGE> 57
In the event that fewer than all of the outstanding Preferred Securities
are to be redeemed, the Preferred Securities will be redeemed in accordance with
DTC's standard procedures. See "-- Book-Entry -- The Depository Trust Company."
Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), the Company or its subsidiaries may at
any time, and from time to time, purchase outstanding Preferred Securities by
tender, in the open market or by private agreement.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the amount payable upon redemption of, the
Trust Securities, as applicable, shall be made pro rata based on the liquidation
amount of the Trust Securities; provided, however, that, if on any distribution
date or redemption date a Declaration Event of Default shall have occurred and
be continuing, no payment of any distribution on, or amount payable upon
redemption of, any Common Security, and no other payment on account of the
redemption, liquidation or other acquisition of Common Securities, shall be made
unless payment in full in cash of all accumulated and unpaid distributions on
all outstanding Preferred Securities for all distribution periods terminating on
or prior thereto, or in the case of payment of the amount payable upon
redemption of the Preferred Securities, all of such amount in respect of all
outstanding Preferred Securities shall have been made or provided for, and all
funds available to the Institutional Trustee shall first be applied to the
payment in full in cash of all distributions on, or the amount payable upon
redemption of, Preferred Securities then due and payable.
In the case of any Declaration Event of Default, the holders of Common
Securities will be deemed to have waived any such Declaration Event of Default
with respect to the Common Securities until all such Declaration Events of
Default with respect to the Preferred Securities have been cured, waived or
otherwise eliminated. Until any such Declaration Events of Default with respect
to the Preferred Securities have been so cured, waived or otherwise eliminated,
the Institutional Trustee will act solely on behalf of the holders of the
Preferred Securities and not the holders of the Common Securities, and only the
holders of the Preferred Securities will have the right to direct the
Institutional Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each, a "Liquidation"), the holders of
the Preferred Securities will be entitled to receive out of the assets of the
Trust, after satisfaction of liabilities to creditors, distributions in an
amount equal to the aggregate of the stated liquidation amount of $25 per
Preferred Security plus accrued and unpaid distributions thereon to the date of
payment (the "Liquidation Distribution"), unless, in connection with such
Liquidation, Convertible Debentures in an aggregate stated principal amount
equal to the aggregate stated liquidation amount of, with an interest rate
identical to the distribution rate of, and accrued and unpaid interest equal to
accrued and unpaid distributions on, the Preferred Securities outstanding at
such time have been distributed on a pro rata basis to the holders of the
Preferred Securities.
If, upon any such Liquidation, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Preferred Securities shall be paid on a pro rata basis. The holders
of the Common Securities will be entitled to receive distributions upon any such
dissolution pro rata with the holders of the Preferred Securities, except that
if a Declaration Event of Default has occurred and is continuing, the holders of
the Common Securities shall not be permitted to receive such distributions until
such Declaration Event of Default has been cured.
Pursuant to the Declaration, the Trust shall dissolve (i) upon the
bankruptcy of the Company or the holder of the Common Securities; (ii) upon the
filing of a certificate of dissolution or its equivalent with respect to the
holder of the Common Securities or the Company, the filing of a certificate of
cancellation with respect to the Trust after having obtained the consent of at
least a majority in liquidation amount of the Trust Securities, voting together
as a single class, to file such certificate of cancellation, or the revocation
of the charter of the Company or the holder of the Common Securities and the
expiration of 90 days after the date of
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<PAGE> 58
revocation without a reinstatement thereof; (iii) upon the entry of a decree of
judicial dissolution of the holder of the Common Securities, the Company or the
Trust; (iv) when all of the Trust Securities shall have been called for
redemption and the amounts necessary for redemption thereof, including any
Additional Interest and Compound Interest, shall have been paid to the holders
thereof in accordance with the terms of the Trust Securities; (v) upon the
distribution of Convertible Debentures upon the occurrence of a Special Event;
(vi) upon the distribution of the Company's Common Stock to all Holders of the
Trust Securities upon conversion of all outstanding Preferred Securities; or
(vii) the expiration of the term of the Trust.
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Declaration with respect to the Trust
Securities (a "Declaration Event of Default"); provided, that pursuant to the
Declaration, the holder of the Common Securities will be deemed to have waived
any Declaration Event of Default with respect to the Common Securities until all
Declaration Events of Default with respect to the Preferred Securities have been
cured, waived or otherwise eliminated. Until such Declaration Events of Default
with respect to the Preferred Securities have been so cured, waived or otherwise
eliminated, the Institutional Trustee will be deemed to be acting solely on
behalf of the holders of the Preferred Securities, and only the holders of the
Preferred Securities will have the right to direct the Institutional Trustee
with respect to certain matters under the Declaration and, therefore, the
Indenture. In the event any Declaration Event of Default with respect to the
Preferred Securities is waived by the holders of the Preferred Securities as
provided in the Declaration, the holders of Common Securities pursuant to the
Declaration have agreed that such waiver also constitutes a waiver of such
Declaration Event of Default with respect to the Common Securities for all
purposes under the Declaration without any further act, vote or consent of the
holders of Common Securities. See "-- Voting Rights." The Institutional Trustee
shall notify all holders of the Preferred Securities of any notice of default
received from the Indenture Trustee with respect to the Convertible Debentures.
Such notice shall state that such Indenture Event of Default also constitutes a
Declaration Event of Default.
If the Institutional Trustee fails to enforce its rights under the
Convertible Debentures, to the fullest extent permitted by law, any holder of
Preferred Securities may directly institute a legal proceeding against the
Company to enforce the Institutional Trustee's rights under the Convertible
Debentures without first instituting any legal proceeding against the
Institutional Trustee or any other person or entity. If a Declaration Event of
Default has occurred and is continuing and such event is attributable to the
failure of the Company to pay interest or principal on the Convertible
Debentures on the date such interest or principal is otherwise payable (or in
the case of redemption, the redemption date), then a holder of Preferred
Securities may also directly institute a proceeding for enforcement of payment
to such holder of the principal of or interest on the Convertible Debentures
having a principal amount equal to the aggregate liquidation amount of the
Preferred Securities of such holder on or after the respective due date
specified in the Convertible Debentures without first (i) directing the
Institutional Trustee to enforce the terms of the Convertible Debentures or (ii)
instituting a legal proceeding against the Company to enforce the Institutional
Trustee's rights under the Convertible Debentures. In connection with such
Direct Action, the Company will be subrogated to the rights of such holder of
Preferred Securities under the Declaration to the extent of any payment made by
the Company to such holder of Preferred Securities in such Direct Action.
Consequently, the Company will be entitled to payment of amounts that a holder
of Preferred Securities receives in respect of an unpaid distribution that
resulted in the bringing of a Direct Action to the extent that such holder
receives or has already received full payment with respect to such unpaid
distribution from the Trust. The holders of Preferred Securities will not be
able to exercise directly any other remedy available to the holders of the
Convertible Debentures.
Upon the occurrence of an Indenture Event of Default, the Institutional
Trustee as the sole holder of the Convertible Debentures will have the right
under the Indenture to declare the principal of and interest on the Convertible
Debentures to be immediately due and payable. The Company and the Trust are each
required to file annually with the Institutional Trustee an officers'
certificate as to its compliance with all conditions and covenants under the
Declaration.
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VOTING RIGHTS
Except as described in this Prospectus under "Description of the Guarantee
- -- Modification of the Guarantee; Assignment," and except as provided under the
Trust Act and the Trust Indenture Act and as otherwise required by law and the
Declaration, the holders of the Preferred Securities will have no voting rights.
Subject to the requirement of the Institutional Trustee obtaining a tax
opinion in certain circumstances set forth in the last sentence of this
paragraph, the holders of a majority in aggregate liquidation amount of the
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Institutional Trustee
or direct the exercise of any trust or power conferred upon the Institutional
Trustee under the Declaration, including the right to direct the Institutional
Trustee, as holder of the Convertible Debentures, to (i) direct the time, method
and place of conducting any proceeding for any remedy available to the Indenture
Trustee, or exercising any trust or power conferred on the Indenture Trustee
with respect to the Convertible Debentures, (ii) waive any past Indenture Event
of Default that is waivable under the Indenture, (iii) exercise any right to
rescind or annul a declaration that the principal of all the Convertible
Debentures shall be due and payable or (iv) consent to any amendment,
modification or termination of the Indenture or the Convertible Debentures where
such consent shall be required; provided, however, that where a consent or
action under the Indenture would require the consent or act of the holders of
more than a majority in principal amount of Convertible Debentures (a "Super
Majority") affected thereby, only the holders of at least such Super Majority in
aggregate liquidation amount of the Preferred Securities may direct the
Institutional Trustee to give such consent or take such action. If the
Institutional Trustee fails to enforce its rights under the Convertible
Debentures, to the fullest extent permitted by law, any record holder of
Preferred Securities may directly institute a legal proceeding against the
Company to enforce the Institutional Trustee's rights under the Convertible
Debentures without first instituting any legal proceeding against the
Institutional Trustee or any other person or entity. The Institutional Trustee
shall notify all holders of the Preferred Securities of any notice of default
received from the Indenture Trustee with respect to the Convertible Debentures.
Such notice shall state that such Indenture Event of Default also constitutes a
Declaration Event of Default. Except with respect to directing the time, method
and place of conducting a proceeding for a remedy available to the Institutional
Trustee, the Institutional Trustee, as holder of the Convertible Debentures,
shall not take any of the actions described in clauses (i), (ii), (iii) or (iv)
above unless the Institutional Trustee has obtained an opinion of independent
tax counsel experienced in such matters to the effect that as a result of such
action, the Trust will not fail to be classified as a grantor trust for United
States federal income tax purposes.
In the event the consent of the Institutional Trustee, as the holder of the
Convertible Debentures, is required under the Indenture with respect to any
amendment, modification or termination of the Indenture, the Institutional
Trustee shall request the written direction of the holders of the Trust
Securities with respect to such amendment, modification or termination and shall
vote with respect to such amendment, modification or termination as directed by
a majority in liquidation amount of the Trust Securities voting together as a
single class; provided, however, that where any amendment, modification or
termination under the Indenture would require the consent of a Super Majority,
the Institutional Trustee may only give such consent at the direction of the
holders of at least the proportion in aggregate stated liquidation amount of the
Trust Securities which the relevant Super Majority represents of the aggregate
principal amount of the Convertible Debentures outstanding. The Institutional
Trustee shall be under no obligation to take any such action in accordance with
the direction of the holders of the Trust Securities unless the Institutional
Trustee has obtained an opinion of a nationally recognized independent tax
counsel experienced in such matters to the effect that for United States federal
income tax purposes the Trust will not be classified as other than a grantor
trust.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Preferred Securities may
be given at a separate meeting of holders of Preferred Securities convened for
such purpose, at a meeting of all of the holders of Trust Securities or pursuant
to written consent. The Regular Trustees will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of
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such holders is to be taken, to be mailed to each holder of record of Preferred
Securities. Each such notice will include a statement setting forth the
following information: (i) the date of such meeting or the date by which such
action is to be taken; (ii) a description of any resolution proposed for
adoption at such meeting on which such holders are entitled to vote or of such
matter upon which written consent is sought; and (iii) instructions for the
delivery of proxies or consents. No vote or consent of the holders of Preferred
Securities will be required for the Trust to redeem and cancel Preferred
Securities or distribute Convertible Debentures in accordance with the
Declaration.
Notwithstanding that holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
Securities that are owned at such time by the Company or any entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, the Company, shall not be entitled to vote or consent and shall,
for purposes of such vote or consent, be treated as if such Preferred Securities
were not outstanding.
The procedures by which holders of Preferred Securities represented by the
Global Certificates may exercise their voting rights are described below. See
"-- Book-Entry -- The Depository Trust Company."
Holders of the Preferred Securities will have no right to appoint or remove
any of the Trustees, who may be appointed, removed or replaced solely by the
Company as the holder of the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the Regular
Trustees (and, in certain circumstances, the Institutional Trustee and the
Delaware Trustee), provided, that if any proposed amendment provides for, or the
Regular Trustees otherwise propose to effect, (i) any action that would
adversely affect the powers, preferences or special rights of the holders of the
Trust Securities, whether by way of amendment to the Declaration or otherwise or
(ii) the dissolution, winding-up or termination of the Trust other than pursuant
to the terms of the Declaration, then the holders of the Trust Securities voting
together as a single class will be entitled to vote on such amendment or
proposal and such amendment or proposal shall not be effective except with the
approval of holders of at least a majority in liquidation amount of the Trust
Securities affected thereby; provided, that if any amendment or proposal
referred to in clause (i) above would adversely affect only the Preferred
Securities or the Common Securities, then only the affected class will be
entitled to vote on such amendment or proposal and such amendment or proposal
shall not be effective except with the approval of a majority in liquidation
amount of such class of Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified for United States federal income tax purposes as other than a
grantor trust, (ii) reduce or otherwise adversely affect the powers of the
Institutional Trustee or (iii) cause the Trust to be deemed an "investment
company" that is required to be registered under the 1940 Act.
MERGER, CONSOLIDATION OR AMALGAMATION OF THE TRUST
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any corporation or other body, except as
described below or as otherwise set forth in the Declaration. The Trust may,
with the consent of the Regular Trustees and without the consent of the holders
of the Trust Securities, consolidate, amalgamate, merge with or into, or be
replaced by a trust organized as such under the laws of any State provided, that
(i) such successor entity either (x) expressly assumes all of the obligations of
the Trust under the Trust Securities or (y) substitutes for the Preferred
Securities other securities having substantially the same terms as the Preferred
Securities (the "Successor Securities"), so long as the Successor Securities
rank the same as the Preferred Securities rank with respect to distributions,
assets and payments upon liquidation, redemption and otherwise, (ii) the Company
expressly acknowledges a trustee of such successor entity possessing the same
powers and duties as the Institutional Trustee, in its capacity as the holder of
the Convertible Debentures, (iii) the Preferred Securities or any Successor
Securities are listed, or any Successor Securities will be listed upon
notification of
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issuance, on any national securities exchange or with another organization on
which the Preferred Securities are then listed or quoted, (iv) such merger,
consolidation, amalgamation or replacement does not cause the Preferred
Securities (including any Successor Securities) to be downgraded by any
nationally recognized statistical rating organization, (v) such merger,
consolidation, amalgamation or replacement does not adversely affect the rights,
preferences and privileges of the holders of the Preferred Securities (including
any Successor Securities) in any material respect (other than with respect to
any dilution of the holders' interest in the new entity), (vi) such successor
entity has a purpose substantially identical to that of the Trust, (vii) the
Company guarantees the obligations of such successor entity under the Successor
Securities to the same extent as provided by the Guarantee and (viii) prior to
such merger, consolidation, amalgamation or replacement, the Company has
received an opinion of a nationally recognized independent counsel to the Trust
and experienced in such matters to the effect that: (A) such merger,
consolidation, amalgamation or replacement will not adversely affect the rights,
preferences and privileges of the holders of the Trust Securities (including any
Successor Securities) in any material respect (other than with respect to any
dilution of the holders' interest in the new entity) and (B) following such
merger, consolidation, amalgamation or replacement, neither the Trust nor such
successor entity will be required to register as an "investment company" under
the 1940 Act. Notwithstanding the foregoing, the Trust shall not, except with
the consent of holders of 100% in liquidation amount of the Trust Securities,
consolidate, amalgamate, merge with or into, or be replaced by any other entity
or permit any other entity to consolidate, amalgamate, merge with or into, or
replace it, if, in the opinion of a nationally recognized independent tax
counsel experienced in such matters, such consolidation, amalgamation, merger or
replacement would cause the Trust or the successor entity to be classified as
other than a grantor trust for United States federal income tax purposes. In
addition, so long as any Preferred Securities remain outstanding and are not
held entirely by the Company, the Trust may not voluntarily liquidate, dissolve,
wind-up or terminate except as described above under "-- Special Event
Redemption or Distribution."
BOOK-ENTRY -- THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depositary for
the Global Certificates. Unless a holder requests a Preferred Security in
definitive physical form ("a Physical Certificate") the Preferred Securities
will be issued only as fully-registered securities, registered in the name of
Cede & Co. (DTC's nominee), in the form of one or more fully-registered global
Preferred Securities certificates (the "Global Certificates").
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the global Preferred
Securities as represented by a Global Certificate and require delivery of a
Physical Certificate.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
in DTC include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations (the "Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc., and the National Association of
Securities Dealers, Inc. (the "NASD"). Access to the DTC system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants"). The rules
applicable to DTC and its Participants are on file with the Commission.
Purchases of Preferred Securities within the DTC system must be made by or
through Participants, which will receive a credit for the Preferred Securities
on DTC's records. The ownership interest of each actual purchaser of each
Preferred Security ("Beneficial Owner") is in turn to be recorded on the Direct
and
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<PAGE> 62
Indirect Participants' records. Beneficial Owners will not receive written
confirmation from DTC of their purchases, but Beneficial Owners are expected to
receive written conformations providing details of the transactions, as well as
periodic statements of their holdings, from the Direct or Indirect Participants
through which the Beneficial Owners purchased Preferred Securities. Transfers of
ownership interests in the Preferred Securities are to be accomplished by
entries made on the books of Direct Participants acting on behalf of Beneficial
Owners. Beneficial Owners will not receive certificates representing their
ownership interests in the Preferred Securities, except in the event that use of
the book-entry system for the Preferred Securities is discontinued.
To facilitate subsequent transfers, all Preferred Securities deposited by
Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of Preferred Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Preferred Securities. DTC's records reflect
only the identity of the Direct Participants to whose accounts such Preferred
Securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Preferred Securities are being redeemed, DTC will reduce the amount of the
interest of each Direct Participant in such Preferred Securities in accordance
with its procedures.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to the Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to the Trust as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Direct Participants to whose accounts the Preferred
Securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy).
Distributions on the Preferred Securities in the form of Global
Certificates will be made to DTC. DTC's practice is to credit Direct
Participants' accounts on the relevant payment date in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe that
it will not receive payments on such payment date. Payments by Participants and
Indirect Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the account of customers in bearer form or registered in "Street name," and such
payments will be the responsibility of such Participants and not of DTC, the
Trust or the Company, subject to any statutory or regulatory requirements as may
be in effect from time to time. Payment of distributions to DTC is the
responsibility of the Trust, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner of an interest in a Global
Certificate will not be entitled to receive physical delivery of Preferred
Securities. Accordingly, each Beneficial Owner must rely on the procedures of
DTC to exercise any rights under the Preferred Securities.
DTC may discontinue providing its services as securities depositary with
respect to the Preferred Securities at any time by giving reasonable notice to
the Trust. Under such circumstances, in the event that a successor securities
depositary is not obtained, Preferred Securities in the form of Physical
Certificates will be delivered in exchange for beneficial interests in each
Global Certificate. Additionally, the Regular Trustees (with the consent of the
Company) may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor depositary) with respect to the Preferred
Securities. In that event, Physical
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<PAGE> 63
Certificates for the Preferred Securities will be delivered in exchange for
beneficial interests in each Global Certificate.
The information in this Section concerning DTC and DTC's book-entry system
has been obtained from sources that the Trust and the Company believe to be
reliable, but neither the Trust nor the Company takes responsibility for the
accuracy thereof.
INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE
The Institutional Trustee, prior to the occurrence of a default with
respect to the Trust Securities, undertakes to perform only such duties as are
specifically set forth in the Declaration and, after such a default, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his own affairs. Subject to such provisions, the Institutional
Trustee is under no obligation to exercise any of the powers vested in it by the
Declaration at the request of any holder of Preferred Securities, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. Notwithstanding the foregoing, the holders of
Preferred Securities will not be required to offer such indemnity in the event
such holders, by exercising their voting rights, direct the Institutional
Trustee to take any action following a Declaration Event of Default.
PAYING AGENT
Payments in respect of the Preferred Securities represented by the Global
Certificates will be made to DTC, which will credit the relevant accounts at DTC
on the applicable distribution dates or, in the case of Certificated Securities,
such payments shall be made by check mailed to the address of the holder
entitled thereto as such address shall appear on the Register. The Paying Agent
initially will be the Institutional Trustee. The Paying Agent will be permitted
to resign as Paying Agent upon 30 days' written notice to the Trustees. In the
event that the Institutional Trustee will no longer be the Paying Agent, the
Regular Trustees shall appoint a successor to act as Paying Agent (which shall
be a bank or trust company).
REGISTRAR, TRANSFER AGENT AND CONVERSION AGENT
The Institutional Trustee will act as Registrar, Transfer Agent and
Conversion Agent for the Preferred Securities.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of the Trust, but upon payment (with the giving of such
indemnity as the Trust or the Company may require) in respect of any tax or
other government charges that may be imposed in relation to it.
The Trust will not be required to register or cause to be registered the
transfer of Preferred Securities after such Preferred Securities have been
called for redemption.
GOVERNING LAW
The Declaration and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate the Trust in
such a way that the Trust will not be deemed to be an "investment company"
required to be registered under the 1940 Act or characterized as other than a
grantor trust for United States federal income tax purposes. In this connection,
the Company and the Regular Trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust or the Declaration
that each of the Company and the Regular Trustees determine in their discretion
to be necessary or desirable for such purposes as long as such action does not
materially adversely affect the interests of the holders of the Preferred
Securities.
Holders of the Preferred Securities have no preemptive or similar rights.
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DESCRIPTION OF THE CONVERTIBLE DEBENTURES
Set forth below is a description of the specific terms of the Convertible
Debentures in which the Trust will invest the proceeds from the issuance and
sale of the Trust Securities. The following description does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the Indenture (the "Indenture") between the Company and Bankers Trust Company,
as trustee (the "Indenture Trustee"), the form of which is filed as an exhibit
to the Registration Statement of which this Prospectus is a part. Certain
capitalized terms used herein are defined in the Indenture.
Under certain circumstances involving the dissolution of the Trust
following the occurrence of a Special Event, Convertible Debentures may be
distributed to the holders of the Trust Securities in liquidation of the Trust.
See "Description of the Preferred Securities -- Special Event Redemption or
Distribution."
If the Convertible Debentures are distributed to the holders of Preferred
Securities, the Company will use its best efforts to have the Convertible
Debentures quoted on the NNM or on any national securities exchange or similar
organization on which the Preferred Securities are then listed or quoted (as
defined herein).
GENERAL
The Convertible Debentures will be issued as unsecured debt under the
Indenture. The Convertible Debentures will be limited in aggregate principal
amount to $50 million ($57.5 million if the Underwriters' over-allotment option
is exercised in full), such amount being the sum of the aggregate stated
liquidation amount of the Preferred Securities and the Common Securities.
The Convertible Debentures are not subject to a sinking fund provision. The
entire principal amount of the Convertible Debentures will mature and become due
and payable, together with any accrued and unpaid interest thereon, including
Compound Interest (as defined herein) and Additional Interest (as defined
herein), if any, on , 2017.
If Convertible Debentures are distributed to holders of Preferred
Securities in liquidation of such holder's interest in the Trust, such
Convertible Debentures will initially be issued in the form of one or more
Global Securities (as defined herein under "-- Book-Entry and Settlement"
below). As described herein under certain limited circumstances, Convertible
Debentures may be issued in certificated form in exchange for a Global Security.
In the event that Convertible Debentures are issued in certificated form, such
Convertible Debentures will be in denominations of $25 and integral multiples
thereof and may be transferred or exchanged at the offices described below.
Payments on Convertible Debentures issued as a Global Security will be made to
DTC, a successor depositary or, in the event that no depositary is used, to a
Paying Agent for the Convertible Debentures. In the event Convertible Debentures
are issued in certificated form, principal and interest will be payable, the
transfer of the Convertible Debentures will be registrable and Convertible
Debentures will be exchangeable for Convertible Debentures of other
denominations of a like aggregate principal amount at the corporate trust office
of the Indenture Trustee in New York, New York; provided, that payment of
interest may be made at the option of the Company by check mailed to the address
of the persons entitled thereto.
There are no covenants or provisions in the Indenture that afford holders
of Convertible Debentures protection in the event of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction
involving the Company that may adversely affect such holders.
SUBORDINATION
The Indenture provides that the Convertible Debentures are subordinate and
junior in right of payment to all existing and future Senior Indebtedness of the
Company. No payment of principal (including redemption payments), premium, if
any, or interest (including Additional Interest and Compound Interest) on, the
Convertible Debentures may be made if (i) any Senior Indebtedness of the Company
has not been paid when due and any applicable grace period with respect to such
default has ended and such default has not been cured or waived, or ceased to
exist or (ii) the maturity of any Senior Indebtedness of the Company has been
accelerated because of a default. At September 30, 1996, after giving effect to
the application of the net proceeds of the Offering, Senior Indebtedness of the
Company aggregated approximately $272 million. Upon any distribution of assets
of the Company to creditors upon any dissolution, winding up, liquidation or
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reorganization, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all principal of, and premium, if any, and
interest due or to become due on, all Senior Indebtedness of the Company must be
paid in full before the holders of the Convertible Debentures are entitled to
receive or retain any payment. Upon satisfaction of all claims related to all
Senior Indebtedness of the Company then outstanding, the rights of the holders
of the Convertible Debentures will be subrogated to the rights of the holders of
Senior Indebtedness of the Company to receive payments or distributions
applicable to Senior Indebtedness until all amounts owing on the Convertible
Debentures are paid in full.
The term "Senior Indebtedness" means, with respect to the Company, (i) the
principal, premium, if any, and interest in respect of (A) indebtedness of such
obligor for money borrowed and (B) indebtedness evidenced by securities, notes,
debentures, bonds or other similar instruments issued by such obligor, (ii) all
capital lease obligations of such obligor, (iii) all obligations of such obligor
issued or assumed as the deferred purchase price of property, all conditional
sale obligations of such obligor and all obligations of such obligor under any
title retention agreement (but excluding trade accounts payable arising in the
ordinary course of business), (iv) all obligations of such obligor for the
reimbursement of any letter of credit, banker's acceptance, security purchase
facility or similar credit transaction, (v) all obligations in respect of
interest rate swap, cap or other similar agreements, interest rate future or
option contracts, currency swap agreements, currency future or option contracts
and other similar agreements, (vi) all obligations of the type referred to in
clauses (i) through (v) above of other persons for the payment of which such
obligor is responsible or liable as obligor, guarantor or otherwise, and (vii)
all obligations of the type referred to in clauses (i) through (vi) above of
other persons secured by any lien on any property or asset of such obligor
(whether or not such obligation is assumed by such obligor), except for (1) any
such indebtedness that is by its terms subordinated to or pari passu with the
Convertible Debentures and (2) any indebtedness between or among such obligor or
its affiliates, including all other debt securities and guarantees in respect of
those debt securities, issued to (a) the Trust or a trustee of such trust and
(b) any other trust, or a trustee of such trust, partnership or other entity
affiliated with the Company that is a financing vehicle of the Company (a
"financing entity") in connection with the issuance by such financing entity of
preferred securities or other securities that rank pari passu with, or junior
to, the Preferred Securities. Such Senior Indebtedness shall continue to be
Senior Indebtedness and be entitled to the benefits of the subordination
provisions irrespective of any amendment, modification or waiver of any term of
such Senior Indebtedness.
In addition, a substantial portion of the Company's operations is conducted
through its subsidiaries. At September 30, 1996, indebtedness and other
liabilities of such subsidiaries aggregated, after giving effect to the
application of the net proceeds of the Offering, approximately $369 million
(including the $272 million referred to above), which liabilities are
effectively senior to the Convertible Debentures. See "Capitalization."
The Indenture does not limit the aggregate amount of Senior Indebtedness
that may be issued by the Company.
OPTIONAL REDEMPTION
The Company shall have the right to redeem the Convertible Debentures, in
whole or in part, from time to time on or after , 2000, at the
redemption prices (expressed as a percentage of principal amount) specified
below (the "Redemption Prices") for the twelve month period commencing
, in the year indicated ( , in the case of 2000):
<TABLE>
<CAPTION>
OPTIONAL
YEAR REDEMPTION PRICE
--------------------------------------------------------------- ----------------
<S> <C>
2000........................................................... %
2001........................................................... %
2002........................................................... %
2003........................................................... %
2004........................................................... %
2005........................................................... %
2006........................................................... %
2007 and thereafter............................................ 100.00%
</TABLE>
plus, in each case, accrued and unpaid interest, including Additional Interest
and Compound Interest, if any, to the date set for redemption.
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<PAGE> 66
The Company may also redeem the Convertible Debentures, in whole or in
part, at any time in certain circumstances upon the occurrence of a Tax Event as
described under "Description of the Preferred Securities -- Special Event
Redemption or Distribution" at a redemption price equal to 100% of the principal
amount to be redeemed plus accrued and unpaid interest, including Additional
Interest and Compound Interest, if any, to the date set for redemption (subject
to the right of holders of record on the relevant record date to receive
interest due on an Interest Payment Date that is on or prior to the redemption
date).
If a partial redemption of the Preferred Securities resulting from a
partial redemption of the Convertible Debentures would result in the delisting
of the Preferred Securities, the Company may only redeem Convertible Debentures
in whole.
PROPOSED TAX LEGISLATION
On March 19, 1996, the U.S. Treasury Department proposed certain tax law
changes (the "Proposed Legislation") that would, among other things, generally
deny corporate issuers a deduction for interest in respect of certain debt
obligations, with a maximum term of more than 20 years, that are not shown as
indebtedness on the consolidated balance sheet of the issuer. The Convertible
Debentures have a maximum term of 20 years, and therefore would not be adversely
affected by passage of the Proposed Legislation, even if the Proposed
Legislation has a retroactive effective date. However, there can be no assurance
that any Proposed Legislation, if enacted, would not apply to debt obligations
with a term of 20 or fewer years, including the Convertible Debentures.
On March 29, 1996, Senate Finance Committee Chairman William V. Roth, Jr.
and House Ways and Means Committee Chairman Bill Archer issued a joint statement
(the "Joint Statement") indicating their intent that the Proposed Legislation,
if adopted by either of the tax-writing committees of Congress, would have an
effective date that is no earlier than the date of "appropriate Congressional
action." Based upon the Joint Statement, it is expected that if the Proposed
Legislation were to be enacted, such legislation would not apply to the
Convertible Debentures because they will be issued prior to the date of any
"appropriate Congressional action." There can be no assurance, however, that any
proposed legislation enacted after the date hereof will not otherwise adversely
affect the ability of the Company to deduct the interest payable on the
Convertible Debentures. Accordingly, there can be no assurance that a Tax Event
will not occur. See "Description of the Preferred Securities -- Special Event
Redemption or Distribution."
INTEREST
Each Convertible Debenture will bear interest at the rate of % per annum
from the original date of issuance, payable quarterly in arrears on March 31,
June 30, September 30 and December 31 (each, an "Interest Payment Date"),
commencing March 31, 1997, to the person in whose name such Convertible
Debenture is registered, subject to certain exceptions, at the close of business
on the March 15, June 15, September 15 and December 15, as the case may be, next
preceding such Interest Payment Date. In the event the Convertible Debentures
shall not continue to remain in book-entry only form, the Company shall have the
right to select record dates, which shall be more than 14 days but less than 60
days prior to the Interest Payment Date.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. The amount of interest payable for
any period shorter than a full quarterly period for which interest is computed
will be computed on the basis of the actual number of days elapsed. In the event
that any date on which interest is payable on the Convertible Debentures is not
a Business Day, then payment of the interest payable on such date will be made
on the next succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay), except that, if such Business Day
is in the next succeeding calendar year, then such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date.
INTEREST INCOME AND OPTION TO EXTEND INTEREST PAYMENT PERIODS
The Company shall have the right at any time, and from time to time, during
the term of the Convertible Debentures, to defer payments of interest by
extending the interest payment period for a period not exceeding 20 consecutive
quarters; provided, that no Extension Period may extend beyond the maturity of
the
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Convertible Debentures, and at the end of which Extension Period the Company
shall pay all interest then accrued and unpaid (including any Additional
Interest) together with interest thereon compounded quarterly at the rate
specified for the Convertible Debentures to the extent permitted by applicable
law ("Compound Interest"); provided, further, that during any such Extension
Period, (a) the Company shall not declare or pay dividends on, or make any
distributions or liquidation payments with respect to, or redeem, purchase or
acquire any of its capital stock (other than (i) purchases or acquisitions of
shares of Common Stock in connection with the satisfaction by the Company of its
obligations under any employee benefit plans or the satisfaction by the Company
of its obligations pursuant to any contract or security requiring the Company to
purchase shares of the Common Stock, (ii) as a result of a reclassification of
the Company's capital stock or the exchange or conversion of one class or series
of the Company's capital stock for another class or series of the Company's
capital stock, (iii) the purchase of fractional interests in shares of the
Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged or (iv) stock
dividends paid by the Company where the dividend stock is the same stock as that
on which the dividend is paid), (b) the Company shall not make any payment of
interest on or principal of (or premium, if any, on) or repay, repurchase or
redeem any debt securities (including guarantees) issued by the Company which
rank pari passu with or junior to the Convertible Debentures and (c) the Company
shall not make any guarantee payments with respect to the foregoing (other than
pursuant to the Guarantee). Prior to the termination of any such Extension
Period, the Company may further extend such Extension Period; provided, that
such Extension Period together with all previous and further extensions thereof
may not exceed 20 consecutive quarters; and provided further that no Extension
Period may extend beyond the maturity date of the Convertible Debentures. Upon
the termination of any Extension Period and the payment of all amounts then due,
the Company may commence a new Extension Period, subject to the above
requirements. No interest shall be due and payable during an Extension Period.
The Company has no current intention of exercising its right to defer payments
of interest by extending the interest payment period on the Convertible
Debentures. If the Institutional Trustee shall be the sole holder of the
Convertible Debentures, the Company shall give the Regular Trustees and the
Institutional Trustee notice of its selection of such Extension Period at least
one Business Day prior to the earlier of (i) the date the distributions on the
Preferred Securities would be payable, if not for such Extension Period or (ii)
the date the Regular Trustees are required to give notice to the NNM (or any
applicable self-regulatory organization) or to holders of the Preferred
Securities of the record date or the date such distribution would be payable if
not for such Extension Period, but in any event not less than one Business Day
prior to such record date. The Regular Trustees shall give notice of the
Company's selection of such Extension Period to the holders of the Preferred
Securities. If the Institutional Trustee shall not be the sole holder of the
Convertible Debentures, the Company shall give the holders of the Convertible
Debentures notice of its selection of such Extension Period at least ten
Business Days prior to the earlier of (i) the next succeeding Interest Payment
Date or (ii) the date upon which the Company is required to give notice to the
NNM (or any applicable self-regulatory organization) or to holders of the
Convertible Debentures on the record or payment date of such related interest
payment.
ADDITIONAL INTEREST
If at any time the Trust shall be required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States, or any other taxing authority, then, in any
such case, the Company will pay as additional interest ("Additional Interest")
on the Convertible Debentures such additional amounts as shall be required so
that the net amounts received and retained by the Trust after paying any such
taxes, duties, assessments or governmental charges will be not less than the
amounts the Trust would have received had no such taxes, duties, assessments or
governmental charges been imposed.
CONVERSION OF THE CONVERTIBLE DEBENTURES
The Convertible Debentures will be convertible into Common Stock at the option
of the holders of the Convertible Debentures at any time on or after
, 1997 (60 days after the date of issue) and prior to 5:00 P.M.
(New York City time) on the Business Day immediately preceding the date of
repayment of such Convertible Debentures, whether at maturity or upon redemption
(either at the option of the Company
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or pursuant to a Tax Event), at the initial conversion price set forth on the
cover page of this Prospectus subject to the conversion price adjustments
described under "Description of the Preferred Securities -- Conversion Rights."
The Trust will covenant not to convert Convertible Debentures held by it except
pursuant to a notice of conversion delivered to the Conversion Agent by a holder
of Preferred Securities. Upon surrender of a Preferred Security to the
Conversion Agent for conversion, the Trust will distribute $25 principal amount
of the Convertible Debentures per Preferred Security to the Conversion Agent on
behalf of the holder of the Preferred Securities so converted whereupon the
Conversion Agent will convert such Convertible Debentures to Common Stock on
behalf of such holder. The Company's delivery to the holders of the Convertible
Debentures (through the Conversion Agent) of the fixed number of shares of
Common Stock into which the Convertible Debentures are convertible (together
with the cash payment, if any, in lieu of fractional shares) will be deemed to
satisfy the Company's obligation to pay the principal amount of the Convertible
Debentures so converted, and the accrued and unpaid interest thereon
attributable to the period from the last date to which interest has been paid or
duly provided for; provided, however, that if any Convertible Debenture is
converted after a record date for payment of interest, the interest payable on
the related interest payment date with respect to such Convertible Debenture
shall be paid to the Trust (which will distribute such interest to the holder of
such Preferred Security on the record date) or other holder of Convertible
Debentures, as the case may be, despite such conversion; provided, further that
if any Convertible Debentures are delivered for conversion during an Extension
Period by a holder after receiving a notice of redemption from the Institutional
Trustee, the Company shall be required to pay to the Trust all accrued and
unpaid interest, if any, on such Convertible Debentures through the date of
conversion which amount shall be simultaneously distributed to the holders of
the Preferred Securities in respect of which such Convertible Debentures were
delivered. See "-- Optional Redemption," "Description of the Preferred
Securities -- Conversion Rights" and "-- Mandatory Redemption."
CERTAIN COVENANTS
In the Indenture, so long as any Convertible Debentures are outstanding, if (i)
there shall have occurred and be continuing any event that with the giving of
notice or the lapse of time or both, would constitute an Indenture Event of
Default, (ii) the Company shall be in default with respect to its payment of any
obligations under the Guarantee, or (iii) the Company has exercised its option
to defer interest payments on the Convertible Debentures by extending the
interest payment period and such period, or any extension thereof, shall be
continuing, then (a) the Company shall not declare or pay dividends on, or make
any distributions or liquidation payments with respect to, or redeem, purchase
or acquire any of its capital stock (other than (i) purchases or acquisitions of
shares of Common Stock in connection with the satisfaction by the Company of its
obligations under any employee benefit plans or the satisfaction by the Company
of its obligations pursuant to any contract or security requiring the Company to
purchase shares of the Common Stock, (ii) as a result of a reclassification of
the Company's capital stock or the exchange or conversion of one class or series
of the Company's capital stock for another class or series of the Company's
capital stock, (iii) the purchase of fractional interests in shares of the
Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged or (iv) stock
dividends paid by the Company where the dividend stock is the same stock as that
on which the dividend is paid), (b) the Company shall not make any payment of
interest on or principal of (or premium, if any, on) or repay, repurchase or
redeem any debt securities (including guarantees) issued by the Company which
rank pari passu with or junior to the Convertible Debentures and (c) the Company
shall not make any guarantee payments with respect to the foregoing (other than
pursuant to the Guarantee).
The Company will covenant (i) to directly or indirectly maintain 100%
ownership of the Common Securities of the Trust; provided, however, that any
permitted successor of the Company under the Indenture may succeed to the
Company's ownership of such Common Securities and (ii) to use its reasonable
efforts to cause the Trust (x) to remain a statutory business trust, except in
connection with the distribution of Convertible Debentures to the holders of
Trust Securities in liquidation of the Trust, the redemption of all of the Trust
Securities of the Trust, or certain mergers, consolidations or amalgamation,
each as permitted by the Declaration, and (y) to otherwise continue to be
classified as a grantor trust for United States federal income tax purposes.
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CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture provides that the Company will not consolidate with or merge
into any other corporation or convey, transfer or lease its assets substantially
as an entirety unless (a) if the Company is not the survivor, the successor is a
corporation organized under the laws of a State of the United States and
expressly assumes the due and punctual payment of the principal of (and premium,
if any) and interest on all Convertible Debentures issued thereunder and the
performance of every other covenant of the Indenture on the part of the Company
and (b) immediately thereafter no event of default under the Indenture and no
event which, after notice or lapse of time, or both, would become an event of
default under the Indenture, shall have occurred and be continuing. Upon any
such consolidation, merger, conveyance or transfer, the successor corporation
shall succeed to and be substituted for the Company under the Indenture and
thereafter the predecessor corporation shall be relieved of all obligations and
covenants under the Indenture and the Convertible Debentures.
INDENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events, which has occurred and is continuing, constitutes an "Indenture Event of
Default" with respect to the Convertible Debentures: (i) failure for 30 days to
pay interest on the Convertible Debentures, including any Additional Interest
and Compound Interest in respect thereof, when due provided that a valid
extension of an interest payment period will not constitute a default in the
payment of interest (including any Additional Interest and Compound Interest)
for this purpose; or (ii) failure to pay principal of or premium, if any, on the
Convertible Debentures when due whether at maturity, upon redemption, by
declaration or otherwise; or (iii) failure to observe or perform any other
covenant contained in the Indenture for 90 days after notice to the Company by
the Indenture Trustee or by the holders of not less than 25% in aggregate
outstanding principal amount of the Convertible Debentures; or (iv) failure by
the Company to deliver shares of Common Stock upon an election by a holder of
Preferred Securities to convert such Preferred Securities; or (v) the
dissolution, winding up or termination of the Trust, except in connection with
the distribution of Convertible Debentures to the holders of Preferred
Securities in liquidation of the Trust, upon the redemption of all outstanding
Preferred Securities in connection with certain mergers, consolidations or
amalgamation permitted by the Declaration; or (vi) certain events of bankruptcy,
insolvency or reorganization of the Company.
The Indenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Convertible Debentures may declare the
principal of and interest on the Convertible Debentures due and payable
immediately on the occurrence of an Indenture Event of Default; provided,
however, that, after such acceleration, but before a judgment or decree based on
acceleration, the holders of a majority in aggregate principal amount of
outstanding Convertible Debentures may, under certain circumstances, rescind and
annul such acceleration if all Indenture Events of Default, other than the
nonpayment of accelerated principal, have been cured or waived as provided in
the Indenture. For information as to waiver of defaults, see "-- Modifications
and Amendments of the Indenture."
Notwithstanding the foregoing, if an Indenture Event of Default has
occurred and is continuing and such event is attributable to the failure of the
Company to pay interest or principal on the Convertible Debentures on the date
such interest or principal is otherwise payable, the Company acknowledges that,
in such event, a holder of Preferred Securities may institute a Direct Action
for payment on or after the respective due date specified in the Convertible
Debentures. The Company may not amend the Indenture to remove the foregoing
right to bring a Direct Action without the prior written consent of all the
holders of Preferred Securities. Notwithstanding any payment made to such holder
of Preferred Securities by the Company in connection with a Direct Action, the
Company shall remain obligated to pay the principal of or interest of the Trust
on the Convertible Debentures held by the Trust or the Institutional Trustee,
and the Company shall be subrogated to the rights of the holder of such
Preferred Securities with respect to payments on the Preferred Securities to the
extent of any payments made by the Company to such holder in any Direct Action.
The holders of Preferred Securities will not be able to exercise directly any
other remedy available to the holders of the Convertible Debentures.
The Holders of not less than a majority in principal amount of the
outstanding Convertible Debentures may on behalf of the holders of all the
Convertible Debentures waive any past defaults except (a) a default in
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payment of the principal of (or premium, if any) or interest (including
Additional Interest and Compound Interest) on any Convertible Debentures and (b)
a default in respect of a covenant or provision of the Indenture which cannot be
amended or modified without the consent of the holder of each Convertible
Debenture; provided, however, that if the Convertible Debentures are held by the
Trust or a trustee of such Trust, such waiver or modification to such waiver
shall not be effective until the holders of a majority in liquidation amount of
Trust Securities shall have consented to such waiver or modification to such
waiver; provided, further, that if the consent of the holder of each outstanding
Convertible Debenture is required, such waiver shall not be effective until each
holder of the Trust Securities shall have consented to such waiver.
A default under any other indebtedness of the Company would not constitute
an Indenture Event of Default.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, in case an Indenture Event of Default shall occur and be
continuing, the Indenture Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request or direction of any
holders of Convertible Debentures, unless such holders shall have offered to the
Indenture Trustee reasonable indemnity. Subject to such provisions for the
indemnification of the Indenture Trustee, the holders of a majority in aggregate
principal amount of the Convertible Debentures then outstanding will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Indenture Trustee, or exercising any trust or power
conferred on the Indenture Trustee with respect to such series.
No holder of any Convertible Debenture will have any right to institute any
proceeding with respect to the Indenture or for any remedy thereunder, unless
(i) such holder shall have previously given to the Indenture Trustee written
notice of a continuing Indenture Event of Default, (ii) if the Trust is not the
sole holder of Convertible Debentures, the holders of at least 25% in aggregate
principal amount of the Convertible Debentures then outstanding shall also have
made a written request, (iii) such holder has offered reasonable indemnity to
the Indenture Trustee to institute such proceeding as Indenture Trustee, (iv)
the Indenture Trustee shall have failed to institute such proceeding within 60
days of such notice, and (v) the Indenture Trustee shall not have received from
the holders of a majority in aggregate principal amount of the outstanding
Convertible Debentures a direction inconsistent with such request. However, such
limitations do not apply to a suit instituted by a holder of a Convertible
Debenture for enforcement of payment of the principal of or interest on such
Convertible Debenture on or after the respective due dates expressed in such
Convertible Debenture.
The Company is required to file annually with the Indenture Trustee and the
Institutional Trustee a certificate as to whether or not the Company is in
compliance with all the conditions and covenants under the Indenture.
MODIFICATIONS AND AMENDMENTS OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Indenture
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding Convertible Debentures, to modify
the Indenture or the rights of the holders of Convertible Debentures; provided,
however, that no such modification may, without the consent of the holder of
each outstanding Convertible Debenture affected thereby, (i) extend the stated
maturity of the Convertible Debentures or reduce the principal amount thereof,
or reduce the rate or extend the time of payment of interest thereon, or
adversely affect the right to convert Convertible Debentures or the
subordination provisions of the Indenture, or (ii) reduce the percentage in
aggregate principal amount of outstanding Convertible Debentures, the holders of
which are required to consent to any such supplemental indenture.
In addition, the Company and the Indenture Trustee may execute, without the
consent of any holder of Convertible Debentures, any supplemental indenture to
cure any ambiguities, comply with the Trust Indenture Act and for certain other
customary purposes.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Preferred Securities in connection with the
involuntary or voluntary dissolution, winding-up or liquidation of the Trust as
a result of the occurrence of a Special Event, the
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Convertible Debentures in definitive physical form ("Physical Securities") will
be issued to holders of Preferred Securities in the form of Physical
Certificates, and Convertible Debentures in the form of one or more global
certificates (each a "Global Security") registered in the name of the depositary
or its nominee will be issued with respect to Preferred Securities in the form
of Global Certificates. Except under the limited circumstances described below,
Convertible Debentures represented by a Global Security will not be exchangeable
for, and will not otherwise be issuable as, Convertible Debentures in definitive
form. The Global Securities described above may not be transferred except by the
depositary to a nominee of the depositary or by a nominee of the depositary to
the depositary or another nominee of the depositary or to a successor depositary
or its nominee.
The laws of some jurisdictions require that certain purchasers of
securities take delivery of such securities in definitive form. Such laws may
impair the ability to transfer beneficial interests in such a Global Security
and require delivery of Physical Securities.
Owners of beneficial interests in a Global Security will not be considered
the holders thereof for any purpose under the Indenture. Accordingly, each
beneficial owner must rely on the procedures of the depositary or if such person
is not a Participant, on the procedures of the Participant through which such
person owns its interest to exercise any rights of a holder under the Indenture.
THE DEPOSITARY
If Convertible Debentures are distributed to holders of Preferred
Securities in liquidation of such holders' interest in the Trust, DTC will act
as securities depositary for the Convertible Debentures which are Global
Securities. For a description of DTC and the specific terms of the depositary
arrangements, see "Description of the Preferred Securities -- Book-Entry -- The
Depository Trust Company." As of the date of this Prospectus, the description
therein of DTC's book-entry system and DTC's practices as they relate to
purchases, transfers, notices and payments with respect to the Preferred
Securities in the form of Global Certificates apply in all material respects to
any debt obligations represented by one or more Global Securities held by DTC.
The Company may appoint a successor to DTC or any successor depositary in the
event DTC or such successor depositary is unable or unwilling to continue as a
depositary for the Global Securities.
None of the Company, the Trust, the Indenture Trustee, any paying agent and
any other agent of the Company or the Indenture 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 a Global Security
for such Convertible Debentures or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
DISCONTINUANCE OF THE DEPOSITARY'S SERVICES
Each Global Security shall be exchanged for a Physical Security registered
in the names of persons other than the depositary or its nominee if (i) the
depositary notifies the Company that it is unwilling or unable to continue as a
depositary for such Global Security and no successor depositary shall have been
appointed, (ii) the depositary, at any time, ceases to be a clearing agency
registered under the Exchange Act at which time the depositary is required to be
so registered to act as such depositary and no successor depositary shall have
been appointed, (iii) the Company, in its sole discretion, determines that such
Global Security shall be so exchangeable or (iv) there shall have occurred an
Indenture Event of Default with respect to such Convertible Debentures. Any
Global Security that is exchangeable pursuant to the preceding sentence shall be
exchangeable for Convertible Debentures registered in such names as the
depositary shall direct. It is expected that such instructions will be based
upon directions received by the depositary from its Participants with respect to
ownership of beneficial interests in such Global Security.
GOVERNING LAW
The Indenture and the Convertible Debentures will be governed by, and
construed in accordance with, the internal laws of the State of New York.
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INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee, prior to default, undertakes to perform only such
duties as are specifically set forth in the Indenture and, after default, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provision, the Indenture
Trustee is under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Convertible Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The Indenture Trustee is not required to expend
or risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Indenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
MISCELLANEOUS
The Indenture will provide that the Company will pay all fees and expenses
related to (i) the offering of the Trust Securities and the Convertible
Debentures, (ii) the organization, maintenance and dissolution of the Trust,
(iii) the retention of the Trustees and (iv) the enforcement by the
Institutional Trustee of the rights of the holders of the Preferred Securities.
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DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee that
will be executed and delivered by the Company for the benefit of the holders of
Preferred Securities. The summary does not purport to be complete and is subject
in all respects to the provisions of, and is qualified in its entirety by
reference to, the Guarantee, a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The Guarantee
incorporates by reference the terms of the Trust Indenture Act. The Guarantee
will be qualified under the Trust Indenture Act. Bankers Trust Company, as the
Guarantee Trustee, will hold the Guarantee for the benefit of the holders of the
Preferred Securities.
GENERAL
Pursuant to and to the extent set forth in the Guarantee, the Company will
irrevocably and unconditionally agree to pay in full to the holders of the
Preferred Securities (except to the extent paid by such Trust), as and when due,
regardless of any defense, right of set off or counterclaim which the Trust may
have or assert, the following payments (the "Guarantee Payments"), without
duplication: (i) any accrued and unpaid distributions that are required to be
paid on the Preferred Securities, to the extent the Trust has funds available
therefor, (ii) the Redemption Price with respect to any Preferred Securities
called for redemption by the Trust, to the extent the Trust has funds available
therefor and (iii) upon a voluntary or involuntary dissolution, winding-up or
termination of the Trust (other than in connection with the distribution of
Convertible Debentures to the holders of Preferred Securities or the redemption
of all the Preferred Securities), the lesser of (a) the aggregate of the
liquidation amount and all accrued and unpaid distributions on the Preferred
Securities to the date of payment and (b) the amount of assets of the Trust
remaining available for distribution to holders of Preferred Securities upon the
liquidation of the Trust. The Company's obligation to make a Guarantee Payment
may be satisfied by direct payment of the required amount by the Company to the
holders of Preferred Securities or by causing the Trust to pay such amounts to
such holders.
The Guarantee will be a guarantee on a subordinated basis with respect to
the Preferred Securities from the time of issuance of such Preferred Securities
but will not apply to any payment of distributions or Redemption Price, or to
payments upon the dissolution, winding-up or termination of the Trust, except to
the extent the Trust shall have funds available therefor. If the Company does
not make interest payments on the Convertible Debentures, the Trust will not pay
distributions on the Preferred Securities and will not have funds available
therefor. See "Description of the Convertible Debentures." The Guarantee, when
taken together with the Company's obligations under the Convertible Debentures,
the Indenture and the Declaration, including its obligations to pay costs,
expenses, debts and liabilities of the Trust (other than with respect to the
Trust Securities), will provide a full and unconditional guarantee on a
subordinated basis by the Company of payments due on the Preferred Securities.
CERTAIN COVENANTS OF THE COMPANY
In the Guarantee, the Company will covenant that so long as any Preferred
Securities remain outstanding, if (i) the Company has exercised its option to
defer interest payments on the Convertible Debentures by extending the interest
payment period and such extension shall be continuing, (ii) the Company shall be
in default with respect to its payment or other obligations under the Guarantee
or (iii) there shall have occurred and be continuing any event that, with the
giving of notice or the lapse of time or both, would constitute an Indenture
Event of Default, then the Company has agreed (a) not to declare or pay
dividends on, or make a distribution with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of its capital stock
(other than (i) purchases or acquisitions of shares of Common Stock in
connection with the satisfaction by the Company of its obligations under any
employee benefit plans or the satisfaction by the Company of its obligations
pursuant to any contract or security requiring the Company to purchase shares of
Common Stock, (ii) as a result of a reclassification of the Company's capital
stock or the exchange or conversion of one class or series of the Company's
capital stock for another class or series of the Company's capital stock or
(iii) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged), (b) not to make any payment of
interest, principal or premium, if
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any, on or repay, repurchase or redeem any debt securities of the Company
(including guarantees) that rank pari passu with or junior to the Convertible
Debentures and (c) not to make any guarantee payments with respect to the
foregoing (other than pursuant to the Guarantee).
As part of the Guarantee, the Company will agree that it will honor all
obligations described therein relating to the conversion of the Preferred
Securities into Common Stock as described in "Description of the Preferred
Securities -- Conversion Rights."
MODIFICATION OF THE GUARANTEE; ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of Preferred Securities (in which case no vote will be
required), the Guarantee may be amended only with the prior approval of the
holders of at least a majority in aggregate liquidation amount of all the
outstanding Preferred Securities. All guarantees and agreements contained in the
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the holders of
the Preferred Securities then outstanding. Except in connection with any
permitted merger or consolidation of the Company with or into another entity or
any permitted sale, transfer or lease of the Company's assets to another entity
as described under "Description of the Convertible Debentures -- Consolidation,
Merger and Sale of Assets," the Company may not assign its rights or delegate
its obligations under the Guarantee without the prior approval of the holders of
at least a majority of the aggregate stated liquidation amount of the Preferred
Securities then outstanding. All guarantees and agreements contained in the
Guarantee shall bind the permitted successors, assigns and transferees of the
Company and shall inure to the benefit of the holders of the Preferred
Securities then outstanding.
EVENTS OF DEFAULT
An Event of Default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder. The
holders of a majority in aggregate liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of the
Guarantee or to direct the exercise of any trust or power conferred upon the
Guarantee Trustee under the Guarantee. If the Guarantee Trustee fails to enforce
the Guarantee Trustee's rights under the Guarantee, any holder of related
Preferred Securities may directly institute a legal proceeding against the
Company to enforce the Guarantee Trustee's rights under the Guarantee without
first instituting a legal proceeding against the Trust, the Guarantee Trustee or
any other person or entity. A holder of Preferred Securities may also directly
institute a legal proceeding against the Company to enforce such holder's right
to receive payment under the Guarantee without first (i) directing the Guarantee
Trustee to enforce the terms of the Guarantee or (ii) instituting a legal
proceeding against the Trust or any other person or entity.
The Company will be required to provide annually to the Guarantee Trustee a
statement as to the performance by the Company of certain of its obligations
under the Guarantee and as to any default in such performance.
INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE
The Institutional Trustee, prior to the occurrence of a default with
respect to the Trust Securities, undertakes to perform only such duties as are
specifically set forth in the Declaration and, after default, shall exercise the
same degree of care as a prudent individual would exercise in the conduct of his
own affairs. Subject to such provisions, the Institutional Trustee is under no
obligation to exercise any of the powers vested in it by the Declaration at the
request of any holder of Preferred Securities, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities which might
be incurred thereby. The holders of Preferred Securities will not be required to
offer such indemnity in the event such holders, by exercising their voting
rights, direct the Institutional Trustee to take any action following a
Declaration Event of Default.
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TERMINATION OF THE GUARANTEE
The Guarantee will terminate as to the Preferred Securities upon (i) full
payment of the Redemption Price of all Preferred Securities; or (ii)
distribution of the Convertible Debentures held by the Trust to the holders of
the Preferred Securities; or (iii) liquidation of the Trust; or (iv)
distribution of Common Stock to such holder in respect of conversion of such
holder's Preferred Securities into Common Stock. The Guarantee also will
terminate completely upon full payment of the amounts payable in accordance with
the Declaration. The Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of Preferred
Securities must restore payment of any sum paid under such Preferred Securities
or the Guarantee.
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank (i) subordinate and junior to all other liabilities of the Company
except any liabilities that may be pari passu expressly by their terms, (ii)
pari passu with the most senior preferred or preference stock, if any, issued
from time to time by the Company and with any guarantee now or hereafter entered
into by the Company in respect of any preferred or preference stock or preferred
securities of any affiliate of the Company and (iii) senior to the Common Stock.
The terms of the Preferred Securities provide that each holder of Preferred
Securities by acceptance thereof agrees to the subordination provisions and
other terms of the Guarantee.
The Guarantee will constitute a guarantee of payment and not of collection
(that is, the guaranteed party may directly institute a legal proceeding against
the Company to enforce its rights under a Guarantee without instituting a legal
proceeding against any other person or entity).
GOVERNING LAW
The Guarantee will be governed by, and construed in accordance with, the
internal laws of the State of New York.
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EFFECT OF OBLIGATIONS UNDER THE
CONVERTIBLE DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to issue
the Trust Securities evidencing undivided beneficial interests in the assets of
the Trust, and to invest the proceeds from such issuance and sale in the
Convertible Debentures.
As long as payments of interest and other payments are made when due on the
Convertible Debentures, such payments will be sufficient to cover distributions
and payments due on the Trust Securities because of the following factors: (i)
the aggregate principal amount of Convertible Debentures will be equal to the
sum of the aggregate stated liquidation amount of the Trust Securities; (ii) the
interest rate and the interest and other payment dates on the Convertible
Debentures will match the distribution rate and distribution and other payment
dates for the Preferred Securities; (iii) pursuant to the Indenture, the Company
shall pay all, and the Trust shall not be obligated to pay, directly or
indirectly, any, costs, expenses, debts and liabilities of the Trust other than
with respect to the Trust Securities; and (iv) the Declaration further provides
that the Trustees will not cause or permit the Trust to, among other things,
engage in any activity that is not consistent with the purposes of the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Preferred Securities (to the extent funds therefor are
available) are guaranteed by the Company as and to the extent set forth under
"Description of the Guarantee." If the Company does not make interest payments
on the Convertible Debentures purchased by the Trust, it is expected that the
Trust will not have sufficient funds to pay distributions on the Preferred
Securities. The Guarantee is a guarantee on a subordinated basis with respect to
the Preferred Securities from the time of its issuance but does not apply to any
payment of distributions unless and until the Trust has sufficient funds for the
payment of such distributions.
The Guarantee covers the payment of distributions and other payments on the
Preferred Securities only if and to the extent that the Company has made a
payment of interest or principal on the Convertible Debentures held by the Trust
as its sole asset. The Guarantee, when taken together with the Company's
obligations under the Convertible Debentures and the Indenture and its
obligations under the Declaration, including its obligations to pay costs,
expenses, debts and liabilities of the Trust (other than with respect to the
Trust Securities), will provide a full and unconditional guarantee of amounts on
the Preferred Securities.
If the Company fails to make interest or other payments on the Convertible
Debentures when due (taking account of any Extension Period), the Declaration
provides a mechanism whereby the holders of the Preferred Securities, using the
procedures described in "Description of the Preferred Securities -- Voting
Rights" and "-- Book-Entry Only Issuance -- The Depository Trust Company," may
direct the Institutional Trustee to enforce its rights under the Convertible
Debentures. If the Institutional Trustee fails to enforce its rights under the
Convertible Debentures, to the fullest extent permitted by law, any holder of
Preferred Securities may directly institute a legal proceeding against the
Company to enforce the Institutional Trustee's rights under the Convertible
Debentures without first instituting any legal proceeding against the
Institutional Trustee or any other person or entity. If a Declaration Event of
Default has occurred and is continuing and such event is attributable to the
failure of the Company to pay interest or principal on the Convertible
Debentures on the date such interest or principal is otherwise payable (or in
the case of redemption, on the redemption date), then a holder of Preferred
Securities may institute a Direct Action for payment on or after the respective
due date specified in the Convertible Debentures. In connection with such Direct
Action, the Company will be subrogated to the rights of such holder of Preferred
Securities under the Declaration to the extent of any payment made by the
Company to such holder of Preferred Securities in such Direct Action. The
Company, under the Guarantee, acknowledges that the Guarantee Trustee shall
enforce the Guarantee on behalf of the holders of the Preferred Securities. If
the Company fails to make payments under the Guarantee, the Guarantee provides a
mechanism whereby the holders of the Preferred Securities may direct the
Guarantee Trustee to enforce its rights thereunder. If the Guarantee Trustee
fails to enforce the Guarantee, any holder of Preferred Securities may directly
institute a legal proceeding against the Company to enforce the Guarantee
Trustee's rights under the Guarantee without first instituting a legal
proceeding against the Trust, the Guarantee Trustee, or any other person or
entity.
The Company and the Trust believe that the above mechanisms and
obligations, taken together, are equivalent to a full and unconditional
guarantee by the Company of payments due on the Preferred Securities. See
"Description of Guarantee -- General."
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UNITED STATES FEDERAL INCOME TAXATION
GENERAL
The following is a summary of certain of the material United States federal
income tax consequences of the purchase, ownership, disposition and conversion
of Preferred Securities. Unless otherwise stated, this summary deals only with
Preferred Securities held as capital assets by holders who purchase the
Preferred Securities upon original issuance. This summary addresses the United
States federal income tax considerations to holders of Preferred Securities who
are citizens or residents of the United States, corporations, partnerships or
other entities created or organized in or under the laws of the United States or
any political subdivision thereof or therein, or estates or trusts the income of
which is subject to United States federal income taxation regardless of its
source or other holders who are otherwise subject to United States federal
income taxation on a net income basis with respect to Preferred Securities
("U.S. Holders") and does not address the tax consequences to holders of
Preferred Securities who are not U.S. Holders. This summary does not deal with
special classes of holders such as banks, thrift institutions, real estate
investment trusts, regulated investment companies, insurance companies, dealers
in securities or currencies, tax-exempt investors, or persons that will hold the
Preferred Securities as part of a straddle, hedge or conversion transaction, or
as other than a capital asset. This summary also does not address tax
consequences to persons that have a functional currency other than the U.S.
Dollar or the tax consequences to shareholders, partners or beneficiaries of a
holder of Preferred Securities. Further, it does not include any description of
any alternative minimum tax consequences or the tax laws of any state or local
government or of any foreign government that may be applicable to the Preferred
Securities. This summary is based on the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations thereunder and administrative and
judicial interpretations thereof, as of the date hereof, all of which are
subject to change, possibly on a retroactive basis.
CLASSIFICATION OF THE CONVERTIBLE DEBENTURES
The Company intends to take the position that the Convertible Debentures
will be classified for United States federal income tax purposes as indebtedness
of the Company under current law, and, by acceptance of a Preferred Security,
each holder covenants to treat the Convertible Debentures as indebtedness and
the Preferred Securities as evidence of an indirect beneficial ownership
interest in the Convertible Debentures. No assurance can be given, however, that
such position of the Company will not be challenged by the Internal Revenue
Service or, if challenged, that such a challenge would not be successful. The
remainder of this discussion assumes that the Convertible Debentures will be
classified as indebtedness of the Company for United States federal income tax
purposes.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Preferred Securities, Katten Muchin
& Zavis, tax counsel to the Company and the Trust, will render its opinion
generally to the effect that, under then current law and assuming full
compliance with the terms of the Declaration and the Indenture (and certain
other documents), and based on certain facts and assumptions contained in such
opinion, the Trust will be classified for United States federal income tax
purposes as a grantor trust and not as an association taxable as a corporation.
Accordingly, for United States federal income tax purposes, each holder of
Preferred Securities generally will be considered the owner of an undivided
interest in the Convertible Debentures, and each holder will be required to
include in its gross income any OID accrued with respect to its allocable share
of those Convertible Debentures.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Because the Company has the option, under the terms of the Convertible
Debentures, to defer payments of interest by extending interest payment periods
for up to 20 quarters, all of the stated interest payments on the Convertible
Debentures will be treated as "original issue discount." Holders of debt
instruments issued with OID must include that discount in income on an economic
accrual basis before the receipt of cash attributable to the interest,
regardless of their method of tax accounting. Generally, all of a holder's
taxable interest income with respect to the Convertible Debentures will be
accounted for as OID, and actual distributions of stated interest will not be
separately reported as taxable income. The amount of OID that
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accrues in any month will approximately equal the amount of the interest that
accrues on the Convertible Debentures in that month at the stated interest rate.
In the event that the interest payment period is extended, holders will continue
to accrue OID approximately equal to the amount of the interest payment due at
the end of the extended interest payment period on an economic accrual basis
over the length of the extended interest period.
RECEIPT OF CONVERTIBLE DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under the caption "Description of
the Preferred Securities -- Special Event Redemption or Distribution," the
Convertible Debentures may be distributed to holders in exchange for the
Preferred Securities and in liquidation of the Trust. Under current law, such a
distribution, for United States federal income tax purposes, would be treated as
a non-taxable event to each holder, and each holder would receive an aggregate
tax basis in the Convertible Debentures equal to such holder's aggregate tax
basis in its Preferred Securities. A holder's holding period in the Convertible
Debentures so received in liquidation of the Trust would include the period
during which the Preferred Securities were held by such holder.
Under certain circumstances described under "Description of the Preferred
Securities -- Special Event Redemption or Distribution," the Convertible
Debentures may be redeemed for cash and the proceeds of such redemption
distributed to holders in redemption of their Preferred Securities. Under
current law, such a redemption of the Convertible Debentures would, for United
States federal income tax purposes, constitute a taxable disposition of the
redeemed Preferred Securities, and a holder could recognize gain or loss as if
it sold such redeemed Preferred Securities for cash. See "-- Sales of Preferred
Securities."
SALES OF PREFERRED SECURITIES
A holder that sells Preferred Securities will recognize gain or loss equal
to the difference between its adjusted tax basis in the Preferred Securities and
the amount realized on the sale of such Preferred Securities. A holder's
adjusted tax basis in the Preferred Securities generally will be its initial
purchase price increased by OID previously includible in such holder's gross
income to the date of disposition and decreased by payments received on the
Preferred Securities. Such gain or loss generally will be a capital gain or loss
and generally will be a long-term capital gain or loss if the Preferred
Securities have been held for more than one year.
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
Convertible Debentures. A holder who disposes of his Preferred Securities
between record dates for payments of distributions thereon will be required to
include accrued but unpaid interest on the Convertible Debentures through the
date of disposition in income as ordinary income and to add such amount to his
adjusted tax basis in his pro rata share of the underlying Convertible
Debentures deemed disposed of. To the extent the selling price is less than the
holder's adjusted tax basis (which will include, in the form of OID, all accrued
but unpaid interest) a holder will recognize a capital loss. Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States federal income tax purposes.
Because income on the Preferred Securities will constitute interest (in the
form of OID) for federal income tax purposes, corporate holders of Preferred
Securities will not be entitled to a dividends received deduction with respect
to any income recognized with respect to the Preferred Securities.
CONVERSION OF PREFERRED SECURITIES
A holder generally will not recognize income, gain or loss upon the
conversion, through the Conversion Agent, of its Preferred Securities into
Common Stock. A holder will, however, recognize gain upon the receipt of cash in
lieu of a fractional share of Common Stock equal to the amount of cash received
less the holder's tax basis in such fractional share. A holder's tax basis in
the Common Stock received upon exchange and conversion should generally be equal
to the holder's tax basis in the Preferred Securities delivered to the
Conversion Agent for exchange less the basis allocated to any fractional share
for which cash is received, and a holder's holding period in the Common Stock
received upon exchange and conversion should generally begin on the date the
holder acquired the Preferred Securities delivered to the Conversion Agent for
exchange.
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ADJUSTMENT OF CONVERSION PRICE
Treasury Regulations promulgated under Section 305 of the Code would treat
holders of Preferred Securities as having received a constructive distribution
from the Company in the event the conversion ratio of the Convertible Debentures
were adjusted if (i) as a result of such adjustment, the proportionate interest
(measured by the quantum of Common Stock into or for which the Convertible
Debentures are convertible or exchangeable) of the holders of the Preferred
Securities in the assets or earnings and profits of the Company were increased,
and (ii) the adjustment was not made pursuant to a bona fide, reasonable
anti-dilution formula. An adjustment in the conversion ratio would not be
considered made pursuant to such a formula if the adjustment was made to
compensate for certain taxable distributions with respect to the Common Stock.
Thus, under certain circumstances, a reduction in the conversion price for the
holders may result in deemed dividend income to holders to the extent of the
current or accumulated earnings and profits of the Company. Holders of the
Preferred Securities would be required to include their allocable share of such
deemed dividend income in gross income but would not receive any cash related
thereto.
PROPOSED TAX LEGISLATION
On March 19, 1996, the U.S. Treasury Department proposed certain tax law
changes (the "Proposed Legislation") that would, among other things, generally
deny corporate issuers a deduction for interest in respect of certain debt
obligations with a maximum term of more than 20 years, that are not shown as
indebtedness on the consolidated balance sheet of the issuer. The Convertible
Debentures have a maximum term of 20 years, and therefore would not be adversely
affected by passage of the Proposed Legislation, even if the Proposed
Legislation has a retroactive effective date. However, there can be no assurance
that any Proposed Legislation, if enacted, would not apply to debt obligations
with a term of 20 or fewer years, including the Convertible Debentures.
On March 29, 1996, Senate Finance Committee Chairman William V. Roth, Jr.
and House Ways and Means Committee Chairman Bill Archer issued a joint statement
(the "Joint Statement") indicating their intent that the Proposed Legislation,
if adopted by either of the tax-writing committees of Congress, would have an
effective date that is no earlier than the date of "appropriate Congressional
action." Based upon the Joint Statement, it is expected that if the Proposed
Legislation were to be enacted, such legislation would not apply to the
Convertible Debentures because they will be issued prior to the date of any
"appropriate Congressional action." There can be no assurance, however, that any
proposed legislation enacted after the date hereof will not otherwise adversely
affect the ability of the Company to deduct the interest payable on the
Convertible Debentures. Accordingly, there can be no assurance that a Tax Event
will not occur. See "Description of the Preferred Securities -- Special Event
Redemption or Distribution."
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, income on the Preferred Securities will be reported to holders
on Forms 1099, which forms should be mailed to holders of Preferred Securities
by January 31 following each calendar year. Payments made on, and proceeds from
the sale of, the Preferred Securities may be subject to a "backup" withholding
tax of 31% unless the holder complies with certain identification requirements.
Any withheld amounts will be allowed as a credit against the holder's United
States federal income tax, provided the required information is provided to the
Internal Revenue Service on a timely basis.
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL
OR OTHER TAX LAWS.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock, $.50 par value, and 1,000,000 shares of Preferred Stock, $1.00
par value ("Preferred Stock").
COMMON STOCK
Subject to preferences that may be applicable to any outstanding Preferred
Stock, holders of Common Stock are entitled to (a) receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor, (b) cast one vote per share on all matters to be voted upon
by the stockholders, and (c) in the event of a liquidation, dissolution or
winding up of the Company, share ratably in all assets remaining after payment
of the Company's liabilities and the liquidation preference of any outstanding
Preferred Stock. Holders of Common Stock have no cumulative voting rights or
preemptive rights nor any rights to convert their Common Stock into any other
securities, and there are no redemption provisions with respect to such shares.
All of the outstanding shares of Common Stock are, and the Shares issuable upon
conversion of the Preferred Securities will be, fully paid and non-assessable.
The rights, preferences and privileges of holders of Common Stock are subject
to, and may be adversely affected by, the rights of the holders of shares of
Preferred Stock currently outstanding, described below, and of any series of
Preferred Stock which the Company may designate and issue in the future.
Additional shares of Common Stock may be issued without stockholder approval.
Each share of Common Stock also represents a preferred stock purchase right, as
described below.
PREFERRED STOCK
The Company has an authorized class of undesignated Preferred Stock consisting
of 1,000,000 shares. The Company's Board of Directors has authority, without any
further vote or action by the stockholders, to provide for the issuance of the
shares of Preferred Stock in series, to establish from time to time the number
of shares to be included in each such series and to fix the designations,
preferences and relative, participating, optional or other special rights, and
qualifications or restrictions of the shares of each such series and to
determine the voting powers, if any, of such shares. The issuance of Preferred
Stock can, among other things, (a) adversely affect the rights of existing
stockholders and the amount of earnings and assets available for distribution to
holders of Common Stock, (b) delay, defer or prevent a change in control of the
Company, and (c) make the removal of the present management of the Company more
difficult. As of December 11, 1996, no shares of Preferred Stock were
outstanding.
DELAWARE LAW AND CERTAIN CORPORATE PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, this statute prohibits a publicly held
Delaware corporation from engaging, under certain circumstances, in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person becomes an interested
stockholder, unless either (a) prior to the date at which the stockholder became
an interested stockholder, the Board of Directors approved either the business
combination or the transaction in which the person becomes an interested
stockholder, (b) the stockholder acquires more than 85% of the outstanding
voting stock of the corporation (excluding shares held by directors who are
officers or held in certain employee stock plans) upon consummation of the
transaction in which the stockholder becomes an interested stockholder or (c)
the business combination is approved by the Board of Directors and by two-thirds
of the outstanding voting stock of the corporation (excluding shares held by the
interested stockholder) at a meeting of stockholders (and not by written
consent) held on or subsequent to the date of the business combination. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or at any time within the prior three years did own) 15% or
more of the corporation's voting stock. Section 203 defines a "business
combination" to include, without limitation, mergers, consolidations, stock
sales and asset based transactions and other transactions resulting in a
financial benefit to the interested stockholder.
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The Company's Restated Certificate of Incorporation (the "Certificate") and
By-laws contain a number of provisions relating to corporate governance and to
the rights of stockholders. Certain of these provisions may be deemed to have a
potential "anti-takeover" effect in that such provisions may delay, defer or
prevent a change of control of the Company. These provisions include (a) the
classification of the Board of Directors into three classes, such classes
serving for staggered three year terms; (b) restrictions on the removal of
directors; (c) a requirement that special meetings of stockholders may be called
only by the Board of Directors or by unanimous written stockholder consent and
that stockholder action may be taken only at stockholder meetings or by
unanimous written stockholder consent; (d) the authority of the Board to issue
series of Preferred Stock with such voting rights and other powers as the Board
of Directors may determine without further stockholder approval; (e) a
requirement for certain business combinations of (i) approval by the affirmative
vote of at least 66 2/3% of the voting power of the then outstanding capital
stock of the Company, (ii) approval by a majority of disinterested directors and
(iii) fair consideration to the stockholders; (f) a requirement that the vote of
greater than 66 2/3% of the voting power of the then outstanding capital stock
of the Company is required to amend, alter, repeal provisions, or adopt
inconsistent provisions, of the Certificate relating to (i) the classification
of the Board, (ii) the removal of directors, (iii) the inability of stockholders
to call special meetings and to take action outside of a special meeting other
than by unanimous written consent, and (iv) the stockholder vote and fair price
required for certain business combinations.
In December, 1988, the Company initially designated 40,878 shares of
Preferred Stock for possible future issuance pursuant to the terms of a
Shareholder Rights Plan (the "Rights Plan"). In December 1988, pursuant to the
Rights Plan, the Company issued a dividend of one preferred stock purchase right
on each outstanding share of Common Stock. Each right entitles the holder, upon
the occurrence of certain events (such as an acquisition, or announcement of
intent to acquire, by certain persons or groups of 15% or more of the Company's
Common Stock), to purchase one one-hundredth of a share of a new series of
preferred stock for $75. If a person, entity or group becomes the beneficial
owner of 15% or more of the Company's Common Stock (other than pursuant to
certain limited exceptions), then each holder of a right, other than the 15%
holder, will be entitled to buy the number of shares of Common Stock having a
market value of twice the then exercise price of each right. 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 above shareholder rights may be deemed
to have a potential "anti-takeover" effect in that such rights may delay, defer
or prevent a change in control of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is Harris
Trust and Savings Bank, Chicago, Illinois.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT FACILITY
In July 1995, the Company entered into a credit facility (the "Credit
Facility") among the Company, certain of its subsidiaries, Comerica Bank, as
agent, and the other lenders named therein. The 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 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 Credit Facility, the
Company may convert up to $70 million of revolving loans under the Credit
Facility to term loans in minimum amounts of $15 million and with maturities not
exceeding seven years from the closing of the Credit Facility.
Borrowings under the 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 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 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 Credit Facility and the Company's wholly-owned foreign
subsidiaries guarantee payment of foreign borrowings under the Credit Facility.
The 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 2005
In July 1995, the Company sold $110,000,000 in aggregate principal amount
of 9.875% senior notes due 2005 (the "2005 Notes"). The 2005 Notes are general
unsecured obligations of the Company with interest payable semi-annually. The
2005 Notes are 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. Except as noted below, the
2005 Notes are not redeemable at the Company's option prior to July 15, 2000.
Thereafter, the 2005 Notes will be redeemable, in whole or part, at the option
of the Company at various redemption prices as set forth in the 2005 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 2005 Notes originally issued
with the net proceeds from one or more public equity offerings at the redemption
price specified of 109.875% plus accrued interest to the date of redemption.
Also, in the event of a change in control, the Company will be obligated to make
any offer to purchase all of the outstanding 2005 Notes at a redemption price of
101% of the principal amount thereof plus accrued interest to the date of
repurchase. Further, in certain circumstances, the Company will be required to
make an offer to repurchase the 2005 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.
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The 2005 Note Indenture contains customary events of default and covenants
which limit (i) the incurrence of additional indebtedness; (ii) the issuance of
preferred stock by subsidiaries; (iii) the creation of liens; and (iv)
restrictions on sales of assets and subsidiary stock, mergers and
consolidations, payments to subsidiaries and transactions with affiliates.
SENIOR NOTES DUE 2004
In October 1994, the Company sold $45 million in principal amount of 7.68%
senior notes due 2004 (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 are secured equally and ratably with
the 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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UNDERWRITING
Under the terms and subject to the conditions of the Underwriting Agreement
dated January , 1997 (the "Underwriting Agreement"), each Underwriter named
below (the "Underwriters") has severally agreed to purchase from the Trust, and
the Trust has agreed to sell to such Underwriters, the number of Preferred
Securities set forth opposite the name of such Underwriter below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS PREFERRED SECURITIES
------------------------------------------------------------- --------------------
<S> <C>
Smith Barney Inc.............................................
Interstate/Johnson Lane Corporation..........................
---------
Total................................................... 2,000,000
=========
</TABLE>
The Underwriters are obligated to take and pay for the total number of
Preferred Securities offered hereby if any such Preferred Securities are
purchased. In the event of default by any Underwriter, the Underwriting
Agreement provides that, in certain circumstances, purchase commitments of the
non-defaulting Underwriters may be increased or the Underwriting Agreement may
be terminated.
The Underwriting Agreement provides that the Trust and the Company will
indemnify the several Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended, and to make certain
contributions in respect thereof.
The Trust and the Company have agreed, during the period beginning on the
date of the Underwriting Agreement and continuing to and including the date that
is 90 days after the closing date of the purchase of the Preferred Securities,
not to offer, sell, contract to sell or otherwise dispose of any preferred
securities, any preferred stock or any other securities (including any backup
undertakings of such preferred stock or other securities) of the Company or of
the Trust, in each case that are substantially similar to the Preferred
Securities, or any securities convertible into or exchangeable for the Preferred
Securities or such substantially similar securities of either the Trust or the
Company without the prior written consent of Smith Barney Inc.
In view of the fact that the proceeds of the sale of the Preferred
Securities will ultimately be used to purchase the Convertible Debentures of the
Company, the Underwriting Agreement provides that the Company will pay as
compensation to the Underwriters $ per Preferred Security for the accounts
of the several Underwriters.
The Underwriters propose to offer the Preferred Securities, in part,
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and to certain dealers at a price that represents
a concession not in excess of $ . The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per Preferred
Security to certain brokers and dealers. After Preferred Securities are released
for sale to the public, the offering price and other selling terms may from time
to time be varied by the Underwriters.
Because the National Association of Securities Dealers, Inc. ("NASD") is
expected to view the Preferred Securities offered hereby as interests in a
direct participation program, the offering is being made in compliance with Rule
2810 of the NASD's Conduct Rules. Offers and sales of the Preferred Securities
will be made only to (i) "qualified institutional buyers", as defined in Rule
144A under the Securities Act of 1933, as amended (the "Securities Act"), (ii)
institutional "accredited investors", as defined in Rule 501(a)(1)-(3) of
Regulation D under the Securities Act or (iii) sophisticated individual
investors who understand the structure of the Preferred Securities and the
merits and risks of investment in the Preferred Securities. The Underwriters may
not confirm sales to any accounts over which they exercise discretionary
authority without the prior written approval of the transaction by the customer.
The Preferred Securities have been approved for quotation on the NNM,
subject to official notice of issuance. Trading of the Preferred Securities on
the NNM is expected to commence within a 30-day period after the date of this
Prospectus.
83
<PAGE> 85
LEGAL MATTERS
Certain legal matters for the Company and the Trust with respect to the
Convertible Debentures and the validity of the Guarantee will be passed upon for
the Company and the Trust by Katten Muchin & Zavis, a partnership including
professional corporations, Chicago, Illinois. Certain matters of Delaware law
relating to the validity of the Preferred Securities, the enforceability of the
Declaration and the formation of the Trust will be passed upon by Richards,
Layton & Finger, special Delaware counsel to the Company and the Trust. Certain
legal matters will be passed upon for the Underwriters by Cahill Gordon &
Reindel (a partnership including a professional corporation), New York, New
York.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1995,
1994 and 1993 and the consolidated statements of income, stockholders' equity
and cash flows for the years ended December 31, 1995, 1994 and 1993 included in
this Prospectus, have been included or incorporated by reference herein in
reliance on the report of Arthur Andersen LLP, independent public accountants,
given on the authority of that firm as experts in accounting and auditing.
The combined balance sheet of the Fuel Tank System 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, incorporated by reference in this Prospectus, have been incorporated by
reference herein in reliance upon the report of Arthur Andersen, independent
public accountants, given on the authority of that firm as experts in accounting
and auditing.
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 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, incorporated by reference
in this Prospectus, have been incorporated by reference herein in reliance upon
the report of Deloitte & Touche, independent auditors, given upon their
authority as experts in accounting and auditing.
The balance sheets of Marwal Systems, S.N.C. as of December 31, 1995, 1994
and 1993 and the related statements of income for the years ended December 31,
1995, 1994 and 1993, incorporated by reference in this Prospectus, have been
incorporated by reference herein in reliance upon the report of Ernst & Young
Audit, Paris, France, independent auditors, given upon their authority as
experts in accounting and auditing.
84
<PAGE> 86
INDEX TO FINANCIAL STATEMENTS
WALBRO CORPORATION
As of December 31, 1995, 1994 and 1993 and for the years ended December 31,
1995, 1994 and 1993
<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 September 30, 1996 and for the nine months ended September 30, 1996
and 1995
<TABLE>
<S> <C>
Unaudited Consolidated Balance Sheet as of September 30, 1996 and Audited Consolidated
Balance Sheet as of December 31, 1995............................................... F-28
Consolidated Statements of Income (Unaudited)......................................... F-29
Consolidated Statements of Cash Flows (Unaudited)..................................... F-30
Notes to Consolidated Financial Statements (Unaudited)................................ F-31
</TABLE>
F-1
<PAGE> 87
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, 1995,
1994 and 1993, and the related consolidated statements of income, stockholders'
equity and cash flows for each of 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, 1995, 1994 and 1993, and the results of their
operations and their cash flows for each of 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 12 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 13, 1996
F-2
<PAGE> 88
WALBRO CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash............................................................ $ 19,792 $ 4,540 $ 4,605
Accounts receivable, net........................................ 113,346 66,333 44,676
Inventories..................................................... 50,723 31,439 26,898
Prepaid expenses and other...................................... 10,966 4,001 7,266
Deferred and refundable income taxes............................ 4,877 3,663 4,871
-------- -------- --------
Total Current Assets.......................................... 199,704 109,976 88,316
-------- -------- --------
Plant and Equipment, at cost:
Land............................................................ 3,870 1,234 426
Buildings and improvements...................................... 54,116 44,668 43,689
Machinery and equipment......................................... 211,707 93,127 71,727
-------- -------- --------
269,693 139,029 115,842
Less -- Accumulated depreciation................................ 63,928 50,737 41,666
-------- -------- --------
Net Plant and Equipment....................................... 205,765 88,292 74,176
-------- -------- --------
Other Assets:
Funds held for construction..................................... 1,102 1,061 2,710
Joint ventures.................................................. 23,466 16,518 11,278
Investments..................................................... 9,224 10,797 8,057
Goodwill, net................................................... 33,299 16,905 16,937
Notes receivable................................................ 460 4,366 3,616
Deferred income taxes........................................... 2,805 871 41
Other........................................................... 17,648 8,580 10,164
-------- -------- --------
Total Other Assets............................................ 88,004 59,098 52,803
-------- -------- --------
Total Assets.................................................. $493,473 $257,366 $215,295
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt............................... $ 1,086 $ 8,442 $ 408
Bank and other borrowings....................................... 14,921 6,970 5,375
Accounts payable................................................ 52,774 23,252 19,991
Accrued liabilities............................................. 34,352 12,077 11,500
Dividends payable............................................... 858 857 855
-------- -------- --------
Total Current Liabilities..................................... 103,991 51,598 38,129
-------- -------- --------
Long-Term Liabilities:
Long-term debt, less current portion............................ 233,389 66,136 52,392
Pension obligations and other................................... 15,102 8,153 8,071
Deferred income taxes........................................... 3,927 2,439 2,557
Minority interest............................................... 1,637 1,125 --
-------- -------- --------
Total Long-Term Liabilities................................... 254,055 77,853 63,020
-------- -------- --------
Stockholders' Equity:
Common stock, $.50 par value; authorized 25,000,000; outstanding
8,579,976 in 1995, 8,564,576 in 1994, and 8,551,782 in 1993... 4,290 4,282 4,276
Paid-in capital................................................. 64,381 64,221 63,997
Retained earnings............................................... 66,256 55,855 44,686
Deferred compensation........................................... (817) (1,225) (1,634)
Minimum pension liability adjustment............................ (63) -- (520)
Unrealized gain on securities available for sale................ 827 1,428 --
Cumulative translation adjustments.............................. 553 3,354 3,341
-------- -------- --------
Total Stockholders' Equity.................................... 135,427 127,915 114,146
-------- -------- --------
Total Liabilities and Stockholders' Equity.................... $493,473 $257,366 $215,295
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 89
WALBRO CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net Sales................................................... $459,272 $325,205 $273,463
Costs and Expenses:
Cost of sales............................................. 377,755 261,501 216,804
Selling and administrative expenses....................... 57,495 39,318 33,043
Reorganization and restructuring charges.................. -- -- 1,760
-------- -------- --------
Operating Income............................................ 24,022 24,386 21,856
Other Expense (Income):
Interest expense, net of capitalized interest of $518,000
in 1995................................................ 12,071 3,862 2,594
Interest income........................................... (960) (91) (35)
Foreign currency exchange loss............................ 1,483 2,602 1,495
Other..................................................... (255) 111 572
-------- -------- --------
Income before provision for income taxes, minority
interest, equity in (income) loss of joint ventures and
cumulative effect of accounting change................. 11,683 17,902 17,230
Provision for income taxes.................................. 1,258 5,824 4,574
Minority interest........................................... 472 92 --
Equity in (income) loss of joint ventures................... (3,877) (2,609) 89
-------- -------- --------
Income before cumulative effect of accounting change........ 13,830 14,595 12,567
Cumulative effect of accounting change, net of tax benefit
of $1,494................................................. -- -- 2,900
-------- -------- --------
Net income............................................. $ 13,830 $ 14,595 $ 9,667
======== ======== ========
Income Per Share:
Income before cumulative effect of accounting change...... $ 1.61 $ 1.70 $ 1.47
Cumulative effect of accounting change, net of tax
benefit................................................ -- -- (.34)
-------- -------- --------
Net income per share................................... $ 1.61 $ 1.70 $ 1.13
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 90
WALBRO CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<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, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
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
($.40 per
share).......... -- -- (3,403) -- -- -- --
Translation
adjustments..... -- -- -- -- -- -- 628
------ ------- ------- ------- ----- ------ -------
Balance --
December 31,
1993.............. 4,276 63,997 44,686 (1,634) (520) -- 3,341
Change in
accounting for
securities
available for
sale -- January
1, 1994......... -- -- -- -- -- 2,096 --
Exercise of stock
options......... 6 224 -- -- -- -- --
ESOP debt
payments........ -- -- -- 409 -- -- --
Net income........ -- -- 14,595 -- -- -- --
Adjust additional
minimum pension
liability....... -- -- -- -- 520 --
Cash dividends
($.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
Exercise of stock
options......... 8 160 -- -- -- -- --
ESOP debt
payments........ -- -- -- 408 -- -- --
Net income........ -- -- 13,830 -- -- -- --
Additional minimum
pension
liability....... -- -- -- -- (63) -- --
Cash dividends
($.40 per
share).......... -- -- (3,429) -- -- -- --
Change in market
value of
securities
available for
sale............ -- -- -- -- -- (601) --
Translation
adjustments..... -- -- -- -- -- -- (2,801)
------ ------- ------- ------- ----- ------ -------
Balance --
December 31,
1995.............. $4,290 $64,381 $66,256 $ (817) $ (63) $ 827 $ 553
====== ======= ======= ======= ===== ====== =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 91
WALBRO CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income................................................. $ 13,830 $ 14,595 $ 9,667
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation and amortization......................... 22,451 14,672 11,339
Cumulative effect of accounting change................ -- -- 2,900
(Gain)loss on disposition of assets................... (29) 449 372
Minority interest..................................... 472 92 --
(Income) loss of joint ventures....................... (3,877) (2,609) 89
Reorganization and restructuring charges.............. -- -- 754
Change in assets and liabilities, net of effects of
acquisitions-
Deferred income taxes.............................. 1,721 (681) (1,324)
Deferred pension obligations and other............. 3,327 519 544
Accounts payable and accrued liabilities........... 4,870 704 4,220
Accounts receivable, net........................... (3,236) (18,463) (3,449)
Inventories........................................ (2,034) (3,752) (2,752)
Prepaid expenses and other......................... (6,607) 4,951 (6,979)
--------- -------- --------
Total adjustments................................ 17,058 (4,118) 5,714
--------- -------- --------
Net cash provided by operating activities............. 30,888 10,477 15,381
--------- -------- --------
Cash Flows From Investing Activities:
Purchase of plant and equipment............................ (46,240) (18,844) (20,260)
Acquisitions, net of cash acquired......................... (116,238) (1,480) 1,312
Purchase of other assets................................... (7,263) (2,615) (2,047)
Investment in joint ventures and other..................... (2,054) (1,508) (1,333)
Proceeds from disposal of assets........................... 4,127 1,463 3,149
--------- -------- --------
Net cash used in investing activities................. (167,668) (22,984) (19,179)
--------- -------- --------
Cash Flows From Financing Activities:
Net borrowings (repayments) under revolving line-of-credit
agreements.............................................. 63,797 (27,739) (3,691)
Debt repayments............................................ (13,541) (824) (2,617)
Proceeds from issuance of long-term debt................... 110,550 45,000 9,000
Proceeds from issuance of common stock and options......... 168 230 610
Financing Fees Paid........................................ (4,778) -- --
Cash dividends paid........................................ (3,428) (3,424) (3,359)
--------- -------- --------
Net cash provided by (used in) financing activities... 152,768 13,243 (57)
--------- -------- --------
Effect of exchange rate changes on cash.................... (736) (801) 212
--------- -------- --------
Net increase (decrease) in cash............................ 15,252 (65) (3,643)
Cash at beginning of year.................................. 4,540 4,605 8,248
--------- -------- --------
Cash at end of year........................................ $ 19,792 $ 4,540 $ 4,605
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 92
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
$978,000, $822,000 and $413,000 as of December 31, 1995, 1994 and 1993,
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 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and components........................... $29,769 $19,310
Work-in-process........................................ 7,666 6,915
Finished products...................................... 13,288 5,214
------- -------
$50,723 $31,439
======= =======
</TABLE>
Amounts included in work-in-process and finished products in 1993 was 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 - 10 to 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, the carrying value of
marketable equity securities was based on the lower of cost or quoted
F-7
<PAGE> 93
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Goodwill...................................... $36,365 $19,367 $18,943
Less: Accumulated amortization................ (3,066) (2,462) (2,006)
------- ------- -------
$33,299 $16,905 $16,937
======= ======= =======
</TABLE>
Income Taxes:
The consolidated financial statements 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.
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 $16,742,000, $12,199,000 and $9,484,000 for 1995, 1994 and 1993,
respectively.
Financial Instruments:
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.
Per Share Information:
Income per share is based on the weighted average number of shares
outstanding during each period. Shares used in the per share calculations were
8,609,431 in 1995, 8,602,077 in 1994 and 8,537,375 in 1993.
F-8
<PAGE> 94
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reclassifications:
Certain amounts in prior years' consolidated financial statements have been
reclassified to conform with the presentation used in 1995.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from these estimates.
NOTE 2. JOINT VENTURES.
The investments in joint ventures as of December 31 are as follows:
<TABLE>
<CAPTION>
PERCENT BENEFICIAL
OWNERSHIP
--------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Marwal Systems, S.A..................................... 49% 49% 49%
Mitsuba-Walbro, Inc..................................... 50% 50% 50%
Marwal do Brasil, Ltda.................................. 49% 49% 49%
Korea Automotive Fuel Systems, Ltd...................... 49% 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. 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, 1995 and 1994, the cumulative
effect of these adjustments was to increase the Company's equity in its joint
ventures by approximately $2,102,000 and $1,300,000, respectively. At December
31, 1995, the amount included in retained earnings as undistributed earnings of
foreign joint ventures was approximately $4,380,000.
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.
F-9
<PAGE> 95
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,
------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Balance sheet data:
Current assets............................. $60,504 $53,160 $35,773
Non-current assets......................... 36,629 26,069 20,140
Current liabilities........................ 49,081 48,160 36,672
Non-current liabilities.................... 1,657 786 882
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Income statement data:
Net sales................................. $170,902 $137,873 $80,722
Gross margin.............................. 20,500 29,283 15,063
Income before provision for income
taxes.................................. 11,641 8,136 962
Net income................................ 7,366 5,164 466
</TABLE>
Dividends from joint ventures of approximately $415,000, $38,000 and
$45,000 were received by the Company during 1995, 1994 and 1993, respectively.
The Company had sales to joint ventures of approximately $29,280,000,
$20,407,000 and $20,456,000 for 1995, 1994 and 1993, respectively. Included in
accounts receivable are trade receivables from joint ventures of approximately
$9,583,000, $7,349,000 and $1,882,000 for 1995, 1994 and 1993, respectively. The
Company had purchases from joint ventures of approximately $22,977,000,
$15,329,000 and $11,820,000 for 1995, 1994 and 1993, respectively. Included in
accounts payable are trade payables to joint ventures of approximately
$3,995,000, $782,000 and $1,120,000 for 1995, 1994 and 1993, respectively.
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 classified its investments in common stock
securities as "available-for-sale" which required 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, 1995 and 1994, the fair market value of the Company's
investments classified as "available-for-sale" was approximately $5,456,000 and
$6,256,000, respectively, including gross unrealized holding gains of
approximately $1,272,000 ($827,000 after-tax) and $2,197,000 ($1,428,000
after-tax), respectively. At December 31, 1995 and 1994, the fair market value
of the Company's investments classified as "trading" was $2,641,000 and
$3,304,000, respectively. The change in net unrealized holding gain included in
earnings was not significant.
NOTE 4. DYNO ACQUISITION.
On July 27, 1995, the Company acquired the plastic fuel tank business of
Dyno Industrier A.S (Dyno), Oslo, Norway for $129,758,000 in cash which is
subject to certain subsequent adjustments as defined in the Purchase Agreement.
Dyno is a leading designer, manufacturer and marketer of plastic fuel tank
systems and
F-10
<PAGE> 96
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
components to many European vehicle manufacturers and has operations in Belgium,
France, Germany, Norway, Spain and the United Kingdom.
The acquisition was accounted for under the purchase method, and
accordingly, the assets purchased and liabilities assumed in the acquisition are
reflected in the accompanying consolidated balance sheet as of December 31, 1995
and the operations since the date of acquisition are included in the
accompanying consolidated statement of income and cash flows for the year ended
December 31, 1995. Goodwill resulting from this transaction is being amortized
over 40 years using the straight-line method. The purchase price was allocated
to the purchased assets and liabilities as follows (in thousands):
<TABLE>
<S> <C>
Cash consideration paid to seller, net of cash acquired of
$15,669...................................................... $114,089
Fees and expenses.............................................. 2,194
--------
Cost of acquisition, net of cash acquired...................... $116,283
========
Accounts receivable............................................ $ 42,237
Inventory...................................................... 16,330
Property, plant and equipment.................................. 90,792
Accounts payable and accrued liabilities....................... (43,709)
Notes payable.................................................. (5,663)
Other assets purchased and liabilities assumed, net............ 1,636
Goodwill....................................................... 14,660
--------
Total cost allocation.......................................... $116,283
========
</TABLE>
In connection with the acquisition, the Company will be required to
relocate certain facilities. The Company anticipates it will incur costs to move
to the new facilities and involuntarily terminate or relocate employees in
addition to other costs directly associated with the acquisition. The Company
has recorded a liability of approximately $7,758,000 related to these costs in
purchase accounting. The Company expects the relocation of these facilities and
employees to be substantially completed during 1996.
The purchase price and related allocation may be revised within one year
from the acquisition based on revisions of preliminary estimates of fair values
and final working capital acquired made at the date of purchase. Such changes
are not expected to be significant.
Assuming the acquisition had taken place as of the beginning of 1995 and
1994, the consolidated pro forma results of operations of the Company would have
been as follows, after giving effect to certain adjustments, including
depreciation and amortization adjustments, increased interest expense,
elimination of certain costs assumed by the seller and the related income tax
effects:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1995 1994
-------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Net sales.......................................... $581,291 $472,352
Net income......................................... $ 12,336 $ 6,297
Net income per common share........................ $1.43 $.73
</TABLE>
The pro forma information above does not purport to be indicative of the
results that actually would have been achieved if the operations were combined
during the periods presented, and is not intended to be a projection of future
results or trends.
F-11
<PAGE> 97
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. OTHER ACQUISITIONS.
In January 1995, the Company acquired an 80% interest in U.S. CoEXCELL,
Inc. for $60,000 in cash plus the forgiveness of debt owed to Walbro of
$3,113,000. U.S. CoEXCELL, Inc. manufactures and markets blow molded plastic
drums. The acquisition was accounted for under the purchase method, and
accordingly, the assets purchased and liabilities assumed in the acquisition
have been reflected in the accompanying consolidated balance sheet as of
December 31, 1995 and the operations since the acquisition are included in the
accompanying consolidated statement of income and cash flows for the year ended
December 31, 1995. Goodwill resulting from this transaction is being amortized
over 40 years using the straight-line method. The purchase price was allocated
to the purchased assets and liabilities as follows (in thousands):
<TABLE>
<S> <C>
Cash consideration paid to seller, net of cash acquired of
$105.......................................................... $ 3,068
Fees and expenses............................................... --
------
Cost of acquisition, net of cash acquired....................... $ 3,068
======
Accounts receivable............................................. $ 146
Inventory....................................................... 429
Property, plant and equipment................................... 2,643
Accounts payable and accrued liabilities........................ (1,614)
Long-term debt.................................................. (874)
Goodwill........................................................ 2,338
------
Total cost allocation........................................... $ 3,068
======
</TABLE>
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. Fujian is included in the Company's
consolidated financial statements from the date of purchase. In November 1995,
the Company acquired an additional 10% of Fujian for $250,000.
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 is being amortized over 15 years. Walbro Canada is included in the
Company's consolidated financial statements from the date of purchase.
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 and
is being amortized over 40 years. Walbro Korea Ltd. is 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 6. LONG LIVED ASSETS AND INTANGIBLES.
As of January 1, 1996, the Company will adopt SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," which requires a review of long-lived assets
F-12
<PAGE> 98
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and identifiable intangibles for impairment whenever circumstances indicate that
the carrying amount of the assets may not be realizable. The impact of adoption
is not anticipated to be material.
NOTE 7. 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.
NOTE 8. LONG-TERM DEBT AND LINES OF CREDIT.
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Senior notes due 2005, unsecured, stated interest at 9.875%
(9.92% effective interest rate) net of unamortized discount of
$369,000...................................................... $109,631 $ -- $ --
Revolving credit facility, secured, interest at the agent's base
rate plus an additional margin (see below).................... 57,258 -- --
Term loan from the State of Connecticut, secured, interest at 6%
per annum, payable in monthly amounts from 1997 to 2005....... 800 -- --
Senior notes, secured, interest at 7.68%, payable in annual
amounts from 1998 to 2004..................................... 45,000 45,000 --
Revolving credit loan, interest rate from LIBOR plus 5/8% to
prime, unsecured.............................................. -- -- 28,750
Industrial revenue bond, issued by Town of Ossian, Indiana,
interest at a variable municipal bond rate, due in 2023....... 9,000 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
Foreign bank note, payable in Japanese yen, interest at Japanese
prime......................................................... -- 7,519 6,708
Foreign bank note, payable in Chinese renminbi, interest at
9.8%, repaid in 1995.......................................... -- 348 --
ESOP credit agreement, interest rate which approximates 86% of
prime, payable in annual installments of $408,000............. 1,225 1,634 2,042
Capital lease obligations, interest at 7.5%, payable in monthly
amounts through February 2002................................. 4,195 4,710 --
Term loan, unsecured, interest at 6%, payable in monthly amounts
through 2005.................................................. 563 -- --
Note payable to the City of Maumee, Ohio, interest at 4%,
payable in monthly amounts through 2004....................... 302 -- --
Other........................................................... 201 67 --
-------- ------- -------
234,475 74,578 52,800
Less -- current portion......................................... 1,086 8,442 408
-------- ------- -------
$233,389 $66,136 $52,392
======== ======= =======
</TABLE>
F-13
<PAGE> 99
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In July 1995, the Company sold $110,000,000 in aggregate principal amount
of 9.875% senior notes due 2005 (the "2005 Notes"). The 2005 Notes are general
unsecured obligations of the Company with interest payable semi-annually. The
2005 Notes are 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. Except as noted below, the
2005 Notes are not redeemable at the Company's option prior to July 15, 2000.
Thereafter, the 2005 Notes will be redeemable, in whole or part, at the option
of the Company at various redemption prices as set forth in the 2005 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 2005 Notes originally issued
with the net proceeds from one or more public equity offerings at the redemption
price specified in the 2005 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 2005 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 2005 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.
In July 1995, the Company executed a new $135,000,000 credit facility (the
"Credit Facility"). The 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 Credit Facility
has an initial term of five years, with annual one year extensions of the
revolving credit portion of the facility available at the lender's discretion.
At any time within three years after closing of the Credit Facility, the Company
may convert up to $70,000,000 of revolving credit loans under the Credit
Facility to term loans in minimum amounts of $15,000,000 with maturities not
exceeding seven years from the closing of the Credit Facility. Borrowings under
the 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
the specific financial ratios of the Company. Borrowings under the Credit
Facility bore interest at rates ranging from 7.5% to 8.5% as of December 31,
1995. The Company will also be required to pay a quarterly unused facility fee
of 0.08% to 0.5%, based on the Company's funded debt ratio. Borrowings under the
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 wholly-owned foreign subsidiaries.
Collateral for the Credit Facility secures the Senior Notes on an equal and
ratable basis. The Company and its wholly-owned domestic subsidiaries guarantee
payment of domestic and foreign borrowings under the Credit Facility. The
Company's wholly-owned foreign subsidiaries guarantee payment of foreign
borrowings under the Credit Facility.
In November 1995, the Company executed with the State of Connecticut, a
ten-year provisional term loan, in the original principal amount of $3,400,000,
to be used exclusively for the purchase of equipment and certain construction
costs. The loan requires payment of interest only for the first two years at a
fixed rate equal to 6% per annum and then repayment in equal monthly
installments of principal and interest over the remaining eight years with a
balloon payment of $1,387,000 at the end of the ten year contractual agreement.
However, if the Company meets certain employment targets and other measures,
some or all of this loan is forgivable during this ten year period.
In October 1994, the Company sold $45,000,000 of 7.68% senior notes (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 a
funded debt to total capital ratio not greater than .65 to 1 among other
measures.
F-14
<PAGE> 100
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Credit Facility contains 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 which become
increasingly restrictive with the passage of time; (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. The
Company received waivers and amendments to certain financial covenants from its
lenders at December 31, 1995 due to non-compliance with such covenants.
During 1994, the Company entered into an agreement to lease certain
machinery under terms which qualified as a capital lease. As of December 31,
1995 and 1994, assets recorded under this capital lease were approximately
$5,032,000 and $5,109,000, respectively, net of accumulated amortization of
approximately $95,000 and $18,000, respectively.
Aggregate minimum principal payment requirements on long-term debt,
including capital lease obligations, in each of the five years subsequent to
December 31, 1995 are as follows: 1996 -- $1,086,000; 1997 -- $1,252,000; 1998
- -- $7,949,000; 1999 -- $7,596,000; 2000 -- $64,603,000, and thereafter --
$151,989,000.
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 $17,191,000, $11,919,000 and $7,200,000 at December 31, 1995, 1994
and 1993, respectively. The weighted average interest rate on short-term bank
borrowings outstanding under these arrangements was 6.1%, 6.7% and 5.6% as of
December 31, 1995, 1994 and 1993, respectively.
NOTE 9. 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 significant insurance coverage is available to protect against
potential product recall/warranty liability. The Company provides for warranty
claims on its products on a specific identification 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.
F-15
<PAGE> 101
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10. INCOME TAXES.
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:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<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................................. $ 4,268 $12,873 $12,765
Foreign.................................. 7,415 5,029 4,465
------- ------- -------
$11,683 $17,902 $17,230
======= ======= =======
Provision for income taxes:
Currently payable --
Domestic................................. $ 843 $ 3,313 $ 4,923
Foreign.................................. 2,977 1,674 1,931
Utilization of tax credits............... (3,182) (605) (1,075)
------- ------- -------
638 4,382 5,779
------- ------- -------
Deferred --
Domestic................................. 945 1,067 (1,161)
Foreign.................................. (325) (14) (309)
Effect of change in U.S. statutory
rate................................... -- -- (90)
Change in beginning of year valuation
allowance.............................. -- 389 355
------- ------- -------
620 1,442 (1,205)
------- ------- -------
$ 1,258 $ 5,824 $ 4,574
======= ======= =======
</TABLE>
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>
1995 1994 1993
----- ---- ----
<S> <C> <C> <C>
U.S. Federal statutory income tax rate........... 35.0% 35.0% 35.0%
Increase (decrease) in effective income tax rate
resulting from --
Differences between U.S. and foreign
income tax rates....................... 2.1 (1.2) .3
Utilization of tax credits................ (27.2) (3.4) (6.3)
Increase in valuation allowance........... -- 2.2 2.1
Goodwill amortization..................... 1.4 .9 .9
Other, net................................ (.5) (1.0) (5.5)
----- ---- ----
Effective income tax rates....................... 10.8% 32.5% 26.5%
===== ==== ====
</TABLE>
F-16
<PAGE> 102
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred income tax (asset) liability at December
31 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred income tax liabilities:
Depreciation and basis difference.......... $ 9,534 $ 5,342 $ 4,958
Employee benefits.......................... 57 1,470 1,535
Income of joint ventures................... -- -- 556
Basis difference on foreign currency
contracts............................... 193 910 999
Unrealized gain on securities available for
sale.................................... 416 739 --
Other...................................... 80 483 660
-------- ------- -------
10,280 8,944 8,708
-------- ------- -------
Deferred income tax assets:
Estimated net operating loss
carryforwards........................... (4,231) (585) (585)
Employee benefits.......................... (3,609) (3,552) (3,135)
Accruals................................... (208) (238) (1,276)
Minimum pension liability adjustment....... (32) -- (274)
Inventory.................................. (585) (613) (611)
Accounts and notes receivable reserve...... (36) (159) (179)
Write-down of investment................... (368) (368) (368)
Loss of joint ventures..................... (1,032) (2,072) (2,646)
Other...................................... (803) (207) (150)
-------- ------- -------
(10,904) (7,794) (9,224)
Valuation allowance........................ 744 744 355
-------- ------- -------
(10,160) (7,050) (8,869)
-------- ------- -------
Net deferred income tax (asset) liability.... $ 120 $ 1,894 $ (161)
======== ======= =======
</TABLE>
At December 31, 1995, the cumulative amount of undistributed earnings of
foreign subsidiaries was approximately $21,300,000. 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.
As of December 31, 1995, the Company has net operating loss carryforwards
of approximately $13,832,000, which expire in varying amounts between 2003 and
2010, available from certain of its subsidiaries. The Company has recorded a
deferred tax asset of $4,231,000 associated with these carryforwards.
Realization is dependent on generating sufficient taxable income in specific
countries prior to the expiration of the loss carryforwards. Although
realization is not assured, management believes it is more likely than not that
all of the deferred tax asset will be realized. The amount of the deferred tax
asset considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are reduced.
Provisions for state income taxes are included in selling and
administrative expenses and amounted to $1,369,000 in 1995, $1,203,000 in 1994
and $722,000 in 1993.
NOTE 11. 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.
F-17
<PAGE> 103
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 1991, the Company adopted an incentive stock option plan, the Walbro
Corporation Equity Based Long Term Incentive Plan (Incentive Plan) under which
856,457 shares of common stock are reserved for issuance to officers, directors
and key employees. Options are granted yearly based on certain financial
performance criteria as compared to the annual business plan and other factors.
In addition, Stock Performance Award Grants (Grants) are awarded annually when
the common stock price appreciates and Grants are exchanged for common stock at
the end of the five-year term. If the Company's common stock price appreciates
at a 17% compounded rate over the 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. The number of
grants outstanding was 33,294, 30,915 and 31,912 as of December 31, 1995, 1994
and 1993, respectively.
A summary of the stock option transactions of the 1983 Plan and the
Incentive Plan for the years ended December 31, 1995, 1994 and 1993 is as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
-------------------------- OPTION PRICE
EXERCISABLE OUTSTANDING (PER SHARE)
----------- ----------- ------------
<S> <C> <C> <C>
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
-------
December 31, 1993....................................... 152,132 203,012 9.25-33.25
Granted............................................... 88,701 17.00
Exercised............................................. (12,794) 10.88-26.00
Canceled.............................................. (5,808) 10.88-33.25
-------
December 31, 1994....................................... 184,410 273,111 9.25-33.25
Granted............................................... 174,881 18.00-25.25
Exercised............................................. (15,400) 10.88
Canceled.............................................. (500) 33.25
-------
December 31, 1995....................................... 321,695 432,092 $ 9.25-33.25
=======
</TABLE>
In 1991, the Company approved the Walbro Engine Management Corporation
(EMC) Incentive Compensation Plan (EMC 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 EMC 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 $5,044,000,
$3,100,000 and $1,480,000 as of December 31, 1995, 1994 and 1993, respectively,
under this plan.
F-18
<PAGE> 104
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12. POSTRETIREMENT HEALTH BENEFITS.
The Company provides postretirement health care, dental benefit and
prescription drug coverage to a limited number of current retirees.
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.
The following table reconciles the status of the accrued postretirement
benefit obligation at December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Retirees........................................ $4,587 $4,687 $ 5,572
Fully eligible active plan participants......... -- -- --
Other active plan participants.................. -- -- --
------ ------ -------
4,587 4,687 5,572
Plan assets at fair value....................... -- -- --
Accumulated postretirement benefit obligation in
excess of plan assets......................... 4,587 4,687 5,572
Unrecognized net loss........................... (81) (190) (1,120)
------ ------ -------
Accrued postretirement benefit obligation....... $4,506 $4,497 $ 4,452
====== ====== =======
</TABLE>
The discount rates used in 1995, 1994 and 1993 were 7.25%, 8.5% and 7.0%,
respectively.
Net periodic postretirement benefit cost consisted of the following for the
years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Interest cost.................................. $350 $378 $321
Amortization of unrecognized net loss.......... -- 35 --
---- ---- ----
$350 $413 $321
==== ==== ====
</TABLE>
For measurement purposes, an 8% annual rate of increase was assumed in per
capita cost of covered health and dental care benefits for 1995. 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, 1995 by $407,000 and the interest cost component of net periodic
postretirement benefit cost for the year ended December 31, 1996 by $30,000.
NOTE 13. PENSION PLANS.
The Company sponsors pension plans covering substantially all domestic
collectively bargained employees 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 plans covering domestic employees and
certain foreign employees amounts which are actuarially determined to provide
the plan with sufficient assets to meet future benefit payment requirements. The
plans covering foreign employees in certain countries are not funded.
F-19
<PAGE> 105
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total pension expense amounted to $251,000 in 1995, $239,000 in 1994 and
$280,000 in 1993. The Company recognizes currently the amount which would be
payable if employees covered by certain foreign plans terminated voluntarily.
Pension expense for the other plans is comprised of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost.................................. $ 136 $ 165 $ 157
Interest on projected benefit obligation...... 263 219 197
Actual return on assets....................... (240) (182) (297)
Net amortization and deferral................. 12 16 171
----- ----- -----
$ 171 $ 218 $ 228
===== ===== =====
</TABLE>
The following table summarizes the funded status of the Company's defined
benefit pension plans and the related amounts recognized in the Company's
consolidated balance sheets as of December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of benefit obligation
--
Vested...................................... $(4,022) $(2,319) $(3,134)
Nonvested................................... (767) (314) (282)
------- ------- -------
Accumulated benefit obligation.............. (4,789) (2,633) (3,416)
Effects of salary progression............... -- -- --
------- ------- -------
Projected benefit obligation................ (4,789) (2,633) (3,416)
------- ------- -------
Plan assets --
Cash equivalents............................ 270 321 344
Equity securities........................... 3,435 2,438 2,350
------- ------- -------
3,705 2,759 2,694
------- ------- -------
Projected benefit obligation under (over) plan
assets...................................... (1,084) 126 (722)
Unamortized net asset at transition......... (53) (75) (97)
Unamortized net (gain) loss................. 227 (74) 891
Adjustment to recognize minimum liability... (1,038) -- (1,108)
Unrecognized prior service cost............. 864 498 314
------- ------- -------
Pension asset (liability) recorded in the
consolidated balance sheets................. $(1,084) $ 475 $ (722)
======= ======= =======
</TABLE>
The assumptions used in determining the funded status information shown
above were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---- ----
<S> <C> <C> <C>
Discount rate............................... 7.25 - 7.5% 8.5% 6.5%
Long-term rate of return on assets.......... 8.5% 8.5% 6.5%
</TABLE>
The Company also sponsors a defined contribution plan for non-union
domestic employees 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 1995, 1994 and 1993 was approximately
$2,255,000, $1,431,000 and $1,416,000, respectively.
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,
F-20
<PAGE> 106
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $515,000, $365,000 and $302,000 in 1995, 1994
and 1993, respectively. Contribution expense is net of dividends of $105,000,
$210,000 and $106,000 in 1995, 1994 and 1993, respectively. As of December 31,
1995, 1994 and 1993, the following are held by the ESOP: 194,000, 170,000 and
152,000 allocated shares, respectively, and 56,000, 82,000 and 109,000 suspense
(unallocated) shares, respectively, which are all committed-to-be-released.
NOTE 14. 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 forward currency exchange contracts to manage its
foreign currency exchange risk. There were no contracts outstanding as of
December 31, 1995. As of December 31, 1994 and 1993, the notional amounts of
contracts outstanding were $14,000,000 and $30,000,000, respectively.
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 had one forward currency exchange contract
which matured in 1995 and exchanged 86,332,000 French francs. Total losses on
this contract of approximately $1,800,000 were recorded as a deferred asset
during 1994. This asset is being recognized based on actual purchases of the
related commitments. 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, 1995 and 1994 is approximately
$720,000 and $600,000, respectively. The balance remaining to be amortized at
December 31, 1995 and 1994 is $480,000 and $1,200,000, respectively.
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 1995,
the Company had twenty-one forward currency exchange contracts which matured
during 1995, which exchanged 1,015,000,000 Japanese yen and 15,300,000 Singapore
dollars. 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 were a gain of $929,000 for the year ending
December 31, 1995 and a loss of $1,200,000 for the year ending December 31,
1994.
F-21
<PAGE> 107
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Long-term debt
The fair value of the Company's public debt is estimated using quoted
market prices. The fair value of the Company's other 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:
<TABLE>
<CAPTION>
1995 1994 1993
-------------------- ------------------- -------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE VALUE VALUE
-------- -------- -------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Notes receivable.................... $ 460 $ 460 $ 4,366 $ 4,860 $ 3,616 $ 4,049
Long-term debt...................... 234,475 232,865 74,578 73,513 52,800 52,542
Forward currency exchange
contracts......................... (1,200) (1,200) (1,800) (1,800) -- (73)
</TABLE>
NOTE 15. 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 $4,761,000, $3,324,000 and $2,655,000 in 1995, 1994
and 1993, respectively.
F-22
<PAGE> 108
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate minimum future rentals under noncancellable leases are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------ -------
(IN THOUSANDS)
<S> <C> <C>
1996.................................................... $ 850 $ 6,318
1997.................................................... 850 4,480
1998.................................................... 850 3,683
1999.................................................... 850 3,516
2000.................................................... 850 1,952
Thereafter.............................................. 1,000 234
------ -------
Total minimum lease payments............................ 5,250 $20,183
=======
Amount representing interest............................ 1,055
------
Present value of net future minimum lease payments...... $4,195
======
</TABLE>
NOTE 16. ACCRUED LIABILITIES.
Accrued liabilities consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Compensation.................................. $ 4,680 $ 5,123 $ 3,941
Income taxes.................................. 6,690 2,239 1,498
Reorganization and restructuring.............. 7,664 -- 754
Interest...................................... 5,352 147 407
Other......................................... 9,966 4,568 4,900
------- ------- -------
$34,352 $12,077 $11,500
======= ======= =======
</TABLE>
NOTE 17. 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.
F-23
<PAGE> 109
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18. 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.
F-24
<PAGE> 110
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Selected financial information about the Company's business and geographic
segments are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Financial Information by Business Segment
Net sales to customers:
Automotive............................... $324,963 $204,563 $173,510
Small Engine............................. 144,273 134,483 112,660
Corporate................................ 4,430 1,022 1,456
-------- -------- --------
473,666 340,068 287,626
Eliminations............................... (14,394) (14,863) (14,163)
-------- -------- --------
Total net sales............................ $459,272 $325,205 $273,463
======== ======== ========
Operating profit (loss):
Automotive............................... $ 30,076 $ 24,883 $ 20,416
Small Engine............................. 16,607 18,522 16,025
Corporate................................ (31,595) (22,986) (19,300)
-------- -------- --------
Income before provision for income taxes
and cumulative effect of accounting
change................................... $ 15,088 $ 20,419 $ 17,141
======== ======== ========
Identifiable assets:
Automotive............................... $377,975 $155,006 $122,440
Small Engine............................. 65,485 64,494 58,121
Corporate................................ 50,013 37,866 34,734
-------- -------- --------
Total identifiable assets.................. $493,473 $257,366 $215,295
-------- -------- --------
Depreciation and amortization:
Automotive............................... $ 12,967 $ 6,320 $ 5,652
Small Engine............................. 6,090 5,841 4,908
Corporate................................ 3,394 2,511 779
-------- -------- --------
Total depreciation and amortization........ $ 22,451 $ 14,672 $ 11,339
======== ======== ========
Capital expenditures
Automotive............................... $ 35,609 $ 10,101 $ 15,439
Small Engine............................. 9,692 5,113 4,508
Corporate................................ 939 3,630 313
-------- -------- --------
Total capital expenditures................. $ 46,240 $ 18,844 $ 20,260
======== ======== ========
</TABLE>
F-25
<PAGE> 111
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Financial Information by Geographic Segment
Net sales to customers:
United States............................ $314,697 $260,710 $215,149
Europe................................... 88,736 -- --
Far East and Other Foreign............... 55,839 64,495 58,314
-------- -------- --------
459,272 325,205 273,463
Net sales between geographic areas....... 27,663 31,094 28,842
-------- -------- --------
486,935 356,299 302,305
Eliminations............................... (27,663) (31,094) (28,842)
-------- -------- --------
Total net sales............................ $459,272 $325,205 $273,463
======== ======== ========
Operating profit:
United States............................ $ 35,225 $ 37,040 $ 31,791
Europe................................... 5,352 -- --
Far East and Other Foreign............... 6,106 6,365 4,650
-------- -------- --------
46,683 43,405 36,441
Corporate, net............................. (31,595) (22,986) (19,300)
-------- -------- --------
Income before provision for income taxes
and cumulative effect of accounting
change................................... $ 15,088 $ 20,419 $ 17,141
======== ======== ========
Identifiable assets:
United States............................ $262,020 $224,369 $191,999
Europe................................... 193,876 -- --
Far East and Other Foreign............... 37,577 32,997 23,296
-------- -------- --------
Total identifiable assets.................. $493,473 $257,366 $215,295
======== ======== ========
</TABLE>
Worldwide operations are located in three geographic segments -- United
States, Europe and Far East and Other Foreign. The Europe geographic segment
includes operations in Belgium, France, Germany, Norway, Spain and the United
Kingdom. The Far East and Other Foreign geographic segment includes operations
in Japan, Singapore, Korea, China, Mexico and Canada. Sales between geographic
areas are accounted for at cost plus a margin for profit. Operating profit
consists of total sales less operating expenses excluding general corporate
expenses, interest expense and income taxes. Identifiable assets are those
assets used in the operations in each geographic area. Export sales from
domestic locations were approximately $45,485,000, $36,881,000 and $47,876,000
for 1995, 1994 and 1993, respectively.
The net assets of the Company's foreign operations were $29,137,000,
$24,598,000 and $17,240,000 at December 31, 1995, 1994 and 1993, respectively.
The Company's share of foreign net income was $4,763,000, $3,369,000 and
$2,843,000 in 1995, 1994 and 1993, 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 21%, 30% and 30% of
consolidated sales in 1995, 1994 and 1993, respectively. Sales to another such
customer amounted to 19%, 23% and 21% of consolidated sales in 1995, 1994 and
1993, respectively.
Several other factors could have a significant impact on the continuing
operations of the Company. These factors include changes in demand for
automobiles and light trucks, relationships with significant customers, price
pressures, the timing and structure of future acquisitions or dispositions, the
integration of the Dyno acquisition into Walbro's overall business, impact of
environmental regulations, continued availability of
F-26
<PAGE> 112
WALBRO CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
adequate funding sources, currency and other risks inherent in international
sales, and general economic and business conditions.
NOTE 19. SUPPLEMENTAL CASH FLOW INFORMATION.
In 1995, 1994 and 1993, the Company paid $3,290,000, $6,749,000 and
$4,458,000 for income taxes and $7,191,000, $4,122,000 and $2,591,000 for
interest, respectively.
NOTE 20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED).
Selected quarterly financial information for the years ended December 31,
1995 and 1994 is as follows:
<TABLE>
<CAPTION>
QUARTER
------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1995 --
Net sales................................. $98,257 $90,034 $124,495 $146,486 $459,272
Cost of sales............................. 77,550 73,036 105,444 121,725 377,755
------- ------- -------- -------- --------
Gross profit........................... $20,707 $16,998 $ 19,051 $ 24,761 $ 81,517
======= ======= ======== ======== ========
Net income............................. $ 5,088 $ 3,835 $ 2,289 $ 2,618 $ 13,830
======= ======= ======== ======== ========
Net income per share................... $ .59 $ .45 $ .27 $ .30 $ 1.61
======= ======= ======== ======== ========
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
======= ======= ======== ======== ========
</TABLE>
NOTE 21. SUBSEQUENT EVENT.
In February 1996, the Company announced plans to sell its steel fuel rail
business in Ligonier, Indiana. Sales at this facility were approximately
$29,000,000 in 1995.
F-27
<PAGE> 113
WALBRO CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.............................................................. $ 15,227 $ 19,792
Accounts receivable (net)......................................... 140,784 113,346
Inventories....................................................... 54,408 50,723
Other current assets.............................................. 16,565 15,843
-------- --------
Total current assets........................................... 226,984 199,704
PROPERTY, PLANT & EQUIPMENT:
Land, buildings & improvements.................................... 63,387 57,986
Machinery & equipment............................................. 272,913 211,707
-------- --------
Subtotal....................................................... 336,300 269,693
Less: accumulated depreciation.................................... (76,044) (63,928)
-------- --------
Net property, plant & equipment................................ 260,256 205,765
OTHER ASSETS:
Goodwill (net).................................................... 32,667 33,299
Joint ventures, investments & other............................... 54,951 54,705
-------- --------
Total other assets............................................. 87,618 88,004
-------- --------
Total assets................................................... $ 574,858 $493,473
======== ========
LIABILITIES
CURRENT LIABILITIES:
Current portion long-term debt.................................... $ 983 $ 1,086
Notes payable -- banks............................................ 14,385 14,921
Accounts payable.................................................. 76,396 52,774
Accrued liabilities............................................... 29,496 35,210
-------- --------
Total current liabilities...................................... 121,260 103,991
LONG-TERM LIABILITIES:
Long-term debt, net of current.................................... 295,489 233,389
Other long-term liabilities....................................... 18,126 20,666
-------- --------
Total long-term liabilities.................................... 313,615 254,055
STOCKHOLDERS' EQUITY
Common stock, $.50 par value; authorized 25,000,000; outstanding
8,601,796 in 1996 and 8,579,976 in 1995........................... 4,301 4,290
Paid-in capital..................................................... 64,762 64,381
Retained earnings................................................... 75,380 66,256
Other stockholders' equity.......................................... (4,460) 500
-------- --------
Total stockholders' equity..................................... 139,983 135,427
-------- --------
Total liabilities & stockholders' equity....................... $ 574,858 $493,473
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-28
<PAGE> 114
WALBRO CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ ------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C>
Net Sales.................................. $132,545 $124,495 $440,501 $312,786
Cost of Sales & Expenses:
Cost of sales............................ 111,116 105,444 361,951 256,030
Selling and administrative expenses...... 11,078 8,438 39,415 25,604
Research & development expenses.......... 4,986 3,710 13,432 10,371
-------- -------- -------- --------
Operating Income........................... 5,365 6,903 25,703 20,781
Other Expense (Income):
Interest expense......................... 5,059 4,461 15,652 7,127
Interest income.......................... (384) (362) (1,008) (489)
Other (income) expense................... (45) 9 (28) 425
-------- -------- -------- --------
Income before income taxes, minority
interest, and joint ventures............. 735 2,795 11,087 13,718
Provision for income taxes................. 23 895 3,032 4,646
Minority interest.......................... 110 149 320 472
Equity in (income) of joint ventures....... (1,744) (538) (3,969) (2,612)
-------- -------- -------- --------
Net income................................. $ 2,346 $ 2,289 $ 11,704 $ 11,212
======== ======== ======== ========
Net income per share....................... $0.27 $0.27 $1.35 $1.30
Average shares outstanding................. 8,645,041 8,610,864 8,642,598 8,599,392
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-29
<PAGE> 115
WALBRO CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income....................................................... $ 11,704 $ 11,212
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation & amortization................................... 20,201 13,568
(Gain) loss on disposition of assets.......................... (94) 144
Minority interest............................................. (234) 479
(Income) of joint ventures.................................... (3,969) (2,612)
(Gain) on business interrupt insurance........................ (700)
Changes in assets and liabilities:
Deferred income taxes....................................... 175 (393)
Deferred pension obligations & other........................ (1,498) 1,450
Accounts payable and accrued liabilities.................... 14,027 13,996
Accounts receivable, net.................................... (28,597) (16,645)
Inventories................................................. (4,548) (279)
Prepaid expenses and other.................................. (5,894) (2,497)
-------- ---------
Total adjustments........................................ (10,431) 6,511
-------- ---------
Net cash provided by (used in) operating activities........... 1,273 17,723
Cash Flows From Investing Activities:
Purchase of fixed assets......................................... (70,453) (33,319)
Acquisitions, net of cash acquired............................... 0 (124,176)
Purchase of other assets......................................... (3,238) (6,665)
Investment in joint ventures & other............................. (259) (5,634)
Proceeds from disposal of assets................................. 3,533 115
-------- ---------
Net cash used in investing activities......................... (70,417) (169,679)
Cash Flows From Financing Activities:
Net borrowings under line-of-credit agreements................... 68,692 62,321
Debt repayments.................................................. 0 (1,793)
Proceeds from issuance of debt................................... 110,526
Proceeds from issuance of common stock & options................. 392 157
Cash dividends paid.............................................. (2,578) (2,569)
-------- ---------
Net cash provided by (used in) financing activities........... 66,506 168,642
Effect of exchange rate changes on cash.......................... (1,927) (904)
-------- ---------
Net increase (decrease) in cash.................................. (4,565) 15,782
Cash beginning balance........................................... 19,792 4,540
-------- ---------
Cash ending balance.............................................. $ 15,227 $ 20,322
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-30
<PAGE> 116
WALBRO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ACQUISITION OF DYNO INDUSTRIER FUEL SYSTEMS BUSINESS
On July 27, 1995, the Company, through certain of its wholly-owned
subsidiaries, acquired the Fuel Systems Business of Dyno Industrier A.S, Oslo,
Norway ("Dyno"). Dyno supplies plastic fuel tanks to most European vehicle
manufacturers through production facilities in Belgium, France, Germany, Norway,
Spain and the United Kingdom.
This acquisition was accounted for as a purchase and, accordingly, the
operating results of Dyno have been included in the accompanying financial
statements since the date of the acquisition. The results of operations for the
three months and nine months ended September 30, 1996 include the results of
Dyno, while the results of operations for the three months and nine months ended
September 30, 1995 only include the results of Dyno after July 27, 1995.
Assuming the acquisition had taken place as of the beginning of 1995, the
consolidated pro forma results of operations of the Company for the three months
and nine months ended September 30, 1995 would have been as follows, after
giving effect to certain adjustments consisting principally of management's
estimates of depreciation and amortization expense resulting from the market
valuation of Dyno net assets acquired, interest expense on acquisition debt and
related tax adjustments (Unaudited; in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED 9/30/95 ENDED 9/30/95
------------- -------------
<S> <C> <C>
Net Sales........................................... $ 138,338 $ 434,461
Net Income.......................................... 1,681 9,725
Net Income Per Share................................ .19 1.13
</TABLE>
F-31
<PAGE> 117
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 118
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 119
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 120
[WALBRO CORPORATION LOGO]
Walbro's Global Presence
[MAP]
[LEGEND TO THE MAP]
[PHOTO]
Multi-layer plastic fuel tank produc-
tion at Walbro's recently-expanded
Ossian, Indiana facility.
[PHOTO]
Electronic ignition systems are
produced at Walbro Engine
Management's facility in Nogales,
Mexico.
[PHOTO]
A fuel storage and delivery system
undergoes evaporative emissions testing
at Walbro's Caro, Michigan Test Center.
<PAGE> 121
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE SPECIFICALLY
OFFERED HEREBY OR OF ANY SECURITIES OFFERED HEREBY OR OF ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................... 5
Incorporation of Certain Documents by
Reference............................... 5
Forward-Looking Statements................ 6
Prospectus Summary........................ 7
Risk Factors.............................. 14
Walbro Capital Trust...................... 21
Accounting Treatment...................... 22
Price Range of Common Stock and
Dividends............................... 22
Use of Proceeds........................... 23
Capitalization............................ 23
Selected Financial Information............ 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 25
Business.................................. 31
Management................................ 43
Security Ownership of Certain Beneficial
Owners and Management................... 45
Description of the Preferred Securities... 47
Description of the Convertible
Debentures.............................. 63
Description of the Guarantee.............. 72
Effect of Obligations Under the
Convertible Debentures and the
Guarantee............................... 75
United States Federal Income Taxation..... 76
Description of Capital Stock.............. 79
Description of Certain Indebtedness....... 81
Underwriting.............................. 83
Legal Matters............................. 84
Experts................................... 84
Index to Consolidated Financial
Statements.............................. F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
$50,000,000
2,000,000
CONVERTIBLE TRUST
PREFERRED SECURITIES
WALBRO CAPITAL TRUST
LOGO
% CONVERTIBLE TRUST
PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER CONVERTIBLE TRUST PREFERRED SECURITY) GUARANTEED TO
THE EXTENT SET FORTH HEREIN BY, AND CONVERTIBLE INTO COMMON STOCK OF,
WALBRO CORPORATION
------------
PROSPECTUS
------------
Smith Barney Inc.
Interstate/Johnson Lane
Corporation
, 1997
------------------------------------------------------
------------------------------------------------------
<PAGE> 122
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting commissions) payable by the Company in
connection with the issuance and distribution of the Preferred Securities
pursuant to the Prospectus contained in this Registration Statement. The Company
will pay all of these expenses.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee................ $ 17,424
NASD Filing Fee.................................................... 6,250
Nasdaq Listing Application Fee..................................... 12,500
Accounting Fees and Expenses....................................... 100,000
Legal Fees and Expenses............................................ 200,000
Blue Sky Fees and Expenses......................................... 7,000
Printing Expenses.................................................. 125,000
Miscellaneous Expenses............................................. 31,826
--------
Total............................................................ $500,000
========
</TABLE>
All expenses other than the Securities and Exchange Commission Registration
Fee and NASD Filing Fee are estimated.
ITEM 15. 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 his conduct was unlawful. A 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.
Under the Trust Agreement, the Company will agree to indemnify each of the
Trustees of Walbro Capital Trust or any predecessor Trustee for Walbro Capital
Trust, and to hold each Trustee harmless against, any loss, damage, claims,
liability or expense incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of the
Trust Agreement, including the costs and expenses of defending itself against
any claim or liability in connection with the exercise or performance of any of
its powers or duties under the Trust Agreement.
II-1
<PAGE> 123
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1* Restated Certificate of Incorporation of the Company, as amended.
3.2 By-Laws of the Company, as amended, filed as Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989 (the "Form 10-K"),
incorporated herein by reference.
3.3 Amendment to Section 2.9 of the By-laws of the Company, filed as Exhibit 3.3 to the
Company's 1994 Annual Report on Form 10-K, incorporated herein by reference.
4.1 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, incorporated herein by reference.
4.2 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, incorporated herein by reference.
4.3 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, incorporated herein by reference.
4.4 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, incorporated herein by reference.
4.5 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, incorporated herein by
reference.
4.6 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 July 27, 1995 (the
"Form 8-K"), incorporated herein by reference.
4.7 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, filed as Exhibit 4.2 to the Company's Registration Statement on Form S-4,
filed September 27, 1995, incorporated herein by reference.
4.8 First Amendment, dated March 8, 1996, to the Amended and Restated Credit Agreement
among the Company, certain of its subsidiaries, Comerica Bank, as agent, and Harris
Bank, as co-agent, filed as Exhibit 4.8 to the Company's 1995 Annual Report on Form
Form 10-K, incorporated herein by reference.
4.9 First Amendment, dated as of July 26, 1995, to the Note Agreement among the Company
and the purchasers named therein, relating to the 7.68% Senior Notes of the Company,
filed as Exhibit 4.9 to the Company's 1995 Annual Report on Form 10-K, incorporated
herein by reference.
4.10* Certificate of Trust of Walbro Capital Trust.
4.11* Form of Amended and Restated Declaration of Trust of Walbro Capital Trust among
Walbro Corporation, as Sponsor, Bankers Trust (Delaware), as Delaware Trustee and
Lambert E. Althaver, Daniel L. Hittler and Michael A. Shope, as Regular Trustees.
4.12* Form of Indenture between Walbro Corporation and Bankers Trust Company, as Indenture
Trustee.
4.13* Form of Preferred Security (included in Exhibit A-1 to Exhibit 4.11 above).
</TABLE>
II-2
<PAGE> 124
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
4.14* Form of Convertible Debenture (included in Exhibit A to Exhibit 4.12 above).
4.15* Form of Preferred Securities Guarantee Agreement between Walbro Corporation, as
Guarantor, and Bankers Trust Company, as Guarantee Trustee with respect to the
Preferred Securities of Walbro Capital Trust.
5.1* Opinion of Katten Muchin & Zavis as to the validity of the issuance of the
Convertible Debentures and the Guarantee to be issued by the Company (including
consent).
5.2* Opinion of Richards, Layton & Finger, special Delaware counsel, as to the validity
of the issuance of the Preferred Securities to be issued by Walbro Capital Trust
(including consent).
8.1* Opinion of Katten Muchin & Zavis as to certain tax matters (including consent).
12.1* Computation of ratio of earnings to fixed charges.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Arthur Andersen.
23.3 Consent of Deloitte & Touche.
23.4* Consent of Katten Muchin & Zavis (included in Exhibits 5.1 and 8.1).
23.5* Consent of Richards, Layton & Finger (included in Exhibit 5.2).
23.6 Consent of Ernst & Young Audit.
24.1* Power of Attorney (set forth on signature page of the Registration Statement).
25.1* Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as amended,
of Bankers Trust Company, as Indenture Trustee under the Indenture, Institutional
Trustee under the Declaration of Trust, and Guarantee Trustee under the Guarantee.
</TABLE>
- -------------------------
* Previously filed.
II-3
<PAGE> 125
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the provisions referred to in Item 15 (other than the
insurance policies referred to therein), or otherwise, the Registrants have 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 Registrants of expenses
incurred or paid by a director, officer or controlling person of the Registrants
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 Registrants will, unless in the opinion of their 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 Registrants hereby
undertake that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 126
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Detroit, State of Michigan on the 27th day of
January, 1997.
WALBRO CORPORATION
By: /s/ LAMBERT E. ALTHAVER
------------------------------------
Lambert E. Althaver
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to this Registration Statement has been signed by the following persons, in the
capacities indicated, on January 27, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- ---------------------------------------------------
<C> <S>
/s/ LAMBERT E. ALTHAVER Chairman of the Board, Chief Executive Officer and
- ---------------------------------------- Director (Principal Executive Officer)
Lambert E. Althaver
/s/ FRANK E. BAUCHIERO* President, Chief Operating Officer and Director
- ----------------------------------------
Frank E. Bauchiero
/s/ ROBERT H. WALPOLE* Vice President and Director
- ----------------------------------------
Robert H. Walpole
/s/ MICHAEL A. SHOPE* Chief Financial Officer and Treasurer (Principal
- ---------------------------------------- Financial and Accounting Officer)
Michael A. Shope
/s/ WILLIAM T. BACON, JR.* Director
- ----------------------------------------
William T. Bacon, Jr.
/s/ HERBERT M. KENNEDY* Director
- ----------------------------------------
Herbert M. Kennedy
/s/ VERNON E. OECHSLE* Director
- ----------------------------------------
Vernon E. Oechsle
/s/ ROBERT D. TUTTLE* Director
- ----------------------------------------
Robert D. Tuttle
/s/ JOHN E. UTLEY* Director
- ----------------------------------------
John E. Utley
</TABLE>
*By: /s/ LAMBERT E. ALTHAVER
----------------------------
Lambert E. Althaver
Attorney-in-Fact, pursuant
to Power of Attorney
II-5
<PAGE> 127
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Detroit, State of Michigan on the 27th day of
January, 1997.
WALBRO CAPITAL TRUST
By: Walbro Corporation
By: /s/ LAMBERT E. ALTHAVER
-------------------------------------
Name: Lambert E. Althaver
Title: Chief Executive Officer
II-6
<PAGE> 128
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1* Restated Certificate of Incorporation of the Company, as amended.
3.2 By-Laws of the Company, as amended, filed as Exhibit 3.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989 (the "Form 10-K"),
incorporated herein by reference.
3.3 Amendment to Section 2.9 of the By-laws of the Company, filed as Exhibit 3.3 to the
Company's 1994 Annual Report on Form 10-K, incorporated herein by reference.
4.1 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, incorporated herein by reference.
4.2 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, incorporated herein by reference.
4.3 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, incorporated herein by reference.
4.4 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, incorporated herein by reference.
4.5 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, incorporated herein by
reference.
4.6 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 July 27, 1995 (the
"Form 8-K"), incorporated herein by reference.
4.7 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, filed as Exhibit 4.2 to the Company's Registration Statement on Form S-4,
filed September 27, 1995, incorporated herein by reference.
4.8 First Amendment, dated March 8, 1996, to the Amended and Restated Credit Agreement
among the Company, certain of its subsidiaries, Comerica Bank, as agent, and Harris
Bank, as co-agent, filed as Exhibit 4.8 to the Company's 1995 Annual Report on Form
Form 10-K, incorporated herein by reference.
4.9 First Amendment, dated as of July 26, 1995, to the Note Agreement among the Company
and the purchasers named therein, relating to the 7.68% Senior Notes of the Company,
filed as Exhibit 4.9 to the Company's 1995 Annual Report on Form 10-K, incorporated
herein by reference.
4.10* Certificate of Trust of Walbro Capital Trust.
4.11* Form of Amended and Restated Declaration of Trust of Walbro Capital Trust among
Walbro Corporation, as Sponsor, Bankers Trust (Delaware), as Delaware Trustee and
Lambert E. Althaver, Daniel L. Hittler and Michael A. Shope, as Regular Trustees.
4.12* Form of Indenture between Walbro Corporation and Bankers Trust Company, as Indenture
Trustee.
4.13* Form of Preferred Security (included in Exhibit A-1 to Exhibit 4.11 above).
</TABLE>
<PAGE> 129
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
4.14* Form of Convertible Debenture (included in Exhibit A to Exhibit 4.12 above).
4.15* Form of Preferred Securities Guarantee Agreement between Walbro Corporation, as
Guarantor, and Bankers Trust Company, as Guarantee Trustee with respect to the
Preferred Securities of Walbro Capital Trust.
5.1* Opinion of Katten Muchin & Zavis as to the validity of the issuance of the
Convertible Debentures and the Guarantee to be issued by the Company (including
consent).
5.2* Opinion of Richards, Layton & Finger, special Delaware counsel, as to the validity
of the issuance of the Preferred Securities to be issued by Walbro Capital Trust
(including consent).
8.1* Opinion of Katten Muchin & Zavis as to certain tax matters (including consent).
12.1* Computation of ratio of earnings to fixed charges.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Arthur Andersen.
23.3 Consent of Deloitte & Touche.
23.4* Consent of Katten Muchin & Zavis (included in Exhibits 5.1 and 8.1).
23.5* Consent of Richards, Layton & Finger (included in Exhibit 5.2).
23.6 Consent of Ernst & Young Audit.
24.1* Power of Attorney (set forth on signature page of the Registration Statement).
25.1* Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939, as amended,
of Bankers Trust Company, as Indenture Trustee under the Indenture, Institutional
Trustee under the Declaration of Trust, and Guarantee Trustee under the Guarantee.
</TABLE>
- -------------------------
* Previously filed.
<PAGE> 1
EXHIBIT 1.1
2,000,000 CONVERTIBLE TRUST PREFERRED SECURITIES
WALBRO CAPITAL TRUST
[ ]% Convertible Trust Preferred Securities
(Liquidation amount $25 per Convertible
Trust Preferred Security)
Guaranteed by and Convertible
into Common Stock of
WALBRO CORPORATION
UNDERWRITING AGREEMENT
January [ ], 1997
SMITH BARNEY INC.
INTERSTATE/JOHNSON LANE CORPORATION
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Ladies and Gentlemen:
Walbro Capital Trust (the "Trust"), a statutory business trust
created under the Business Trust Act (the "Delaware Act") of the State of
Delaware (Chapter 38, Title 12, of the Delaware Code, 12 Del. C. Section 3801
et seq.), proposes, upon the terms and conditions set forth herein, to issue
and sell 2,000,000 [ ]% Convertible Trust Preferred Securities, liquidation
amount $25 per security (the "Firm Preferred Securities"), to the several
Underwriters named in Schedule I hereto (the "Underwriters"). The Trust also
proposes, upon the terms and conditions set forth herein and solely for the
purpose of covering over-allotments, to issue and sell to the Underwriters up
to an additional 300,000 [ ]% Convertible Trust Preferred Securities,
liquidation amount $25 per security (the "Additional Preferred Securities").
The Firm Preferred Securities and the Additional Preferred Securities are
hereinafter collectively referred to as the "Preferred Securities."
Each Preferred Security is convertible at the option of the holder
thereof into shares of common stock, par value
<PAGE> 2
-2-
$.50 per share (the "Conversion Shares"), of Walbro Corporation (the "Company"
and together with the Trust, the "Offerors") at a conversion rate of [ ]
Conversion Shares for each Preferred Security, subject to adjustment in certain
circumstances. The Preferred Securities will be guaranteed by the Company, to
the extent set forth in the Prospectus (as defined below), with respect to
distributions and amounts payable upon liquidation or redemption (the
"Preferred Securities Guarantee") pursuant to the Preferred Securities
Guarantee Agreement (the "Preferred Securities Guarantee Agreement") to be
dated as of the Closing Date (as defined below) executed and delivered by the
Company and Bankers Trust Company (the "Guarantee Trustee"), a New York banking
corporation, not in its individual capacity but solely as trustee, for the
benefit of the holders from time to time of the Preferred Securities. The
entire proceeds from the sale of the Preferred Securities will be combined with
the entire proceeds from the sale by the Trust to the Company of its common
securities (the "Common Securities") which will be guaranteed by the Company,
to the extent set forth in the Prospectus, with respect to distributions and
amounts payable upon liquidation or redemption (the "Common Securities
Guarantee" and, together with the Preferred Securities Guarantee, the
"Guarantees") pursuant to the Common Securities Guarantee Agreement (the
"Common Securities Guarantee Agreement" and, together with the Preferred
Securities Guarantee Agreement, the "Guarantee Agreements"), to be dated as of
the Closing Date, executed and delivered by the Company for the benefit of the
holders from time to time of the Common Securities, and will be used by the
Trust to purchase the [ ]% Convertible Subordinated Debentures due 2017 (the
"Convertible Debentures") issued by the Company. The Preferred Securities and
the Common Securities will be issued pursuant to the Amended and Restated
Declaration of Trust of the Trust, to be dated as of Closing Date (the
"Declaration"), among the Company, as Sponsor, Bankers Trust Company, as
institutional trustee (the "Institutional Trustee"), Bankers Trust (Delaware),
as Delaware trustee (the "Delaware Trustee"), and Lambert E. Althaver, Daniel
L. Hittler and Michael A. Shope, as regular trustees (the "Regular Trustees,"
and together with the Institutional Trustee and the Delaware Trustee, the
"Trustees"), and the holders from time to time of undivided beneficial
interests in the assets of the Trust. The Convertible Debentures will be
issued pursuant to an Indenture, to be dated as of the Closing Date (the
"Indenture"), between the Company and Bankers Trust Company, as trustee (the
"Indenture Trustee"). The Preferred Securities, the Preferred Securities
Guarantee, the Convertible Debentures and the Conversion Shares are
collectively referred to herein as the "Securities."
<PAGE> 3
-3-
Capitalized terms used herein without definition have the respective meanings
specified in the Prospectus.
The Offerors wish to confirm as follows their agreement with you
and the other several Underwriters on whose behalf you are acting, in
connection with the several purchases of the Preferred Securities by the
Underwriters.
1. Registration Statement and Prospectus. The Offerors have
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Securities Act"), a registration statement on Form S-3
(File No. 333-18317) under the Securities Act (the "registration statement"),
including a prospectus subject to completion relating to the Securities. The
term "Registration Statement" as used in this Agreement means the registration
statement (including all financial schedules and exhibits), as amended at the
time it becomes effective, or, if the registration statement became effective
prior to the execution of this Agreement, as supplemented or amended prior to
the execution of this Agreement. If it is contemplated, at the time this
Agreement is executed, that a post-effective amendment to the registration
statement will be filed and must be declared effective before the offering of
the Preferred Securities may commence, the term "Registration Statement" as
used in this Agreement means the registration statement as amended by said
post-effective amendment. If an additional registration statement is prepared
and filed with the Commission in accordance with Rule 462(b) under the
Securities Act (an "Additional Registration Statement"), the term "Registration
Statement" as used in this Agreement includes the Additional Registration
Statement. The term "Prospectus" as used in this Agreement means the
prospectus in the form included in the Registration Statement as supplemented
by the addition of Rule 430A information contained in the prospectus filed with
the Commission pursuant to Rule 424(b) under the Securities Act. The term
"Prepricing Prospectus" as used in this Agreement means the prospectus subject
to completion relating to the Preferred Securities in the form included in the
registration statement at the time of the initial filing of the registration
statement with the Commission, and as such prospectus shall have been amended
from time to time prior to the date of the Prospectus. Any reference in this
Agreement to the registration statement, the Registration Statement, any
Prepricing Prospectus or the Prospectus shall be deemed to refer to and include
the documents incorporated by
<PAGE> 4
-4-
reference therein pursuant to Form S-3 under the Securities Act, as of the date
of the registration statement, the Registration Statement, such Prepricing
Prospectus or the Prospectus, as the case may be, and any reference to any
amendment or supplement to the registration statement, the Registration
Statement, any Prepricing Prospectus or the Prospectus shall be deemed to refer
to and include any documents filed after such date under the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Exchange Act") which, upon filing,
are incorporated by reference therein, as required by Form S-3. As used
herein, the term "Incorporated Documents" means the documents which at the time
are incorporated by reference in the registration statement, the Registration
Statement, any Prepricing Prospectus, the Prospectus, or any amendment or
supplement thereto.
2. Agreements to Sell and Purchase. The Trust hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell to
each Underwriter and, upon the basis of the representations, warranties and
agreements of the Offerors herein contained and subject to all the terms and
conditions set forth herein each Underwriter agrees, severally and not jointly,
to purchase from the Trust, at a purchase price of $[ ] per Firm Preferred
Security, plus accrued distributions, if any from [ ], 1997, the
number of Firm Preferred Securities set forth opposite the name of such
Underwriter in Schedule I hereto (or such number of Firm Preferred Securities
increased as set forth in Section 10 hereof).
The Company agrees that, in view of the fact that the proceeds of
the sale of the Preferred Securities will be invested in the Convertible
Debentures, it shall pay to the Underwriters as compensation ("Underwriters'
Compensation") for their arranging the investment of the proceeds therein, on
the Closing Date, $[ ] per Firm Preferred Security. The Underwriters
shall inform the Company in writing on the Closing Date of the aggregate number
of Firm Preferred Securities so sold.
The Trust also agrees, subject to all the terms and conditions set
forth herein, to sell to the Underwriters, and upon the basis of the
representations, warranties and agreements of the Company herein contained and
subject to all the terms and conditions set forth herein, the Underwriters
shall have the right to purchase from the Trust pursuant to an option (the
"over-allotment option") which may be exercised at any one
<PAGE> 5
-5-
time prior to 9:00 P.M., New York City time, on the 30th day after the date of
the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a
holiday, on the next business day thereafter when the Nasdaq National Market
("Nasdaq") is open for trading), up to 300,000 Additional Preferred Securities
at the same purchase price as the Firm Preferred Securities, plus accrued
distributions, if any, from [ ], 1997. Upon exercise of the
over-allotment option, each Underwriter, severally and not jointly, agrees to
purchase that number of Additional Preferred Securities (subject to such
adjustments as you may determine in order to avoid fractional securities) which
bears the same proportion to the aggregate number of Additional Preferred
Securities to be purchased by the Underwriters as the number of Firm Preferred
Securities set forth opposite the name of such Underwriter bears in Schedule I
hereto (or such number of Firm Preferred Securities increased as set forth in
Section 10 hereof) to the aggregate number of Firm Preferred Securities. The
Company agrees that it will pay Underwriters' Compensation on the Option
Closing Date (as hereinafter defined) in the amounts per Preferred Security set
forth in the immediately preceding paragraph with respect to any Additional
Preferred Securities purchased by the Underwriters.
3. Terms of Public Offering. The Offerors have been advised by
you that the Underwriters propose to make a public offering of their respective
portions of the Preferred Securities as soon as the Underwriters deem advisable
after the Registration Statement has become effective, this Agreement has been
executed and delivered, and the Declaration, the Preferred Securities Guarantee
Agreement and the Indenture have been qualified under the Trust Indenture Act
of 1939, as amended (the "1939 Act"). The entire proceeds from the sale of the
Preferred Securities will be combined with the entire proceeds from the sale by
the Trust to the Company of its Common Securities, and will be used by the
Trust to purchase an equivalent amount of the Convertible Debentures.
4. Delivery of the Preferred Securities and Payment Therefor.
Delivery to the Underwriters of and payment for the Firm Preferred Securities
shall be made at the office of Smith Barney Inc., 388 Greenwich Street, New
York, New York 10013, at 8:30 A.M., New York City time, on [ ], 1997
(the "Closing Date"). The place of closing for the Preferred Securities and
the Closing Date may be varied by agreement between you and the Company.
<PAGE> 6
-6-
Delivery to the Underwriters of and payment for any Additional
Preferred Securities to be purchased by the Underwriters shall be made at the
aforementioned office of Smith Barney Inc. at such time and on such date (the
"Option Closing Date"), which may be the same as the Closing Date but shall in
no event be earlier than the Closing Date nor earlier than two nor later than
ten business days after the giving of the notice hereinafter referred to, as
shall be specified in a written notice from you to the Offerors of the
Underwriters' determination to purchase the number of Additional Preferred
Securities specified in such notice. The place of closing for any Additional
Preferred Securities and the Option Closing Date for such Additional Preferred
Securities may be varied by agreement between you and the Offerors.
The Firm Preferred Securities and any Additional Preferred
Securities which the Underwriters may elect to purchase shall be delivered to
you for the accounts of the several Underwriters registered in the name of Cede
& Co., as nominee for the Depository Trust Company, against payment of the
purchase price therefor in immediately available funds. The Preferred
Securities to be delivered to the Underwriters shall be made available to you
in New York City for inspection and packaging not later than 9:30 A.M., New
York City time, on the business day next preceding the Closing Date or the
Option Closing Date, as the case may be.
5. Agreements of the Offerors. The Company and the Trust,
jointly and severally, agree with the several Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it
is necessary for the Registration Statement or a post-effective amendment
thereto (or any Additional Registration Statement) to be declared or to
become effective before the offering of the Securities may commence,
the Offerors will endeavor to cause the Registration Statement or such
post-effective amendment to become effective as soon as possible and will
advise you promptly and, if requested by you, will confirm such advice in
writing, when the Registration Statement or such post-effective amendment
(or any Additional Registration Statement) has become effective.
(b) The Offerors will advise you promptly and, if requested by
you, will confirm such advice in writing: (i) of any request by the
Commission for amendment of or a
<PAGE> 7
-7-
supplement to the Registration Statement, any Prepricing Prospectus or
the Prospectus or for additional information; (ii) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the
Securities for offering or sale in any jurisdiction or the initiation of
any proceeding for such purpose; and (iii) within the period of time
referred to in paragraph (f) below, of the happening of any event, which
makes any statement of a material fact made in the Registration Statement
or the Prospectus (as then amended or supplemented) untrue or which
requires the making of any additions to or changes in the Registration
Statement or the Prospectus (as then then amended or supplemented) in
order to state a material fact required by the Securities Act or the
regulations thereunder to be stated therein or necessary in order to
make the statements therein not misleading, or of the necessity to
amend or supplement the Prospectus (as then amended or supplemented) to
comply with the Securities Act or any other law. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Offerors will make every reasonable effort to
obtain the withdrawal of such order at the earliest possible time.
(c) The Offerors will furnish to you, without charge, (i) 3 copies
of the registration statement as originally filed with the Commission via
EDGAR and of each amendment thereto so filed, including financial
statements and all exhibits to the registration statement, and will
furnish you with an equal number of copies of executed signature pages
regarding the same, (ii) such number of conformed copies of the
registration statement as originally filed and of each amendment thereto,
but without exhibits, as you may reasonably request and (iii) such number
of copies of the Declaration, the Preferred Securities Guarantee
Agreement, the Common Securities Guarantee Agreement and the Indenture
and of the Incorporated Documents, as you may reasonably request.
(d) Prior to the end of the period of time referred to in the
first sentence in subsection (f) below, the Offerors will not file any
amendment to the Registration Statement or any Additional Registration
Statement or make any amendment or supplement to the Prospectus to which
you shall reasonably object or file with the Commission any document
which upon filing becomes an Incorporated
<PAGE> 8
-8-
Document and of which you shall not previously have been advised.
(e) Prior to the execution and delivery of this Agreement, the
Offerors have delivered to you, without charge, in such quantities as you
have reasonably requested, copies of each Prepricing Prospectus. The
Offerors consent to the use, in accordance with the provisions of the
Securities Act and with the securities or Blue Sky laws of the
jurisdictions in which the Preferred Securities are offered by the
several Underwriters and by dealers, prior to the date of the Prospectus,
of each Prepricing Prospectus so furnished by the Offerors.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the
opinion of counsel for the Underwriters a Prospectus is required by the
Securities Act to be delivered in connection with sales by any
Underwriter or dealer, the Offerors will expeditiously deliver to each
Underwriter and each dealer, without charge, as many copies of the
Prospectus (and of any amendment or supplement thereto) as you may
reasonably request. The Offerors' consent to the use of the Prospectus
(and of any amendment or supplement thereto) in accordance with the
provisions of the Securities Act and with the securities or Blue Sky laws
of the jurisdictions in which the Preferred Securities are offered by the
several Underwriters and by all dealers to whom Preferred Securities may
be sold, both in connection with the offering and sale of the Preferred
Securities and for such period of time thereafter as the Prospectus is
required by the Securities Act to be delivered in connection with sales
by any Underwriter or dealer. If during such period of time any event
shall occur that in the judgment of the Offerors or in the opinion of
counsel for the Underwriters is required to be set forth in the
Prospectus (as then amended or supplemented) or should be set forth
therein in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary to supplement or amend the Prospectus (or to file under the
Exchange Act any document which upon filing, becomes an Incorporated
Document) in order to comply with the Securities Act or any other law,
the Offerors will forthwith prepare and, subject to the provisions of
paragraph (d) above, file with the Commission an appropriate supplement
or amendment thereto (or to such document), and
<PAGE> 9
-9-
will expeditiously furnish to the Underwriters and dealers a reasonable
number of copies thereof. In the event that the Offerors and you, as
Representatives of the several Underwriters, agree that the Prospectus
should be amended or supplemented, the Offerors or the Company, if
requested by you, will promptly issue a press release announcing or
disclosing the matters to be covered by the proposed amendment or
supplement.
(g) The Offerors will cooperate with you and with counsel for the
Underwriters in connection with the registration or qualification of the
Securities for offering and sale by the several Underwriters and by
dealers under the securities or Blue Sky Laws of such jurisdictions as
you may designate and will file such consents to service of process or
other documents necessary or appropriate in order to effect such
registration or qualification; provided that in no event shall the
Company or the Trust be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which
would subject it to taxation or service of process in suits, other than
those arising out of the offering or sale of the Preferred Securities, in
any jurisdiction where it is not now so subject.
(h) The Offerors will make generally available to the Trust's
security holders a consolidated earnings statement of the Company, which
need not be audited, covering a twelve-month period commencing after the
effective date of the Registration Statement and ending not later than 15
months thereafter, as soon as practicable after the end of such period,
which consolidated earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act.
(i) For a period of five years following the date of issuance of
the Securities, the Company will furnish to you, (i) as soon as
available, a copy of all reports and other communications (financial or
otherwise) of the Company mailed to stockholders or filed by the Company
with the Commission or any national securities exchange on which any
security of the Company may be listed or quoted and a copy of each Annual
Report on Form 10-K, each quarterly report on Form 10-Q and each current
report on Form 8-K filed by the Company with the Commission under the
Exchange Act, and (ii) from time to time such other information
concerning the Company as you may reasonably
<PAGE> 10
-10-
request and the Trust will furnish to you, upon your request, a copy of
each report of the Trust mailed to holders of Preferred Securities or
Common Securities.
(j) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to
the second paragraph of Section 10 hereof or by notice given by you
terminating this Agreement pursuant to Section 10 hereof) or if this
Agreement shall be terminated by the Underwriters because of any failure
or refusal on the part of the Offerors to comply with the terms or
fulfill any of the conditions of this Agreement, the Company agrees to
reimburse the Underwriters for all reasonable out-of-pocket expenses
(including reasonable fees and expenses of counsel for the Underwriters)
incurred by you in connection herewith.
(k) The Trust will apply the net proceeds from the sale of the
Preferred Securities, and the Company will apply the net proceeds from
the sale of the Convertible Debentures, substantially in accordance with
the description set forth in the Prospectus under "Use of Proceeds".
(l) If required by the rules of the Commission, the Offerors will
timely file the Prospectus pursuant to Rule 424(b) under the Securities
Act and will advise you of the time and manner of such filing.
(m) Each of the Trust and the Company agree, during the period
beginning on the date of this Agreement and continuing to and including
the date that is 90 days after the Closing Date, not to offer, sell,
contract to offer, sell or otherwise dispose of any preferred securities,
any preferred stock, any common stock or any other securities (including
any backup undertakings for such preferred stock or other securities) of
the Company or of the Trust, in each case that are substantially similar
to the Preferred Securities, or any securities convertible into or
exchangeable for the Preferred Securities or such substantially similar
securities of either the Trust or the Company, without the prior written
consent of Smith Barney Inc.
(n) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Company has not taken, nor will it take,
directly or indirectly, any action designed to or that might reasonably
be expected to
<PAGE> 11
-11-
cause or result in stabilization or manipulation of the price of the
Preferred Securities to facilitate the sale or resale of the Preferred
Securities.
(o) The Company will use its best efforts to have the Preferred
Securities listed on the Nasdaq. If the Convertible Debentures are
distributed on the occurrence of a Tax Event (as defined in the
Prospectus), the Company will use its best efforts to have such
Convertible Debentures listed on Nasdaq or such other exchange where
the Preferred Securities are listed.
6. Representations and Warranties of the Offerors. The Company
and the Trust, jointly and severally, represent and warrant to, and agree with,
each Underwriter that as of the date hereof, as of the Closing Date referred to
in Section 4 hereof, and as of each Option Closing Date if any, as referred to
in Section 4 hereof:
(a) Each Prepricing Prospectus complied in all material respects
with the provisions of the Securities Act. The Commission has not issued
any order preventing or suspending the use of any Prepricing Prospectus.
(b) Each of the Offerors and the transactions contemplated by this
Agreement meet the requirements for using Form S-3 under the Securities
Act. The registration statement in the form in which it became or
becomes effective and also in such form as it may be when any
post-effective amendment thereto shall become effective, any Additional
Registration statement when filed with the Commission pursuant to Rule
462(b) under the Securities Act and the Prospectus and any supplement and
amendment thereto when filed with the Commission under Rule 424(b) under
the Securities Act complied or will comply in all material respects with
the provisions of the Securities Act and will not at any such times
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except that this representation and
warranty does not apply to statements in or omissions from the
registration statement or the Prospectus made in reliance upon and in
conformity with information relating to any Underwriter furnished to the
Offerors in writing by or on behalf of any Underwriter through you
expressly for use therein.
<PAGE> 12
-12-
(c) The Incorporated Documents heretofore filed, when they were
filed (or, if any amendment with respect to any such document was filed,
when such amendment was filed), conformed in all material respects with
the requirements of the Exchange Act and the rules and regulations
thereunder, any further Incorporated Documents so filed will, when they
are filed, conform in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder; no such document
when it was filed (or, if an amendment with respect to any such document
was filed, when such amendment was filed), contained an untrue statement
of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading; and no such further document, when it is filed, will contain
an untrue statement of a material fact or will omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading.
(d) The execution and delivery of, and the performance by the
Company and the Trust of their respective obligations under this
Agreement have been duly and validly authorized by the Company and the
Trust, respectively, and this Agreement has been duly executed and
delivered by the Company and the Trust, respectively, and is enforceable
in accordance with its terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency (including without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or other
similar laws affecting enforcement of creditors rights generally and
subject to the applicability of general principles of equity and except
as rights to indemnity hereunder may be limited by federal securities
laws.
(e) The Offerors have not distributed and, prior to the later to
occur of (i) the Closing Date and (ii) completion of the distribution of
the Preferred Securities, will not distribute any offering materials in
connection with the offering and sale of the Preferred Securities other
than the Registration Statement, the Prepricing Prospectus, the
Prospectus or other materials, if any, permitted by the Securities Act.
(f) Each of: (i) Arthur Andersen, LLP, the accountants who
certified the financial statements and supporting schedules of the
Company included in the Registration
<PAGE> 13
-13-
Statement, (ii) Deloitte & Touche, LLP, the accountants who certified
the financial statements and supporting schedules of the Fuel Tank
Division of Dyno Industrier A.S. ("Dyno"), incorporated by reference in
the Registration Statement and (iii) Ernst & Young Audit (Paris,
France), the accountants who certified the financial statements and
supporting schedules of Marwal Systems, S.N.C. ("Marwal"), incorporated
by reference in the Registration Statement, are independent public
accountants as required by the Securities Act and Securities Act
regulations.
(g) The financial statements included in the Registration
Statement and the Prospectus (or incorporated by reference therein, as
the case may be), together with the related schedules and notes, present
fairly the financial position of the Company and its consolidated
subsidiaries, Dyno and Marwal at the dates indicated and the statement of
operations, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries, Dyno and Marwal for the periods specified;
said financial statements have been prepared in conformity with generally
accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved. The supporting schedules, if any,
included in the Registration Statement present fairly in accordance with
GAAP the information required to be stated therein. The selected
financial data and the summary financial information included in the
Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with that of the audited financial
statements included in the Registration Statement.
(h) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein, (A) there has been no material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business (a
"Material Adverse Effect") and (B) there have been no transactions
entered into by the Company or any of its subsidiaries, other than those
in the ordinary course of business, which are material with respect to
the Company and its subsidiaries considered as one enterprise, and (C)
there has been no dividend or distribution of any kind declared, paid or
made by
<PAGE> 14
-14-
the Company on any class of its capital stock except as is described
in the Prospectus.
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the state of Delaware
and has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Registration
Statement and the Prospectus and to enter into and perform its
obligations under this Agreement, the Declaration, the Indenture, the
Guarantees and the Convertible Debentures and to purchase, own and hold
the Common Securities issued by the Trust; and the Company is duly
registered and qualified as a foreign corporation to conduct its business
and is in good standing in each other jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing
of property or the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a Material Adverse
Effect.
(j) Each significant subsidiary of the Company as defined in Rule
1-02 of Regulation S-X under the Securities Act (a "Significant
Subsidiary") has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation (which is listed opposite the name of each subsidiary in
Schedule II hereto), has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Registration Statement and the Prospectus and is duly registered and
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which the nature of its properties or
the conduct of its business requires such registration or qualification,
except where the failure so to qualify or to be in good standing would
not result in a Material Adverse Effect; except as otherwise disclosed in
the Registration Statement and the Prospectus, all of the issued and
outstanding capital stock of each such Significant Subsidiary has been
duly authorized and validly issued, is fully paid and non-assessable and
is owned by the Company, directly or through subsidiaries, free and clear
of any security interest, mortgage pledge, lien, encumbrance, claim or
equity; none of the outstanding shares of capital stock of any
Significant Subsidiary was issued in violation of the preemptive or
similar rights of any securityholder of such subsidiary.
<PAGE> 15
-15-
The only subsidiaries of the Company are the subsidiaries listed in
Schedule II hereto.
(k) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus as of the respective dates
presented; and the Preferred Securities, the Common Securities, the
Conversion Shares, the Convertible Debentures, the Declaration, the
Preferred Securities Guarantee Agreement and the Indenture conform in all
material respects to the descriptions thereof in the Prospectus under the
captions "Description of the Preferred Securities," "Description of the
Guarantee," "Description of the Convertible Debentures," "Effect of
Obligations Under the Convertible Debentures and the Guarantee" and
"Description of Capital Stock".
(l) The Trust has been duly created and is validly existing in
good standing as a business trust under the Delaware Act with the power
and authority to own property and to conduct its business as described in
the Registration Statement and the Prospectus, and any amendment or
supplement thereto, and to enter into and perform its obligations under
this Agreement, the Preferred Securities, the Common Securities and the
Declaration; the Trust is duly qualified to transact business as a
foreign corporation in good standing in each jurisdiction in which such
qualification is necessary, except to the extent that the failure to so
qualify would not have a Material Adverse Effect on the Trust; and the
Trust is not a party to or otherwise bound by any agreement other than
those described in the Prospectus, and any amendment or supplement
thereto.
(m) The Common Securities have been duly authorized by the
Declaration and, when issued and delivered by the Trust to the Company in
accordance with the terms of the Declaration and against payment therefor
as described in the Prospectus, will be validly issued undivided
beneficial interests in the assets of the Trust; the issuance of the
Common Securities is not subject to preemptive or other similar rights;
and at the Closing Date, all of the issued and outstanding Common
Securities of the Trust will be directly owned by the Company free and
clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or equity.
<PAGE> 16
-16-
(n) All of the outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable; and none of the outstanding shares of capital stock of
the Company was issued in violation of the preemptive or other similar
rights of any stockholder of the Company.
(o) The Declaration has been duly authorized by the Company and,
when validly executed and delivered by the Company and the Regular
Trustees, and assuming the due authorization, execution and delivery of
the Declaration by the Delaware Trustee and the Institutional Trustee,
the Declaration will be a valid and legally binding obligation of the
Company and the Regular Trustees, enforceable against the Company and the
Regular Trustees in accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or similar laws affecting enforcement of creditors' rights
generally and except as enforcement thereof is subject to general
principles of equity regardless of whether enforcement is considered a
proceeding in equity or at law; and the Declaration has been duly
qualified under the 1939 Act and conforms to the description thereof in
the Registration Statement and the Prospectus and any amendment or
supplement thereto;
(p) The Regular Trustees of the Trust are officers of the Company
and have been duly authorized by the Company to execute and deliver the
Declaration.
(q) The Preferred Securities Guarantee Agreement has been duly and
validly authorized by the Company and, when validly executed and
delivered by the Company, and assuming due authorization, execution and
delivery of the Preferred Securities Guarantee Agreement by the Guarantee
Trustee, will constitute a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to the fraudulent transfers),
reorganization, moratorium or other similar laws affecting enforcement of
creditors' rights generally and except as enforcement thereof is subject
to general principles of equity regardless of whether enforcement is
considered a
<PAGE> 17
-17-
proceeding in equity or at law; and the Preferred Securities
Guarantee Agreement has been duly qualified under the 1939 Act and
conforms to the description thereof in the Registration Statement and the
Prospectus and any amendment or supplement thereto;
(r) The Preferred Securities have been duly authorized by the
Declaration and, when authenticated in the manner provided for in the
Declaration and issued and delivered pursuant to this Agreement against
payment of the consideration set forth herein, will be validly issued and
(subject to the terms of the Declaration) fully paid and nonassessable
undivided beneficial interests in the assets of the Trust; the issuance
of the Preferred Securities is not subject to preemptive or other similar
rights; and holders of Preferred Securities will be entitled to the same
limitation of personal liability extended to stockholders of private
corporations for profit incorporated under the General Corporation Law of
the State of Delaware and the Preferred Securities have been registered
under the Exchange Act and authorization for quoting the Preferred
Securities on Nasdaq has been given, subject only to official notice
of issuance.
(s) The Indenture has been duly authorized by the Company, and,
when validly executed and delivered by the Company, and assuming the due
authorization, execution and delivery of the Indenture by the Indenture
Trustee, will be a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or other similar laws affecting enforcement of
creditors' rights generally and except as enforcement thereof is subject
to general principles of equity regardless of whether enforcement is
considered a proceeding in equity or at law; and the Indenture has been
(or will have been) duly qualified under the 1939 Act and conforms to the
description thereof in the Registration Statement and the Prospectus, and
any amendment or supplement thereto.
(t) The Convertible Debentures have been duly authorized by the
Company, and when validly executed, authenticated, issued and delivered
in the manner provided for in the Indenture and sold and paid for as
provided in this Agreement, the Convertible Debentures
<PAGE> 18
-18-
will be valid and binding obligations of the Company entitled to the
benefits of the Indenture and enforceable against the Company in
accordance with their terms, except as enforcement thereof may be limited
by bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfers), reorganization, moratorium or similar
laws affecting enforcement of creditors' rights generally and except as
enforcement thereof is subject to general principles of equity regardless
of whether enforcement is considered a proceeding in equity or at law;
and the Indenture conforms to the description thereof in the Registration
Statement and the Prospectus, and any amendment or supplement thereto.
(u) The Company's obligations under the Preferred Security
Guarantee are (i) subordinated and junior to all other liabilities of the
Company except any liabilities that may be pari passu expressly by their
terms, (ii) pari passu with the most senior preferred stock or preference
stock, if any, issued from time to time by the Company and with any
guarantee now or hereafter entered into by the Company in respect of any
preferred or preference stock or preferred securities of any affiliate of
the Company and (iii) senior to the Common Stock.
(v) The Convertible Debentures are subordinate in right of payment
to all existing and future Senior Indebtedness (as defined in the
Indenture) of the Company.
(w) To the knowledge of the Offerors, neither the Company nor any
of its subsidiaries is in violation of its charter, by-laws or other
organizational documents; the Trust is not in violation of the
Declaration or its Certificate of Trust filed with the State of Delaware
on December [ ], 1996; and neither the Company, any Significant
Subsidiaries of the Company or the Trust is in default in the performance
or observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or other agreement or instrument to which
the Company, any of its subsidiaries or the Trust is a party or by which
it or any of them may be bound, or to which any of the property or assets
of the Company, any subsidiary or the Trust is subject (collectively,
"Agreements and Instruments"), except for such defaults that would not
result in a Material Adverse Effect.
<PAGE> 19
-19-
(x) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent, and
the Company is not aware of any existing or imminent labor disturbance by
the employees of any of its or any subsidiary's principal suppliers,
manufacturers, customers or contractors, which, in either case, may
reasonably be expected to result in a Material Adverse Effect.
(y) Except as described in the Registration Statement and the
Prospectus, there is no action, suit, proceeding, inquiry or
investigation before or brought by any court or governmental agency or
body, domestic or foreign, now pending, or, to the knowledge of the
Company, threatened, against or affecting the Company, any Significant
Subsidiary of the Company or the Trust, which is required to be disclosed
in the Registration Statement (other than as disclosed therein), or which
could reasonably be expected to result in a Material Adverse Effect, or
which could reasonably be expected to materially and adversely affect the
properties or assets thereof or the consummation of the transactions
contemplated in this Agreement or the performance by the Company or the
Trust of their respective obligations hereunder; the aggregate of all
pending legal or governmental proceedings to which the Company or any
subsidiary of the Company or the Trust is a party or of which any of
their respective property or assets is the subject which are not
described in the Registration Statement, including ordinary routine
litigation incidental to the business, could not reasonably be expected
to result in a Material Adverse Effect.
(z) There are not contracts or documents which are required to be
described in the Registration Statement or the Prospectus or to be filed
as exhibits thereto which have not been so described and filed as
required.
(aa) Neither the issuance and sale of the Preferred Securities by
the Trust, the extension of the Guarantee by the Company, the issuance
and sale of the Convertible Debentures by the Company, the execution,
delivery or performance of the Declaration, the Indenture and the
Guarantees by the Offerors, nor the consummation by the Offerors of the
transactions contemplated hereby and thereby and compliance by the
Offerors with their respective obligations hereunder and thereunder (A)
requires any consent, approval, authorization or other order of or
registration
<PAGE> 20
-20-
or filing with, any court, regulatory body, administrative agency or
other governmental body, agency or official (except such as may be
required for the registration of the Securities under the Securities Act
and the Exchange Act and compliance with the securities or Blue Sky laws
of various jurisdictions, all of which have been or will be effected in
accordance with this Agreement) or conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under, the
certificate or articles of incorporation or bylaws, or other
organizational documents, of the Company or any of its Significant
Subsidiaries or the Declaration or Certificate of Trust of the Trust or
(B) conflicts or will conflict with, in any material respect, or
constitutes or will constitute a breach of, or a default, in any material
respect, under, any material agreement, indenture, lease or other
instrument to which the Company, any of its Significant Subsidiaries or
the Trust is a party or by which any of them or any of their respective
properties may be bound, except any such conflict or conflicts that in
the aggregate would not result in a Material Adverse Effect or (C)
violates or will violate any statute, law, regulation or filing or
judgment, injunction, order or decree of any government, government
instrumentality or court, domestic or foreign, applicable to the Company,
any of its Significant Subsidiaries or the Trust or any of their
respective properties, except any such violation or violations that in
the aggregate would not result in a Material Adverse Effect, or (D) will
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company, any of its Significant
Subsidiaries or the Trust pursuant to the terms of any agreement or
instrument to which any of them is a party or by which any of them may be
bound or to which any of the property or assets of any of them is
subject.
(bb) The Company and its Significant Subsidiaries possess such
permits, licenses, approvals, consents and other authorizations
(collectively, "Governmental Licenses") issued by the appropriate
federal, state, local or foreign regulatory agencies or bodies necessary
to conduct the business now operated by them and to the knowledge of the
Company such Governmental Licenses are in full force and effect; the
Company and its Significant Subsidiaries are in material compliance with
the terms and conditions of all such Governmental Licenses, except where
the failure so to comply would not, singly or in the
<PAGE> 21
-21-
aggregate, have a Material Adverse Effect; and neither the Company nor
any of its Significant Subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would result in a Material
Adverse Effect.
(cc) The Company and its Significant Subsidiaries have good and
marketable title to all real property owned by the Company and its
Significant Subsidiaries and good title to all other properties owned by
them, in each case, free and clear of all material liens, security
interests, claims, restrictions, mortgages, pledges, or encumbrances of
any kind except such as (A) are described in the Prospectus; or (B) do
not, singly or in the aggregate, materially affect the value of such
property and do not interfere with the use made and currently proposed to
be made of such property by the Company or any of its Significant
Subsidiaries; and all of the leases and subleases material to the
business of the Company and its Significant Subsidiaries, considered as
one enterprise, and under which the Company or any of its Significant
Subsidiaries holds properties described in the Prospectus, are valid,
existing and enforceable, and neither the Company nor any Significant
Subsidiary has any notice of any material claim of any sort that has been
asserted by anyone adverse to the rights of the Company or any
Significant Subsidiary under any of the leases or subleases mentioned
above, or affecting or questioning the rights of the Company or such
Significant Subsidiary to the continued possession of the leased or
subleased premises under any such lease or sublease, except as such would
not in the aggregate result in a Material Adverse Effect.
(dd) Neither the Company nor the Trust is, and upon the issuance
and sale of the Preferred Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectus
neither will be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company
Act of 1940, as amended (the "1940 Act").
(ee) Except as would not, singly or in the aggregate, result in a
Material Adverse Effect, (A) neither the Company nor any of its
Significant Subsidiaries is in
<PAGE> 22
-22-
violation of any federal, state, local or foreign statute, law, rule,
regulation, ordinance, code, policy or rule of common law or any judicial
or administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment, relating to pollution
or protection of human health, the environment (including, without
limitation, ambient air, surface water, ground-water, land surface or
subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products (collectively, "Hazardous Materials") or
to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and its Significant Subsidiaries
have all permits, authorizations and approvals required under any
applicable Environmental Laws and are each in compliance with their
requirements, (C) there are no pending or, to the knowledge of the
Company, threatened administrative, regulatory or judicial actions,
suits, demands, demand letters, claims, liens, notices of noncompliance
or violation, investigation or proceedings relating to any Environmental
Law against the Company or any of its Significant Subsidiaries and (D)
there are no events or circumstances to the knowledge of the Company that
might reasonably be expected to form the basis of an order for clean-up
or remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any of
its Significant Subsidiaries relating to Hazardous Materials or any
Environmental Laws.
(ff) There are no persons with registrations rights or other
similar rights to have any security registered pursuant to the
Registration Statement or otherwise registered by the Company under the
Securities Act.
(gg) The Company and each of its Significant Subsidiaries have
filed all federal or state income and franchise tax returns required to
be filed and have paid all taxes shown thereon as due, and there is no
material tax deficiency which has been or is reasonably likely to be
asserted against the Company or any of its Significant Subsidiaries,
except where the failure to file such returns or pay such taxes would not
have a Material Adverse Effect; all material tax liabilities of the
<PAGE> 23
-23-
Company and its Significant Subsidiaries are adequately provided for on
the books of the Company and its Significant Subsidiaries.
(hh) The Company and each of the Company's Significant
Subsidiaries own or possess all patents, trademarks, trademark
registrations, service marks, service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets and rights described in
the Prospectus or Registration Statement as being owned by them or any of
them and owns, possesses or has the right to use all patents, trademarks,
trademark registrations, service marks, service mark registrations, trade
names, copyrights, licenses, inventions, trade secrets and rights
necessary for the conduct of their respective businesses, and the Company
is not aware of any claim to the contrary or any challenge by any other
person to the rights of the Company and its Significant Subsidiaries with
respect to the foregoing.
(ii) Each of the Company and its Significant Subsidiaries has
fulfilled its obligations, if any, under the minimum funding standards of
Section 302 of the United States Employee Retirement Income Security Act
of 1974 ("ERISA") and such regulations and published interpretations
thereunder with respect to each "plan" (as defined in ERISA and such
regulations and published interpretations) in which employees of the
Company and its Significant Subsidiaries are eligible to participate and
each such plan is in compliance in all material respects with the
presently applicable provisions of ERISA and such regulations and
published interpretations, and has not incurred any unpaid liability to
the Pension Benefit Guaranty Corporation (other than for the payment of
premiums in the ordinary course) or to any such plan under Title IV of
ERISA.
7. Indemnification and Contribution. (a) Each of the Trust and
the Company, jointly and severally, agrees to indemnify and hold harmless each
of you and each other Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation) arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in any Prepricing Prospectus or in the
<PAGE> 24
-24-
Registration Statement or the Prospectus or in any amendment or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such losses,
claims, damages, liabilities or expenses arise out of or are based upon any
untrue statement or omission or alleged untrue statement or omission which has
been made therein or omitted therefrom in reliance upon and in conformity with
the information relating to such reliance upon and in conformity with the
information relating to such Underwriter furnished in writing to the Offerors
by or on behalf of any Underwriter through you expressly for use in connection
therewith; provided, however, that the indemnification contained in this
paragraph (a) with respect to any Prepricing Prospectus shall not inure to the
benefit of any Underwriter (or to the benefit of any person controlling such
Underwriter) to the extent that any such loss, claim, damage, liability or
expense arises from the sale of the Preferred Securities by such Underwriter to
any person if it shall be established that a copy of the Prospectus shall not
have been delivered or sent to such person within the time required by the
Securities Act and the regulations thereunder, and the untrue statement or
alleged untrue statement or omission or alleged omission of a material fact
contained in such Prepricing Prospectus was corrected in the Prospectus and
such correction would have cured the defect giving rise to such loss, claim,
damage, liability or expense, provided that the Offerors have delivered the
Prospectus to the several Underwriters in such quantity as the Underwriters
reasonably request on a timely basis to permit such delivery or sending. The
foregoing indemnity agreement shall be in addition to any liability which the
Trust or the Company may otherwise have.
(b) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Trust or the Company, such underwriter or
such controlling person shall promptly notify the Trust and the Company, and
the Trust or the Company shall assume the defense thereof, including the
employment of counsel and payment of all fees and expenses. Such Underwriter
or any such controlling person shall have the right to employ separate counsel
in any such action, suit or proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Underwriter or such controlling person unless (i) the Trust or the Company
has agreed in writing to pay such fees and expenses, (ii) the Trust or the
Company has
<PAGE> 25
-25-
failed to assume the defense and employ counsel, or (iii) the named parties to
any such action, suit or proceeding (including any impleaded parties) include
both such Underwriter or such controlling person and the Trust or the Company,
and such Underwriter or such controlling person shall have been advised by its
counsel that representation of such indemnified party and the Trust or the
Company by the same counsel would be inappropriate under applicable standards
of professional conduct (whether or not such representation by the same counsel
has been proposed) due to actual or potential differing interests between them
(in which case the Trust or the Company shall not have the right to assume the
defense of such action, suit or proceeding on behalf of such Underwriter or
such controlling person). It is understood, however, that the Trust and the
Company together shall, in connection with any one such action, suit or
proceeding or separate but substantially similar or related actions, suits or
proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
only one separate firm of attorneys (in addition to any local counsel) at any
time for all such Underwriters and controlling persons not having actual or
potential differing interests with you or among themselves, which firm shall be
designated in writing by Smith Barney Inc., and that all such fees and expenses
shall be reimbursed as they are incurred. The Trust and the Company shall not
be liable for any settlement of any such action, suit or proceeding effected
without the Company's written consent, but if settled with such written
consent, or if there be a final judgment for the plaintiff in any such action,
suit or proceeding, the Trust and the Company agree to indemnify and hold
harmless any Underwriter, to the extent provided in the preceding paragraph,
and any such controlling person from and against any loss, claim, damage,
liability or expense by reason of such settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Trust, the Company, the Company's directors,
the Company's officers and the Regular Trustees who sign the Registration
Statement, and any person who controls the Company within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, to the same
extent as the foregoing indemnity from the Trust and the Company to each
Underwriter, but only with respect to information relating to such Underwriter
furnished in writing by or on behalf of such Underwriter through you expressly
for use in the Registration Statement, the Prospectus or any Prepricing
Prospectus, or any amendment or supplement thereto. If any
<PAGE> 26
-26-
action, suit or proceeding shall be brought against the Trust, the Company, any
of the Company's directors, any such officer or Regular Trustee, or any such
controlling person, based on the Registration Statement, the Prospectus or any
Prepricing Prospectus, or any amendment or supplement thereto, and in respect
of which indemnity may be sought against any Underwriter pursuant to this
paragraph (c), such Underwriter shall have the rights and duties given to the
Trust or the Company by paragraph (b) above (except that if the Trust or the
Company shall have assumed the defense thereof, such Underwriter shall not be
required to do so, but may employ separate counsel therein and participate in
the defense thereof, but the fees and expenses of such counsel shall be at such
Underwriter's expense), and the Trust, the Company, the Company's directors,
any such officer or Regular Trustee, and any such controlling person shall have
the rights and duties given to the Underwriters by paragraph (b) above. The
foregoing indemnity agreement shall be in addition to any liability which the
Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under paragraphs (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Trust and the Company on the one hand and the Underwriters on the other
hand from the offering of the Preferred Securities, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Trust and the Company
on the one hand and the Underwriters on the other in connection with the
statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Trust and the Company on
the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Trust bear to the total compensation received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Trust and the Company on the one hand
and the Underwriters on the other hand shall be determined by
<PAGE> 27
-27-
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Offerors on the one hand
or by the Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) The Trust, the Company and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 7 were
determined by a pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in paragraph (d)
above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities and expenses referred to in paragraph (d)
above shall be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 7, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price of the Preferred Securities underwritten by it and distributed to
the public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 7 are several in proportion to the respective numbers
of Preferred Securities set forth opposite their names in Schedule I hereto (or
such numbers of Preferred Securities increased as set forth in Section 10
hereof) and not joint.
(f) No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement, compromise or consent relating
to any pending or threatened action, suit or proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement, compromise
or consent (i) includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such action, suit or
proceeding and (ii) does not include a statement as to or an
<PAGE> 28
-28-
admission of fault or culpability by or on behalf of any indemnified party.
(g) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under this
Section 7 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Trust and the Company set forth in this
Agreement shall remain operative and in full force and effect, regardless of
(i) any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Trust, the Company, the Company's directors or
officers, the Regular Trustees, or any person controlling the Company, (ii)
acceptance of any Preferred Securities and payment therefor hereunder, and
(iii) any termination of this Agreement. A successor to any Underwriter or any
person controlling any Underwriter, or to the Trust, the Company, the Company's
directors or officers, the Regular Trustees, or any person controlling the
Company, shall be entitled to the benefits of the indemnity, contribution, and
reimbursement agreements contained in this Section 7.
8. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters to purchase and pay for the Preferred Securities as
provided herein shall be subject to the accuracy, as of the date of this
Agreement and the Closing Date (as if made at the Closing Date), of the
representations and warranties of the Offerors herein, to the performance by
the Offerors of their obligations hereunder, and to the following additional
conditions:
(a) If, at the time this Agreement is executed and delivered, it
is necessary for the registration statement or a post-effective amendment
thereto (or an Additional Registration Statement) to be declared or to become
effective before the offering of the Preferred Securities may commence, the
registration statement or such post-effective amendment or Additional
Registration Statement shall have become effective not later than 5:30 P.M.,
New York City time, on the date hereof, or at such later date and time as shall
be consented to in writing by you, and all filings, if any, required by Rules
424 and 430A under the Securities Act shall have been timely made; and no stop
order suspending the effectiveness of the registration statement shall have
been issued and no proceeding for that purpose shall have been instituted or,
to the knowledge of
<PAGE> 29
-29-
the Offerors or any Underwriter, threatened by the Commission, and any request
of the Commission for additional information (to be included in the
registration statement or the Prospectus or otherwise) shall have been complied
with to your satisfaction.
(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, properties, net worth or results of operations of the Company or its
Significant Subsidiaries which, in your opinion as Representatives of the
several Underwriters, would materially adversely affect the market for the
Preferred Securities, or (ii) any event or development relating to or involving
the Company or any officer of director of the Company which makes any statement
made in the Prospectus untrue or which, in the opinion of the Company and its
counsel or the Underwriters and their counsel, requires the making of any
addition to or change in the Prospectus in order to state a material fact
required by the Securities Act or any other law to be stated therein or
necessary in order to make the statements therein not misleading, if amending
or supplementing the Prospectus to reflect such event or development would, in
your opinion, as Representatives of the several Underwriters, materially
adversely affect the market for the Preferred Securities.
(c) You shall have received an opinion, dated the Closing Date, of
Katten Muchin & Zavis, counsel to the Offerors, substantially in the form
attached hereto as Exhibit A.
(d) You shall have received an opinion, dated the Closing Date, of
Richards Layton & Finger, special Delaware counsel to the Offerors,
substantially in the form attached hereto as Exhibit B.
(e) You shall have received an opinion, dated the Closing Date, of
White & Case, counsel to the Delaware Trustee, the Institutional Trustee, the
Indenture Trustee and the Guarantee Trustee, substantially in the form attached
hereto as Exhibit C.
(f) You shall have received an opinion, dated the Closing Date, of
Cahill Gordon & Reindel, counsel for the Underwriters, with respect to such
matters regarding the
<PAGE> 30
-30-
Offering of the Preferred Securities as you shall reasonably request.
(g) The Company and the Trust shall each have furnished the
Underwriters with a certificate, dated the Closing Date, and, in the case of
the Company, signed by the Chairman of the Board, any Vice Chairman, the
President, any Executive Vice President, any Vice President, or the Treasurer,
and the principal financial or accounting officer of the Company and, in the
case of the Trust, signed by one of the Regular Trustees to the effect that the
signers of such certificate have carefully examined the Registration Statement,
the Prospectus and this Agreement and that:
(i) the representations and warranties of the Company or the
Trust, as the case may be, in this Agreement are true and correct on and
as of the Closing Date with the same effect as if made on the Closing
Date, and the Company or the Trust, as the case may be, has complied in
all material respects with all the agreements and satisfied all the
conditions on its part to be performed or satisfied by it hereunder at or
prior to the Closing Date; and
(ii) no stop order suspending the effectiveness of Registration
Statement has been issued, and no proceedings for that purpose have been
instituted or, to their knowledge, threatened.
(h) You shall have received on the date hereof and on the Closing
Date a letter from Arthur Andersen LLP, dated as of the date hereof and the
Closing Date, substantially in the form heretofore approved by you.
(i) On or after the date of this Agreement no downgrading shall
have occurred in the rating accorded the Preferred Securities or the Company's
debt securities by any "nationally recognized statistical rating organization"
(as defined for purposes of Rule 436(g) under the Securities Act).
(j) The Preferred Securities shall have been registered under the
Exchange Act and shall have been approved for quotation on Nasdaq.
(k) Prior to the Closing Date, the Company shall have furnished to
you such further information, certificates and documents as you may reasonably
request.
<PAGE> 31
-31-
The obligations of the Underwriters to purchase any Additional
Preferred Securities hereunder are subject to the satisfaction on and as of any
Option Closing Date of the conditions set forth in this Section 8, except that,
if any Option Closing Date is other than the Closing Date, the certificates,
opinions and letters referred to in this Section 8 shall be dated the Option
Closing Date and shall be revised to reflect the sale of the Additional
Preferred Securities.
9. Expenses. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it and
by the Trust of its and the Trust's respective and joint obligations hereunder:
(i) the preparation, printing or reproduction, and filing (including filing
fees) with the Commission of the registration statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
each amendment or supplement to any of them and the Statement of Eligibility
and Qualification of each of the Institutional Trustee, the Guarantee Trustee
and the Indenture Trustee; (ii) the printing (or reproduction) and delivery
(including postage, air freight charges and charges for counting and packaging)
of such copies of the registration statement, each Prepricing Prospectus, the
Prospectus, the documents incorporated by reference in the Registration
Statement, and all amendments or supplements to any of them, as may be
reasonably requested for use in connection with the offering and sale of the
Preferred Securities; (iii) the preparation, printing, authentication, issuance
and delivery of the Securities, including any stamp taxes in connection with
the original issuance and sale of the Preferred Securities; (iv) the
preparation of the preliminary and supplemental Blue Sky Memoranda in
connection with the offering of the Preferred Securities; (v) the registration
of the Preferred Securities under the Exchange Act and the listing of the
Preferred Securities on the Nasdaq; (vi) the registration or qualification of
the Preferred Securities for offer and sale under the securities or Blue Sky
laws of the several states as provided in Section 5(g) hereof (including the
reasonable fees, expenses and disbursements of counsel for the Underwriters
relating to the preparation, printing (or reproduction), and delivery of the
preliminary and supplemental Blue Sky Memoranda and such registration and
qualification); (vii) the filing fees and the reasonable fees and expenses of
counsel for the Underwriters in connection with any filings required to be made
with the National Association of Securities Dealers, Inc.; (viii) the fees and
expenses of the Institutional Trustee, the Delaware Trustee, the Guarantee
Trustee and the Indenture
<PAGE> 32
-32-
Trustee; (ix) the fees and expenses associated with obtaining ratings for the
Preferred Securities from nationally recognized statistical rating
organizations; (x) the transportation and other expenses incurred by or on
behalf of the Offerors and the Underwriters in connection with presentations to
prospective purchasers of the Preferred Securities; and (xi) the fees and
expenses of the Company's accountants and the fees and expenses of counsel
(including special Delaware counsel) for the Offerors.
10. Effective Date of Agreement. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto;
or (ii) if, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment thereto
or an Additional Registration Statement to be declared effective before the
offering of the Preferred Securities may commence, when notification of the
effectiveness of the registration statement or such post-effective amendment
has been released by the Commission or, in the case of an Additional
Registration Statement, upon the filing of such Additional Registration
Statement. Until such time as this Agreement shall have become effective, it
may be terminated by the Company or the Trust, by notifying you, or by you, as
Representatives of the several Underwriters, by notifying the Offerors.
If any one or more of the Underwriters shall fail or refuse to
purchase Firm Preferred Securities which it or they are obligated to purchase
hereunder, and the aggregate number of Firm Preferred Securities which such
defaulting Underwriter or Underwriters are obligated but fail or refuse to
purchase is not more than one-tenth of the aggregate number of the Firm
Preferred Securities, each non-defaulting Underwriter shall be obligated,
severally, in the proportion which the number of Firm Preferred Securities set
forth opposite its name in Schedule I hereto bears to the aggregate number of
Firm Preferred Securities set forth opposite the names of all non-defaulting
Underwriters, to purchase the Firm Preferred Securities which such defaulting
Underwriter or Underwriters are obligated, but fail or refuse, to purchase. If
any Underwriter or Underwriters shall fail or refuse to purchase Firm Preferred
Securities and the aggregate number of Firm Preferred Securities with respect
to which such default occurs is more than one-tenth of the aggregate number of
the Firm Preferred Securities and arrangements satisfactory to you and the
Offerors for the purchase of such Firm Preferred Securities by one or more
non-defaulting Underwriters or other party or
<PAGE> 33
-33-
parties approved by you and the Offerors are not made within 36 hours after
such default, this Agreement will terminate without liability on the part of
any non-defaulting Underwriter or the Offerors. In any such case which does
not result in termination of this Agreement, either you or the Offerors shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any such default of any
such Underwriter under this Agreement. The term "Underwriter" as used in this
Agreement includes, for all purposes of this Agreement, any party not listed in
Schedule I hereto, who, with your approval and the approval of the Offerors,
purchases Firm Preferred Securities which a defaulting Underwriter is
obligated, but fails or refuses, to purchase.
Any notice under this Section 10 may be given by telegram, telecopy
or telephone but shall be subsequently confirmed by letter.
11. Termination of Agreement. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Offerors, by notice to the Offerors, if prior to the Closing
Date or any Option Closing Date (if different from the Closing Date and then
only as to the Additional Preferred Securities) there shall have occurred: (i)
any suspension or limitation of trading in securities generally on the New York
Stock Exchange, the American Stock Exchange or the NASDAQ National Market, or
any setting of minimum prices for trading on any such exchange, or any
suspension of trading of any securities of the Company on any exchange or in
the over-the-counter market; (ii) any banking moratorium declared by Federal or
New York authorities; or (iii) any outbreak or escalation of hostilities or
other international or domestic calamity, crisis or change in political,
financial or economic conditions, the effect of which on the financial markets
of the United States is such as to make it, in your judgment, impracticable or
inadvisable to commence or continue the offering of the Preferred Securities on
the terms set forth on the cover page of the Prospectus or to enforce contracts
for the resale of the Preferred Securities by the Underwriters. Notice of such
termination may be given to the Company by telegram, telecopy or telephone and
shall be subsequently confirmed by letter.
<PAGE> 34
-34-
12. Information Furnished by the Underwriters. The statements
set forth in the last paragraph on the cover page, the stabilization legend on
the third page, and the statements in the first paragraph and the sixth
paragraph under the caption "Underwriting" in the Prospectus, constitute the
only information furnished by or on behalf of the Underwriters through you as
such information is referred to in Sections 6(b) and 7 hereof.
13. Miscellaneous. Except as otherwise provided herein, notice
given pursuant to any provision of this Agreement shall be in writing and shall
be delivered (i) if to the Offerors, to the Company or to the Trust, care of
the Company, at the office of the Company at 6242 Garfield Street, Cass City,
Michigan 48726, Attention: Lambert E. Althaver, with a copy to Katten Muchin &
Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois 60661-3693,
Attention: Howard S. Lanznar, Esq.; or (ii) if to you, as Representatives of
the several Underwriters, care of Smith Barney Inc., 388 Greenwich Street, New
York, New York 10013, Attention: Manager, Investment Banking Division, with a
copy to General Counsel, Investment Banking Division and to Cahill Gordon &
Reindel, 80 Pine Street, New York, New York 10005, Attention: William M.
Hartnett, Esq.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Trust, the Company, the Company's directors and
officers, the Regular Trustees,, and the other controlling persons referred to
in Section 7 hereof and their respective successors and assigns, to the extent
provided herein, and no other person shall acquire or have any right under or
by virtue of this Agreement. Neither the term "successor" nor the term
"successors and assigns" as used in this Agreement shall include a purchaser
from any Underwriter of any of the Preferred Securities in his status as such
purchaser.
14. Applicable Law; Counterparts. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed within the Sate of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
<PAGE> 35
-35-
Please confirm that the foregoing correctly sets forth the
agreement among the Trust, the Company and the several Underwriters.
Very truly yours,
WALBRO CAPITAL TRUST
By: WALBRO CORPORATION,
as Sponsor
By:
----------------------------------
Name: Lambert E. Althaver
Title: Chairman and Chief
Executive Officer
WALBRO CORPORATION
By
----------------------------------
Name: Lambert E. Althaver
Title: Chairman and Chief
Executive Officer
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
SMITH BARNEY INC.
INTERSTATE/JOHNSON LANE CORPORATION
As Representatives of the Several Underwriters
By SMITH BARNEY INC.
By
---------------------------
Name:
Title:
<PAGE> 36
SCHEDULE I
WALBRO CAPITAL TRUST
[ ]% Convertible Trust Preferred Securities
<TABLE>
<CAPTION>
Number of Firm
Underwriters Preferred Securities
- ------------ --------------------
<S> <C>
Smith Barney Inc. ..............................
Interstate/Johnson Lane ........................ _________
Total .................................... 2,000,000
</TABLE>
<PAGE> 37
SCHEDULE II
Significant Subsidiaries of Walbro Corporation
Subsidiary Jurisdiction
---------- ------------
Walbro Automotive Corporation Delaware
Walbro Engine Management Corporation Delaware
Whitehead Engineered Products, Inc. Delaware
Walbro Netherlands B.V. Netherlands
Walbro Automotive GmbH Germany
<PAGE> 38
EXHIBIT A
[Form of Opinion of Katten Muchin & Zavis]
1. The Company is a corporation duly organized, existing, and in
good standing under the laws of the State of Delaware with corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Registration Statement and the Prospectus (and any
amendment or supplement thereto), and is duly registered and qualified to
conduct its business and is in good standing as a foreign corporation in each
jurisdiction listed on Schedule A hereto.
2. The shares of issued and outstanding Common Stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable.
3. Each significant subsidiary of the Company listed on Schedule
B hereto (the "Subsidiaries") is a corporation duly organized, existing, and
in good standing under the laws of the jurisdiction of its organization, with
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus.
4. Except as described in the Prospectus, all of the issued and
outstanding capital stock of each Subsidiary has been duly authorized and
validly issued, is fully paid and nonassessable and is owned by the Company,
directly or through Subsidiaries, free and clear of any: (i) perfected
security interest, and (ii) to our knowledge any other security interest, lien,
adverse claim or other encumbrance.
5. Each Subsidiary is duly registered and qualified to conduct
its business and is in good standing as a foreign corporation in each
jurisdiction listed on Schedule B hereto.
6. To our knowledge, none of the outstanding shares of capital
stock of any Subsidiary was issued in violation of the preemptive or similar
rights of any securityholder of such Subsidiary.
A-1
<PAGE> 39
7. To our knowledge, except as disclosed in or specifically
contemplated by the Prospectus, there are no outstanding options, warrants or
other rights calling for the issuance of, and no commitments, obligations,
plans or arrangements to issue, any shares of capital stock of the Company or
any security convertible into or exchangeable for capital stock of the Company.
8. To our knowledge, all issued and outstanding stock options
relating to the Common Stock have been duly authorized and validly issued and
the description thereof contained in the Prospectus is accurate in all material
respects.
9. To our knowledge, no default exists in the due performance or
observance by the Offerors of any material obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement, note,
lease or other instrument so described or referred to in the Registration
Statement or filed as an exhibit thereto.
10. The Company has the corporate power and authority to enter
into the Agreement, and the Agreement has been duly authorized, executed and
delivered by the Company.
11. The Indenture has been duly authorized, executed and
delivered by the Company and is enforceable against the Company in accordance
with its terms, except to the extent that enforcement thereof may be limited by
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, receivership, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights
generally, the effects of general principles of equity, whether applied by a
court of law or equity, and rights to indemnity and contribution by federal or
state securities laws or principles of public policy.
12. The Convertible Debentures have been duly authorized for
issuance by the Company and, when issued and delivered by the Company against
payment therefor by the Trust in accordance with the Indenture and the
Declaration, will constitute valid and binding obligations of the Company
entitled to the benefits of the Indenture and enforceable against the Company
in accordance with their terms, except to the extent that enforcement thereof
may be limited by bankruptcy, insolvency (including, without limitation, all
laws relating to fraudulent transfers), reorganization, receivership,
moratorium or other similar laws now or thereafter in effect relating to
creditors' rights generally, the effects of
A-2
<PAGE> 40
general principles of equity, whether applied by a court of law or equity, and
rights to indemnity and contribution by federal or state securities laws or
principles of public policy.
13. The Declaration has been duly authorized, executed and
delivered by the Company.
14. The Guarantees have been duly authorized, executed and
delivered by the Company, and constitute valid and binding agreements of the
Company enforceable in accordance with their terms, except as enforcement
thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
receivership, moratorium or other similar laws affecting creditors' rights
generally, the effects of general principles of equity, whether applied by a
court of law or equity, and rights to indemnity and contribution by federal or
state securities laws or principles of public policy.
15. The Conversion Shares have been duly authorized by the
Company and reserved for issuance upon conversion of the Convertible Debentures
and, if and when issued in accordance with the Indenture at conversion prices
at or in excess of the par value of such Conversion Shares, such Conversion
Shares will be validly issued, fully paid and nonassessable.
16. The holders of outstanding shares of capital stock of the
Company are not entitled to any preemptive rights under the Certificate of
Incorporation or By-Laws of the Company or the DGCL to subscribe for the
Preferred Securities, the Convertible Debentures or the Conversion Shares.
17. The statements made in the Prospectus under the captions
"Description of the Preferred Securities," "Description of the Guarantee,"
"Description of the Convertible Debentures," "Effect of Obligations Under the
Convertible Debentures and the Guarantee," and "Description of Capital Stock,"
insofar as such statements purport to summarize certain provisions of the
Securities, the Indenture, the Declaration and Certificate of Incorporation of
the Company, have been reviewed by us and provide a fair summary thereof.
18. Neither of the Offerors is required to be registered under
the Investment Company Act of 1940, as amended.
19. The Registration Statement and all post-effective
amendments, if any, have become effective under the
A-3
<PAGE> 41
Securities Act and we have been orally advised by the Commission that no stop
order suspending the effectiveness of the Registation Statement has been issued
and no proceedings for that purpose are pending before or contemplated by the
Commission; and any required filing of the Prospectus pursuant to Rule 424(b)
has been made in accordance with Rule 424(b).
20. The Registration Statement, as of its effective date, and the
Prospectus, as of its date, and any amendments or supplements thereto (except
for the financial statements and the notes thereto and the schedules and other
financial and statistical data included therein, as to which such counsel need
not express any opinion) comply as to form in all material respects to the
requirements of the Securities Act and the rules and regulations promulgated by
the Commission thereunder.
21. To our knowledge no consent, approval, authorization or other
order of, or registration or qualification with, any court or other
governmental agency or body (except as have been obtained or such as may be
required under state securities or Blue Sky laws governing the purchase and
distribution of the Preferred Securities) is required on the part of the
Company in connection with the authorization, issuance and delivery of the
Preferred Securities by the Trust to the Underwriters pursuant to the
Underwriting Agreement (the "Agreement"), or the performance by the Offerors
of their respective obligations under the Declaration, the Guarantees, the
Indenture and the Agreement (collectively, the "Transaction Documents"), the
Convertible Debentures, the Preferred Securities and the Common Securities.
22. The execution, delivery and performance by each Offeror of
the Transaction Documents, the consummation by each Offeror of the transactions
contemplated thereby and in the Prospectus, the filing of the Certificate of
Trust with the Secretary of State of the State of Delaware, compliance by each
Offeror with the terms of the foregoing and the application of the proceeds
from the sale of the Preferred Securities and the Convertible Debentures as
contemplated by the Prospectus do not and will not result in any violation of
the Certificate of Incorporation or By-laws of the Company or the Certificate
of Trust, and do not and will not (a) conflict with, or constitute a breach of
any of the terms or provisions of, or constitute a default under, in any
material respect, of any material agreement, indenture, lease, or other
instrument known to us to which the Offerors are a party, or other than as
described in the Prospectus, result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Offerors under any
contract, indenture, mortgage, loan agreement, note, lease or any other
agreement or instrument filed as
A-4
<PAGE> 42
an exhibit to or incorporated by reference in the Registration Statement
(except for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not have a Material Adverse Effect) or (b) result in
any violation in any material respect of any existing applicable law,
regulation, judgment, injunction, order or decree known to us, applicable to
the Offerors or any of their properties.
23. To the best of our knowledge, there are no persons with
written registration or other similar rights to have any securities registered
by the Company under the Registration Statement.
24. The statements made in the Prospectus set forth under the
captions "Risk Factors -- Option to Extend Interest Payment Periods," "Risk
Factors -- Proposed Tax Legislation," "Description of the Convertible
Debentures -- Proposed Tax Legislation" and "United States Federal Income
Taxation" fairly present the material U.S. federal income tax consequences of
an investment in the Preferred Securities as described under "United States
Federal Income Taxation -- General."
25. There are no agreements, contracts, indentures, leases or
other instruments, that are required to be described in the Registration
Statement or the Prospectus (or any amendment or supplement thereto) or to be
filed as an exhibit to the Registration Statement or any Incorporated Documents
that are not described or filed as required, as the case may be.
26. The Trust will be classified as a grantor trust and not as an
association taxable as a corporation for United States federal income tax
purposes. Accordingly, for United States federal income tax purposes, each
holder of Preferred Securities will generally be considered the owner of an
undivided interest in the Convertible Debentures, and each holder will be
required to include in its gross income any original issue discount accrued
with respect to its allocable share of those Convertible Debentures.
27. Each of the Declaration, the Indenture and the Preferred
Securities Guarantee have been duly qualified under the Trust Indenture Act of
1939.
A-5
<PAGE> 43
In addition, we have participated in conferences with officers, the
Trustees and other representatives of the Offerors, representatives of the
independent accountants for the Company, your representatives and
representatives of your counsel at which the contents of the Registration
Statement and the Prospectus and related matters were discussed and, although
we are not passing upon, and do not assume any responsibility for, the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus and have made no independent check or
verification thereof, except to the extent set forth in paragraph [22] above,
on the basis of the foregoing, no facts have come to our attention that have
led us to believe that the Registration Statement, at the time it became
effective, contained an untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading or that the Prospectus, as of its date and as
of the date hereof, contained or contains an untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, except that we express no belief with respect to the
financial statements and other financial or statistical data included or
incorporated by reference therein or excluded therefrom, including the Forms
T-1.
We also confirm that, based solely on a review of our litigation
docket, an officer's certificate from a Company officer having general
responsibility for such matters and a review of recent attorneys' letters to
independent public accountants, to our knowledge, there are no actions or
proceedings against the Company pending or threatened in writing before any
court, governmental agency or arbitrator, which (i) seek to affect the
enforceability of the Agreement or the Transaction Documents or (ii) are
required to be described in the Prospectus which are not described.
Our opinions above are limited to the laws of the State of
Illinois, the laws of the United States of America and the General Corporation
Law of the State of Delaware, and we do not express any opinion herein
concerning any other law. We have assumed for the purposes of this opinion
that the law of New York is identical to the law of Illinois.
This opinion is given as of the date hereof and we assume no
obligation to advise you of any changes that may hereafter be brought to our
attention. This opinion is furnished to you solely for your benefit in
connection with the closing under the Underwriting Agreement occurring today
and is
A-6
<PAGE> 44
not to be quoted in whole or part or otherwise referred to, nor is it to be
filed with any government agency or other person without our prior written
consent. No one other than the addressees hereof are entitled to rely on this
opinion.
A-7
<PAGE> 45
EXHIBIT B
[Form of Opinion of Richards Layton & Finger]
1. The Trust has been duly created and is validly existing in
good standing as a business trust under the Delaware Act.
2. Under the Declaration and the Delaware Act, the Trust has the
trust power and authority to enter into and perform its obligations under the
Agreement, and under the Declaration and the Delaware Act the Agreement has
been duly authorized, executed and delivered by all necessary trust action on
the part of the Trust.
3. The Declaration constitutes a valid and binding obligation of
the Company and the Delaware Trustee, and is enforceable against the Company
and the Delaware Trustee, in accordance with its terms subject to the effect
upon the Declaration of (i) bankruptcy, insolvency, moratorium, receivership,
reorganization, liquidation, fraudulent conveyance or transfer and other
similar laws relating to or affecting the rights and remedies of creditors
generally, (ii) principles of equity, including applicable law relating to
fiduciary duties (regardless of whether considered and applied in a proceeding
in equity or at law), and (iii) the effect of applicable public policy on the
enforceability of provisions relating to indemnification or contribution.
4. Under the Declaration and the Delaware Act, the Trust has the
trust power and authority to issue and sell and perform its obligations under
the Trust Securities and to purchase and hold the Convertible Debentures.
5. The Preferred Securities have been duly authorized for
issuance by the Declaration and, when issued, executed and authenticated
pursuant to the Declaration and delivered and paid for in accordance with the
Agreement, will be, subject to the qualifications set forth herein, fully paid
and nonassessable undivided beneficial interests in the assets of the Trust and
will entitle the holders thereof to the benefits of the Declaration (subject to
the terms of the Declaration), except to the extent that the enforcement of the
Declaration is subject to (i) bankruptcy, insolvency, moratorium, receivership,
reorganization, liquidation, fraudulent conveyance or transfer and other
similar laws relating to or affecting the right and remedies of creditors
generally, (ii) principles of equity, including applicable law relating to
fiduciary duties (regardless of whether considered and applied in a proceeding
in equity or at law), and (iii) the effect of applicable public policy on the
enforceability of provisions relating to indemnification or contribution. The
holders of the Preferred
B-1
<PAGE> 46
Securities, as beneficial owners of the Trust, will be entitled to the same
limitation of personal liability extended to stockholders of private
corporations for profit organized under the General Corporation Law of the
State of Delaware. We note that the holders of the Preferred Securities may be
obligated, pursuant to the Declaration, (A) to provide indemnity and/or
security in connection with and pay taxes or governmental charges arising from
transfers or exchanges of Preferred Security certificates and the issuance of
replacement Preferred Security certificates, and (B) to provide security or
indemnity in connection with requests of or directions to the Institutional
Trustee to exercise its rights and powers under the Declaration.
6. The issuance and sale by the Trust of the Trust Securities,
the performance by the Trust of its obligations under the Trust Securities and
the Agreement and the purchase by the Trust of the Convertible Debentures, do
not violate the Declaration or any applicable law of the State of Delaware or
require any approval of any governmental authority of the State of Delaware.
7. The holders of the Preferred Securities (other than those
holders who reside or are domiciled in the State of Delaware) will have no
liability for income taxes imposed by the State of Delaware solely as a result
of their participation in the Trust, and the Trust will not be liable for any
income tax imposed by the State of Delaware or any political subdivision or
taxing authority thereof.
B-2
<PAGE> 47
Very truly yours,
B-3
<PAGE> 48
EXHIBIT C
[Form of Opinion of White & Case,
counsel to the Institutional Trustee,
the Guarantee Trustee and the Indenture Trustee
(collectively, the "Trustee")]
1. The Trust Company is duly incorporated and is validly existing in good
standing as a banking corporation with trust powers under the laws of the State
of New York.
2. The Indenture Trustee has the requisite power and authority to execute,
deliver and perform its obligations under the Indenture, and has taken all
necessary corporate action to authorize the execution, delivery and performance
by it of the Indenture.
3. The Preferred Securities Guarantee Trustee has the requisite power and
authority to execute, deliver and perform its obligations under the Guarantee
Agreement, and has taken all necessary corporate action to authorize the
execution, delivery and performance by it of the Guarantee Agreement.
4. The Institutional Trustee has the requisite power and authority to
execute and deliver the Trust Agreement, and has taken all necessary corporate
action to authorize the execution and delivery of the Trust Agreement.
5. Each of the Indenture and the Preferred Securities Guarantee
Agreement has been duly executed and delivered by the Indenture Trustee and the
Preferred Securities Guarantee Trustee, respectively, and constitutes a legal,
valid and binding obligation of the Indenture Trustee and the Preferred
Securities Guarantee Trustee, respectively, enforceable against the Indenture
Trustee and the Preferred Securities Guarantee Trustee, respectively in
accordance with its respective terms, except that certain payment obligations
may be enforceable solely against the assets of the Trust and except that such
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium, liquidation, fraudulent conveyance and transfer or other similar
laws affecting the enforcement of creditors' rights generally, and by general
principles of equity, including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing (regardless of whether such
enforceability is considered in a proceeding in equity or at law), and by the
effect of applicable public policy on the enforceability of provisions relating
to indemnification or contribution.
6. The Convertible Subordinated Debentures delivered on the date hereof
have been duly authenticated by the Indenture Trustee in accordance with the
terms of the Indenture.
C-1
<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 13, 1996 with respect to the consolidated balance sheets
of Walbro Corporation and Subsidiaries as of December 31, 1995, 1994 and 1993
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 registration
statement.
ARTHUR ANDERSEN LLP
Detroit, Michigan
January 20, 1997
<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 or incorporated by reference in
this registration statement on Form S-3 of Walbro Corporation.
ARTHUR ANDERSEN
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH
January 20, 1997
Stuttgart, Germany
<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 or incorporated by reference in this Registration Statement
on Form S-3 of Walbro Corporation.
DELOITTE & TOUCHE
Oslo, Norway
January 20, 1997
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation of our reports dated March 29, 1994, March
17, 1995 and February 26, 1996 with respect to the balance sheets of Marwal
Systems, S.N.C. as of December 31, 1993, December 31, 1994 and December 31,
1995, and the related statements of income for the years then ended, which
reports are included or incorporated by reference in the Form 8-K and the S-3
registration statement of Walbro Corporation to be filed in January 1997.
ERNST & YOUNG Audit
/s/ Gilles Meyer
--------------------------------------
Gilles Meyer
January 20, 1997
